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4 Critical Skills Your Child Needs to Develop Before Inheriting Your Money

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As a financial advisor to wealthy families, I’m often asked how old a child should be before he or she gains access to inherited money or receives significant financial gifts.  The truth is, age is a poor barometer of readiness.  Knowing this, wealth advisors have long encouraged parents to leave their money to trust, with a wise (hopefully!) trustee in place who is often given total discretion to assess whether children are able to handle receiving money from the trust.  But what exactly should trustees look for to make this assessment?  And if it’s parents who are still in the giving role (in the form of annual or lifetime gifts), how do they know if their children are ready?  How do they decide if a gift might help their child or in fact delay the very maturation they are hoping to promote?

It turns out there are 4 critical skills that children need to develop before they are ready to receive money from their parents or a trust.  I uncovered these through the interviews I conducted with successful inheritors for my book Raised Healthy, Wealthy & Wise.  It turns out that all of the successful inheritors I spoke with (successful meaning self-motivated, productive, and content) had developed these skills.  And you’ll probably recognize, if you happen to know anyone raised with wealth who isn’t yet successfully launched into an independent and productive life, that he or she lacks one of these critical four.

1. How to earn their own money and live largely contentedly off of money they’ve earned – The interviews I conducted revealed a fascinating truth: children raised with wealth feel most successful when they earn enough income to live largely within their own means, and know in their heart of hearts that they would be able to support their basic needs if the family money were to disappear tomorrow.  A number of the grown children I interviewed said that it wasn’t until they reached this point in life that they felt like they were their own person.

2. How to set and pursue their own vocational goals – Children from families without significant financial means are often given the explicit expectation that they are expected to get a job and support themselves out of college.  In contrast, children raised in wealthy families often pick up a more nuanced message that boils down to “we have money, so you should find work you love.” Trouble ensues when the child interprets this as “do only work you love,” and thus amasses an array of truncated career experiences, all abandoned because the child didn’t love them.  The inheritors I interviewed were encouraged by their parents to find work they enjoyed, but this message was tempered with a critical qualifier that this might take time, and that they should focus in the meantime on learning from every job and giving it their best shot.  Because their parents’ set this expectation, these children were able to stick through the rough patches in their early careers and stay in jobs long enough to learn what they loved, what they didn’t, and what they were capable of.

3. Have a self-worth that is not wholly wrapped up in the family’s wealth or influence – The inheritors I spoke with were certainly aware of their family’s wealth, but fundamentally, each had a sense of a core identity that was built first upon their own accomplishments and choices in life rather than on what had been given to them.

4. Have an earned sense of resilience and ability to overcome setbacks Children growing up with few financial resources often learn resilience by default.  There is no other option.  For children who grow up in wealthy families, it’s often just the opposite.  Well-meaning and loving parents seeking to help often tap family funds to smooth out the rough patches for their children.  But unfortunately, this deprives children of a critical survival skill needed in life – the development of an internal voice that tells them “I can overcome this.  I can do this.” The successful inheritors I interviewed told me about failures and setbacks they had experienced where they had to plow through the consequences on their own and figure out how to move on.  And because they had had to do this when they were young, they knew they could do it again.

It turns out that teaching your children these four skills is the best investment you can make.  And it will do more to preserve family wealth than even the best constructed trust.