Telling your children about your wealth

[FUEGO]

A comment from another poster in another thread about him amassing a large-ish portfolio but his kids not having any clue (so they would earn their own) got me to thinking.

A little background for me: 2 kids, age 3 and age 4.5. So no real worries yet. But we hope to be FIREd within 10 years and the kids will still be living at home during this period. In 10 years we will both be around 40, and I expect most other parents of children our kids' age will still be working. So questions will surely arise.

I have grown up relatively in the dark about what kind of assets my parents have. I know they save a lot, so I'm sure there is a good bit there in their portfolio, but I have no clue how much other than I could guess the number of digits within 1 number.

How have others here dealt with this issue?

Do you share everything with the kids or just general info (we are wealthy, we saved a lot of money, etc)?

Do you keep them relatively in the dark?

How do you communicate about your family's wealth (if at all)?

Any positive/negative effects of taking your course of action?

Does anyone have kids that feel entitled to some of your wealth now, or feel they are entitled to take an advance on their inheritance, so to speak?

If your kids know about wealth, have they caused embarrassing situations with family or friends by revealing some of this information (either inadvertently or intentionally)?

Any other advice?

 

[haha]

A comment from another poster in another thread about him amassing a large-ish portfolio but his kids not having any clue (so they would earn their own) got me to thinking.

A little background for me: 2 kids, age 3 and age 4.5. So no real worries yet. But we hope to be FIREd within 10 years and the kids will still be living at home during this period. In 10 years we will both be around 40, and I expect most other parents of children our kids' age will still be working. So questions will surely arise.

I have grown up relatively in the dark about what kind of assets my parents have. I know they save a lot, so I'm sure there is a good bit there in their portfolio, but I have no clue how much other than I could guess the number of digits within 1 number.

How have others here dealt with this issue?

Do you share everything with the kids or just general info (we are wealthy, we saved a lot of money, etc)?

Do you keep them relatively in the dark?

How do you communicate about your family's wealth (if at all)?

Any positive/negative effects of taking your course of action?

Does anyone have kids that feel entitled to some of your wealth now, or feel they are entitled to take an advance on their inheritance, so to speak?

If your kids know about wealth, have they caused embarrassing situations with family or friends by revealing some of this information (either inadvertently or intentionally)?

Any other advice?

The answer is that most of us are not wealthy. There may be some decamillionaires here, but I haven't seen any posts to that effect. We are mostly OK to affluent, more of us at the OK end. Don't forget that 2 schoolteachers in a decent suburban or big city district may be earning well into the $120,000+ area. On a nice street there are plenty individuals or couples earning $400,000 to $600,000. For any of us to match that and adhere to the 4% rule, that means the ante is $3,000,000 and it goes up rapidly from there.

Ha

 

[FUEGO]

The answer is that most of us are not wealthy. There may be some decamillionaires here, but I haven't seen any posts to that effect. We are mostly OK to affluent, more of us at the OK end. Don't forget that 2 schoolteachers in a decent suburban or big city district may be earning well into the $120,000+ area. On a nice street there are plenty individuals or couples earning $400,000 to $600,000. For any of us to match that and adhere to the 4% rule, that means the ante is $3,000,000 and it goes up rapidly from there.

We clearly live in different neighborhoods!

The 2 schoolteachers here would barely break $100k a year if they worked 10-15 years and had a Masters or PhD. 2 schoolteachers starting out would have a combined salary equal to what I earn right now, but they would have those 2 sweet months off during the summer.

By "wealthy" I guess I meant relatively wealthy as compared to my peers (friends and family mostly). Having a million or two in real terms at age 40 would make me wealthy, relatively speaking, among my peers (who are mostly broke ). That plus a paid off house and 2 cars will afford me a comfortable middle class lifestyle that others have to work to support.

That's not to say our family will have all the same amount of toys and stuff that the Jones's have, but we don't now either.

I can only imagine the conversation where one of my daughters tells one of her friends that mommy and daddy have $X million dollars and never have to work again. Or spills the beans to certain other family members. Not sure if this is a valid concern or not?? I don't come from a wealthy (my version or Ha's version) background, so this concept is a little new to me.

 

[ziggy29]

The 2 schoolteachers here would barely break $100k a year if they worked 10-15 years and had a Masters or PhD. 2 schoolteachers starting out would have a combined salary equal to what I earn right now, but they would have those 2 sweet months off during the summer.

In our hometown school district where my wife starts work next Monday, a newly minted teacher earns about $34,000 a year. Of course, the cost of living is pretty low here so two freshman teachers with a combined income of $68,000 (plus benefits) is actually pretty well off. Certainly not rich, but fairly comfortable.

 

[FUEGO]

In our hometown school district where my wife starts work next Monday, a newly minted teacher earns about $34,000 a year. Of course, the cost of living is pretty low here so two freshman teachers with a combined income of $68,000 (plus benefits) is actually pretty well off. Certainly not rich, but fairly comfortable.

I don't want to reveal my income, but our local school district pays similarly. And it is one of the highest paying in the state. Counties around us pay 10% less. But the area is fairly low cost of living, not quite like TX though. I just checked and two teachers with bachelors would break the $100k mark (combined) after 19 years experience.

This is not directed at you Ziggy, but generally: I'm not concerned about one's definition of wealth, but rather how one deals with conveying information to their children regarding whatever wealth they have.

 

[FUEGO]

I live in an apartment, and pay a lot for a small very non-deluxe one bedroom. If I walk out my building door and turn left, there are no more apartments and no houses that have sold for less than $1,000,000 in the 2 years that I have been here. Some would sell for much, much more, so you can see that the incomes required to get a mortgage are pretty high. And this is by no means the most expensive neighbrhood around.

Yes, different neighborhood indeed. The condos a block down from me sell for $55,000 each. Basic 1-2 BR from 500-800 sf, a little on the low end of "nice". SF houses in my n'hood have never topped $200k generally speaking (for up to 2500 sf). But I do live in one of the poorer areas of town.

For the sake of argument, Ha, let's assume I'll be living in your neighborhood with $4 million and a paid off modest house at age 40 with a 13 year old and a 14 year old (edited to add: and hopefully my wife!).

 

[Bestwifeever]

My unsolicited advice is to follow a need-to-know strategy with your children (and everyone else). Our no-grown kids didn't know income stats until they were going into college or nest egg amount until last year when DH retired, so they knew we would be okay "in these tough economic times".

DD had a good friend in grade school who qualified for the school lunch program (the kids didn't know but I was in the principal's office one day when the lunches were being picked up) and one whose double-doctor parents owned a couple of vacation homes and had felt the need to tell their DD about their wealth. The latter child still today is quite obnoxious with an entitled attitude.

 

[haha]

This is not directed at you Ziggy, but generally: I'm not concerned about one's definition of wealth, but rather how one deals with conveying information to their children regarding whatever wealth they have.

Why would you convey anything? If you are worried about how to explain why you are not working I think that is a different problem, and in my opinion not an easy one. I know that in my own case, my kids wanted to get as far from frugality as they could when they got out on their own, although they were very cooperative while I was supporting them.

Ha

 

[ziggy29]

This is not directed at you Ziggy, but generally: I'm not concerned about one's definition of wealth, but rather how one deals with conveying information to their children regarding whatever wealth they have.

I never really knew what my parents were worth until my dad passed away. I had a pretty good guess on the rough order of magnitude, but it was never anything we talked about. All that changed when Dad died, though. My mom always balanced the checkbook, but Dad was the financial planner making most of the decisions on big-picture money management such as investing, insurance, taxes and the like.

After that I had to become intimately familiar with her finances, as I became her tax planner, investment advisor and general financial planner as well as executor of her will.

 

[FUEGO]

DD had a good friend in grade school who qualified for the school lunch program (the kids didn't know but I was in the principal's office one day when the lunches were being picked up) and one whose double-doctor parents owned a couple of vacation homes and had felt the need to tell their DD about their wealth. The latter child still today is quite obnoxious with an entitled attitude.

I'd like to raise my children to not be like that latter child.

It will be interesting seeing what kinds of friends my kids make in school. We live in an extremely well integrated (socioeconomically) school district. Our neighborhood elementary school has a high proportion (currently 40%) of free or reduced price lunch kids, and starting this year a bunch of kids bussed in from the suburbs whose parents are generally much wealthier and more highly educated. So no matter how wealthy I might be, my kids are going to be exposed to children who come from much wealthier families ("rich" per obama's definition, LOL ). This was my experience as well going to school in the same school district as a kid - classmates were virtually homeless to "children of double docs". So our children are likely to see extremes of wealth from an early age, although I don't know how wealth or poverty will manifest itself in elementary school age children.

 

[Nords]

A little background for me: 2 kids, age 3 and age 4.5. So no real worries yet.

You could start with the book "If You Made A Million". Perfect for the oldest kid!

How have others here dealt with this issue?

It caught us by surprise. Our kid was seven or eight years old and I was updating our ER investments one day in Quicken. She happened to pass by the monitor and blurted out "Holy [-]sh[/-] cow, Dad, is that much money we have? Are we rich?!?"

I used a line from the Cosby show: "Your mother and I have some money but we have to make it last for the rest of our lives. You, however, are poor."

Do you share everything with the kids or just general info (we are wealthy, we saved a lot of money, etc)?

We started talking about the numbers. She hadn't seen the "real" portfolio, only a projection (I would've like to had Berkshire Hathaway at that price too) but I showed her our budget and talked about how much mortgages & groceries cost. We didn't go into every little detail, just the fact that we had a plan and a budget and that everyone would be OK. She'd have what she needed but she'd have to earn money for the things she wanted.

Every year we got a little more detailed. Now she's almost 17 and we're spending tomorrow at "The Personal Finance Expo".

Do you keep them relatively in the dark?
How do you communicate about your family's wealth (if at all)?

Keeping them in the dark seems like a recipe for disaster. If nothing else they want reassurance that they have enough money to have food & shelter. The more they learn about financial management, the more ready they are to try it on their own. It's a lot easier/better for them to make the mistakes at home during the high-school year (and there will be lots of mistakes) than it is when they're hundreds of miles away at college. Well, easier in the long run anyway.

One of the best ways has been articles or TV ads or expos. Suze Orman's TV show is absolutely the world's best money-education show for kids-- plenty of overhyped drama, clueless guests, and cold harsh reality on display for discussion. Our teen has been riveted by it for two years and it's worked our way into our daily vocabulary: "Can I afford it?" "Oh, you are so denied."

Any positive/negative effects of taking your course of action?

Jury's still out on her, but I'd like to think that the mistakes she's making are far better than the mistakes she could be making. And regardless of her performance, I feel satisfied that I've discharged my parental financial-education responsibilities to the best of my ability.

vv

Does anyone have kids that feel entitled to some of your wealth now, or feel they are entitled to take an advance on their inheritance, so to speak?

Oh, very much so, our daughter is extremely generous with our money! Every chance we get we tell her that we're going to spend it all before we die (after we pay for our LTC costs) and that she won't get more than a few thousand dollars. And that by the time we die she'll be in her 70s.

If your kids know about wealth, have they caused embarrassing situations with family or friends by revealing some of this information (either inadvertently or intentionally)?

She tends to assume that everyone is saving money and has a Roth IRA and is planning for retirement. That's led to a few bemused/embarrassed silences, even among relatives. It's tough to teach her how to manage her finances while at the same time getting her to understand that a lot more people are like what she sees on Suze and Oprah.

Otherwise the "embarrassment" has been school teachers pulling us aside to ask us about our financial situation ("Your daughter says neither one of you has a job. We wanted to let you know about our reduced-price lunch program.") or to get a little volunteering ("I'm teaching a summer school course on teen finances. Can you help me with the material?") or incredulous ("Do you know that your daughter was using your checkbook at the book fair? What do you mean, that's her checkbook?!?").

Any other advice?

http://www.early-retirement.org/forums/showpost.php?p=284678&postcount=27

I can't find Jarhead's original post on the subject, but when he ER'd in 1987 in his 40s he/spouse were concerned about the example he was setting for their teen daughter. He even went so far as to put on a coat & tie each morning and leave for "work" before she went to school, and then he'd come home to resume his ER routine.

Years later he shared this subterfuge with her, and she thought it was pretty funny. She was so busy dealing with being a teenager that she hadn't even noticed. And if she'd noticed, she wouldn't have cared...

 

[Poundkey]

To try to answer some of OP's questions.....

Yes, I try to keep my kids updated on assets and net worth. I was always kept in the dark by my parents and grandparents and don't want my kids to be as unprepared as I was.

We communicate usually through casual conversations a couple of times a year.

The positive effects? Although I inherited a small piece of what was the old family farm in Iowa I've never been given a cent in cash. By informing them of my current position they are able to see that even a low wage earner like myself (most likely the lowest on this forum) can still be relatively successful.

Neither of my kids feel entitled. Besides going on to their own careers they know how I earned my living and are almost embarrassed by what they now make.

No embarrassing situations by my kids. They both know what is proper when it comes to this type of thing. I think there is a certain "time" when kids should start learning about your affairs.....not necessarily an "age" but a maturity stage. Mine were in their mid 20s. Their ages now are 38 and 34.

Hope this was of some help.....

 

[Alan]

well, I was thinking about how to respond while I scrolled through the replies and I think Noords sums it up extremely well and far more eloquently than I could have.

Our 2 kids have never known the amount we earn or the size of our portfolio, but we were very sure to educate them as best we could and they certainly know that our goal is to RE at 55. DW was great at teaching them the value of money. (The kids are 18 months apart in age and are now aged 27 and 29). During the year they were 12 she wrote down everything we bought for them as regards clothes and school supplies, then the following year we "paid" them a monthly allowance and increased it each year with inflation. We still did all the actual buying and wrote it down in as balance sheet. At the end of the year they could roll any positive balance forward or we'd deposit it into their savings account to do with as they pleased.

At 16/17 we offered to provide a car if they paid $500/year towards the insurance (both had part time jobs from age 16). DD decided to go without, DS took up the offer at age 17 after he saved up the insurance money.

I'm they knew we had the money to "flashy" cars etc but never complained or asked us for more.

Every now and again I send them a list of all our account numbers and financial institutions in case of disaster. Even though there are no balances they know that we have saved enough to, hopefully, allow us to ER next year.

 

[FIREd]

Keep in my I am not a parent...

But I would probably not share with my kids how much money we have. At least not until they are old enough to understand that this is not their money and are not entitled to a single cent of it. I think this is a concept which is very hard for a lot of kids to grasp. They tend to think that they are rich, when in fact, their parents are rich and they are worth no more than any other kid they go to school with. I could be magnanimous enough to share my money with them one day - when I die- but I would want them to understand that I am in no way obligated to do so. Besides life happens and the money could be gone sooner rather than later, so I would prefer they lived their life as if no windfall was ever coming their way.

 

[FUEGO]

Thanks for the responses so far. Good food for thought and it is good to see the different ways you guys dealt with these issues with your own kids.

I think we are on the right path. Our 4 year old understands that things cost money. She understands we get money by going to work. The kids miss us when we go to work. Work is a sacrifice because they don't want us to go to work but rather prefer we stay with them.

I'm sure some day there will be a "holy $hit" reaction like Nords' daughter had. I'll leave the net worth spreadsheet open or leave my Vanguard or Fidelity page up and they will see the $XXX,XXX figures on the screen. I'll have to borrow that response "Your mother and I have some money. You, my dear, are poor."

 

[TromboneAl]

I didn't share our net worth figure with DD until this year (she's 21). I asked her how much she thought we had, and her guess was pretty close.

 

[W2R]

My parents never thought their income or net worth was their children's business, and told us absolutely nothing except that they had enough to take care of us and to take care of themselves in their old age.

Somehow, as much as we want to improve on the model that our parents have provided to us, many of us grow up to be just like them. I guess in this respect I have done the same as my parents, too.

My daughter knows that I have enough to take care of myself for the rest of my life, and she also knows that one reason I will be retiring to southern Missouri is that I don't want to spend more than $200K for my retirement home. Beyond that I have told her absolutely nothing.

 

[happy2bretired]

My daughter had no idea how much my husband and I had until my husband passed away. One of the most worrisome thoughts that my daughter had when her father passed away was - how will we get by? My daughter was 19 at the time.

It was time for me to share our finances with her. She was reassured after that. One less thing for her to worry about while attending her freshman year at college.

 

[RunningBum]

I don't think I've ever talked specifics with my daughter, now 19, but I do talk about saving, 401K and ESPP plans, taxes, credit cards, etc. I think it's good for her to see my example of LBYM and what you get for that, rather than keeping her in the dark. She also had an excellent personal finance teacher in high school and it was fun to talk about some of the things she learned. We talk about how I could buy flashier cars or a new one every couple of years, but prefer to save the money so I can retire early or do something else with that money that means more to me than the new car, but if someone else likes new cars, that's their business and priorities.

I split the cost of her first car with her 50/50, because I wanted to make sure she had something more safe and reliable than she could afford. She got into a fender bender her first week, and we worked out a payment plan to me which she adhered to.

Did it all work? So far, so good. No calls for money in her first year of college. She had my credit card for emergencies, and only used it 2 or 3 times for school supplies, and called me either before or right after using it. She got some HS graduation money from grandparents and didn't blow through it, and in fact invested some of it in Wellesley (which thankfully returned about 1% since she invested--I had forgotten which fund she put it in and was worried she'd be discouraged by the market tanking). She doesn't like to shop that much, and when we're out together and she picks up something a bit pricey, before I have a chance to clear my throat she puts it back and says it's too much.

 

[Meadbh]

My parents were always quite open about their finances with me when I was a kid. When I was a teenager, they made a list of all their assets (they didn't have any liabilities) and reviewed everything with me "in case something happens to us, so you can find it". Since they were not super rich, it didn't go to my head. I also knew they didn't have financial worries. Their NW increased over time and in retirement due to generous pensions.

 

[RunningBum]

Oh yeah, I also made sure she knew where to find my letter of instruction with info on all of my accounts for my brother to read in case something ever happened to me.

 

[Moemg]

My daughter has a rough idea of what I am worth . I also send her a letter every other year detailing where everything is and how to access it if something should happen to me.

 

[LOL!]

We are fairly open with our kids on financial matters. If they ask, we usually give direct answers. They are teenagers and internet savvy, so they could look up things online anyways. For example, home prices in the area, salaries of various professions and careers.

They have some very wealthy friends and see the differences and similarities. I think they have figured out that they are not getting their own Escalade at age 16.

My standard financial advice to them goes like this, "When you are older, if you have any questions about insurance, investing, getting a loan, or buying a house, come talk to me before you do anything."

As for possible embarrassing moments, whenever I drove by a Hummer, I would always say "There goes an Idiot. There's no reason to ever buy one of those clunkers." Well, one day a my son was at a friend's house when that friend's dad came home in a Hummer. My son said to the dad, "So you're one of those Idiots."

 

[freebird5825]

No kids, but I can answer as a former kid myself. Assuming I've grown up.

My mom was always the money person, and became the sole breadwinner after my parents' divorce. There were no "deadbeat dad" (i.e. enforced child support) laws in those days.
She never did discuss money until we didn't have very much. Then she talked about it constantly, either because of stress or to drive home the point that any extras I wanted would have to be earned myself, or both.
So I learned about money and the lack thereof beyond "the basics" when I was 14. I was the math ace and the one who added and doublechecked her handwritten budget columns. I counted up her tips.
We figured out how much we could spend on groceries after bills were paid. This may sound like a weird way for a mother and daughter to spend time together. It was something we w*rked on as a team.

This type of budget management (in good times) could be a positive thing to share with your kids.
I have carried those money management lessons forward all my life.

 

[Sue J]

I've always been open with our kids (22 and 25) about the finances. They know what our income is and they know approximately what the expenses are. I keep a list for the month tucked in the checkbook that's used for all the automatic bill withdrawls and it's out in the open on my desk. They know we are concentrating on Emergency Savings right now because DH's job has been insecure for about a year.

They had allowances and weekly chores until high school graduation. One son worked in HS, the other didn't work until summers in college. As they turned 18 they each got a checking account and savings account and I turned over their custodial savings accounts. I've tried to be fair and practical in teaching them about money.

I hope that the most important thing they learned was to avoid debt or keep it to a minimum if possible. The older son had a car loan from a dealer but it bugged him so much he paid it off in 15 months. Then instead of making car payments he started a Roth IRA. The other son borrowed from us for a car and he will have it paid back by the end of the summer. It weighs on him that he owes us.

They know we are not wealthy but that with no mortgage we are more secure than many other folks. Neither one has credit card debt and they each are well in control of their expenses.

My Dad told me about how he was able to retire at 59.5. When he got succesful he kept the same house and cars and invested the extra income. When he retired he never touched his principal, probably still hasn't and he's now 83.

I'm the executor for his will so he showed me where he keeps his papers and showed me his statements. He said he was sorry he wasn't leaving more for my sister and I, but I was actually quite surprised at what he has to work with. He didn't graduate from high school, does not write or spell well and his career was in roofing sales. He was just very good at what he did and was always a LBYM kind of guy.

That's probably the most important message LBYM!

And forget about what other people have, it's just not important.