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October 21, 2021

Do your children have a healthy relationship with money?

“From shirtsleeves to shirtsleeves in three generations” is an old proverb attributed to Andrew Carnegie. It refers to the typical cycle of wealth in a family: it is created by the first generation, enjoyed by the second generation, and lost by the third generation.

For wealthy families, preserving that wealth for generations to come is often heavy on their minds.

In Morgan Housel’s book, “The Psychology of Money,” Housel offers a unique look into a letter he wrote for his son when he was born.

In the letter, Housel writes “You might think you want an expensive car, a fancy watch, and a huge house. But I’m telling you, you don’t. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does—especially from the people you want to respect and admire you.”

The beauty of this passage is not about the exact lesson—having expensive stuff versus having respect and admiration. The beauty of this passage is that Housel deliberately wrote his thoughts on money, life, respect, and experiences to his son. Housel decided on the specific legacy he wants to leave his son.

The beauty is in the intentionality of thought and advice.

For parents and grandparents that are hoping to impart wisdom to the next generation and avoid their legacy going “from shirtsleeves to shirtsleeves” in three generations, here are some tips to consider:

Start early and often.

Leaving behind a legacy of financial stewardship and appreciation can start at an early age. For younger kids, start with open conversations around money—what you can buy with money, how much certain things cost, and even how you earn money by working or investing. Kids will begin to pick up on the different aspects of money at a young age, so be sure to model the behavior you are hoping to pass on. Try and touch on money topics consistently over time to help build on the lessons you are teaching. For some families, it helps to pick a specific day or evening of the week to have a family money discussion where you can cover various topics.

Allow your children the space to fail.

One of the best ways to teach children how to manage money effectively is to let them try—and sometimes fail. Many families choose to do this by offering a weekly or monthly allowance to their children. While many parents decide to tie their child’s allowance to a specific set of behaviors or chores, some financial professionals advise separating the two. Separating money and chores can help avoid money being used as a punishment, leading to possible money issues down the road.

Instead, consider setting a specific amount of money that your child will count on as their allowance each week. An allowance will give your child the ability to start practicing money management from an early age and balance the desire to spend it all versus save some for the future. It will also allow them opportunities to feel great joy over items they have purchased, and regret. Since we all experience joy and regret often, from our purchases, this will help them begin to think carefully and more cautiously as they approach spending decisions.

One of the main goals of this exercise is to take a step back and see what your child naturally does with their money. Some will go out and spend it all immediately, while others will be naturally wired to save. As you observe your children, it will help you understand where you can nudge them to help round out their money behaviors.

Over time, this “money practice” can grow into larger savings goals, additional income potential with specialized chores or unique projects around the house, and even a family 401(k), complete with matching contributions from the bank of mom and dad, as well as earnings on the deposits.

There is no single “correct way” to teach children about money; allowing them the space to try and fail forward as young children and adolescents is one of the most potent gifts parents can give in regards to helping your children develop a healthy and wise relationship with money.

Communicate openly about your intentions.

Money is one of the last taboos; this can cause many families to avoid the conversation of money and wealth altogether, leading to confusion and misunderstood ideals.

Families can avoid the shirtsleeves proverb by communicating openly about their intentions and desires with money. For wealthy parents looking to bestow a legacy to their children, the best thing to do is talk about what that legacy might look like. Teach them what is important to you – teach them lessons you have learned as you have amassed your wealth. Teach them about times you have made mistakes, and what you would do differently. Even if your children seem uninterested in your words, there are still points that will stick with them, so be brave and find ways to share some of your feelings in a way you believe your kids will receive your message best.

Often, children who receive an inheritance or financial gift are unsure of what their parents want them to do with money and seek additional insight and guidance. For some parents, this can be as simple as letting their children know that they are giving them a gift to do whatever they want with—and for others, they may have a specific idea of what the gift should be used for. There is no one right way to use money and no legacy that will work for all situations, so parents can explain what they have in mind and instill those ideals in the next generation.

Lead by example.

Regardless of your age, or your children’s age, do some level of charitable work together. I cannot stress this enough. If you really do want your children to be good at looking for opportunities to lift and help – if you want them to be capable of seeing someone in need and help out, show them how to do that. I promise if you find a unique opportunity to lift and help someone, and get your family involved, it will turn into one of the best stories you have, and one of the most lasting memories your children foster. Find someone to help – there is no shortage of people that need help. Find them; build those memories and showcase for your kids what you want them to learn. It’s a prime example of doing/living what you teach, and not just saying the words.

TrueNorth Wealth is here to help.

If you are interested in working with a trusted financial advisor who can help guide you by creating a legacy for generations to come, then TrueNorth Wealth is here to help.

At TrueNorth Wealth, one of Salt Lake City’s leading wealth management firms, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team. We understand that it can be challenging to maintain a long-term investment mindset, which is why we help our clients understand the bigger picture and the impact of each financial decision.

For our team at TrueNorth, it is about so much more than money. It is about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.

Joe Griffin Ceo, TrueNorth Wealth

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