Californians work very hard to build up their financial stability. In some cases, people end up making millions of dollars which they plan to pass down to their children as a way to help them enjoy some financial stability. However, many people have very real concerns about how this money will be used by heirs, especially when they are young and immature.
Managing finances is something that can take a lot of work and responsibility. Kids are not necessarily built to understand the intricacies of inheriting a large sum of money and many parents fear that all the money left in an inheritance will be blown if it is not properly managed. We’ve heard horror stories about young people receiving and then immediately spending huge sums of money, and many of us would agree that we do not want this to happen to the assets and investments we plan to pass on to our children. That is why Los Angeles parents may want to consider taking a few steps in order to prepare kids for this kind of wealth.
At a young age, children typically do not understand the value of money without some education. Parents can help them develop a sense of financial responsibility by leading by example; but ultimately, children should have a clear and comprehensive understanding about dealing with large sums of money on their own.
For example, one woman worked with a financial planner to help her two young sons come to terms with the $5 million trusts they would each inherit when they reached 30. She, like many other parents, was concerned that her sons lacked the maturity to deal with this level of wealth and she wanted to teach them some important lessons.
First, the boys were required to make budget plans, which would be covered by the trust with monthly checks. Then her sons went through financial planning education to help them understand investments, philanthropy and other estate issues. Then and only then were the boys told about exactly how much they would be inheriting.
By helping her sons understand budgeting and financial principles, the mother was able to instill some important values in their lives. So far, these efforts seem to be paying off, as the boys are reportedly spending their money conservatively and active participants in managing their own finances two years after being informed of their massive trust funds.
Source: The Wall Street Journal, “Education Young Trust-Fund Heirs,” Jesse Sunenblick, Jan. 22, 2014