Not long ago, I wrote an article about money scripts – including how our money ideals are often inherited behaviours (and how we have the power to change them).

Of course, the natural flipside is that in addition to learning from our parents, we can pass these behaviours down to our own children.

There’s a Chinese proverb that states, wealth does not last beyond three generations. One to make the wealth, one to maintain the wealth... and the third to spend it. A 20-year study by The Williams Group backs up the adage with data showing that nine in 10 families will lose their wealth by the third generation.[i]

If you look at the Forbes 400 richest people, the overwhelming majority are first or second generation rich – while people like Bezos or Musk didn’t start from poverty, their wealth has certainly eclipsed any of their parents.[ii]

 We all want the best for our kids. We want them to do better (and have better) than we may have had growing up. But sometimes this can come at the cost (excuse the pun) of them developing critical money skills.

Research has found that there’s some wisdom to the idea that money can’t buy happiness – kids who grow up with it all are more likely to be self-centred, self-destructive, and depressed than their less privileged peers. While the lasting impact of the poverty cycle on generational wellbeing is pretty widely documented at this point, it seems that those on the exact opposite of the spectrum are also set up for failure – not because they don’t have access to what they need to succeed, but because money remains an abstract idea to them until things start to go wrong.[iii]

The late Dr Thomas Stanley co-authored the iconic book ‘The Millionaire Next Door’ in the ‘90s, exploring how many “quiet” millionaires grew wealthy on an average salary through hard work and modest spending, while others with a higher incomes but more expensive lifestyles found it difficult to accumulate wealth. His fascination with affluent people has led to some great research on thier lifestyles, career choices, and consumption habits – which we can still use today.[iv]

Dr Stanley’s study of the ten most common professions found that children of wealthy parents, on average, who recieved financial assistance from their parents usually ended up with lower levels of wealth compare to those who didn’t recieve this kind of aid.

For example, lawyers who, as adults, received financial help had 38 percent less wealth than lawyers who didn’t.

Accountants who received economic outpatient care as adults had 43 percent less wealth than their professional counterparts who weren’t given help.

This isn’t just a case of affluenza, for the super rich – many middle-class parents fall into this trap too. Dr Stanley said, “No matter how wealthy you are, teach your children discipline and frugality.”

Allowing them to feel pride in their own financial achievements will make them financially stronger and better-adjusted to take on life’s challenges.[v]

Pretending money doesn’t exist – that is, not acknowledging the role it plays in every kind of lifestyle, affluent or otherwise – becomes void once kids leave home. While it’s natural to want to help your kids every way you can, giving them a chance to struggle (at least a little bit) is important too.

In my wee family, we have a rule about saving as much as you spend – for every $1 the kids spend, they also have to match $1 for savings. This seems to temper most impulse spending, because it means they have to make sure they have double the amount of money they’re planning to spend, before they spend it. They still have the freedom to make choices about what they spend on, but it requires more coordination to put that desire into action.

Allowing your kids to learn their way around money doesn’t have to be an all or nothing approach. You could start small (like matching spending to savings), or passing the responsibility of their phone bill or other non-necessities over to them when they start a part-time job.

If they’re about to fly the coop, it’s a good idea to make time to go over how finances will transition during this time – including household costs, monthly bills, and transportation. If they’re looking at attending university, you could work together to calculate and discuss the costs. Having everything laid out and transparent will help them have a holistic view of their costs, and where they can potentially reduce these.

Having these conversations can also be a great prompt for you to take a second look at your own financial management skills and assess if you’re practicing what you preach.

Whether your goals are to help set up your children (or future children), or even just retiring in comfort with options, a good place to start can be having a chat with the professionals to assess your current situation.

Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawkes Bay and Wellington-based CEFEX certified financial planning and advisory firm.

The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz

[i] https://business.smu.edu.sg/master-wealth-management/lkcsb-community/how-beat-third-generation-curse#:~:text=A%20Chinese%20saying%20that%20goes,does%20back%20up%20these%20aphorisms.

[ii] https://www.forbes.com/forbes-400/

[iii] https://www.psychologytoday.com/nz/blog/our-gender-ourselves/201507/rich-kids

[iv] https://news.uga.edu/thomas-stanley-georgia-groundbreaker/

[v] https://www.aesinternational.com/blog/time-and-time-again-the-wealthy-financially-sabotage-their-kids-futures-spoiler-alert-it-doesnt-stop-in-childhood