Children and Wealth: How to Prepare Your Children to Manage Wealth and Use it Wisely

Children and Wealth: How to Prepare Your Children to Manage Wealth and Use it Wisely

Guest Blog provided by Richard Beaton & Linda Wagener of Marigold Associates.

Over the past several weeks, we discussed the value of using deliberate training strategies such as allowances and budget management to teach children financial skills. In this segment we’re going to tackle the problem of how to form our children’s attitudes toward money and work. These are rarely shaped simply by education. They are rooted in the basic practices and habits of family life.

You may have heard the phrase “shirtsleeves to shirtsleeves in three generations.” It refers to the fact that often a person’s attitudes toward money and work can be traced to where they are in the family wealth cycle. Those in the first generation of affluence learned how to earn and manage money because they had to. There were no family funds to buy them everything that they needed, wanted, or thought they wanted. They had to work to pay for any extras and even in some cases, the necessities, like clothes. If they wanted a college education, they had to take out loans and work part time. By the third generation, the work ethic has often declined to the point where the accumulated wealth of the family is depleted by a generation who has learned to be consumers rather than creators of wealth.  But it doesn’t have to play out this way.

We interviewed a member of a fourth-generation family of wealth who illustrated this pattern clearly. His side of the family had continued to live productive lives. Their wealth had increased in every generation. Another branch of the family, the “country-club cousins,” had burned through their inheritance. Their kids would be back to shirt-sleeves. The difference? He pointed out the window to an 8-year old neighbor kid, mowing the lawn across the street. “See that kid? His family is worth millions. But they live modestly, and expect their kids to work as soon and as hard as they are able. See that other kid next door? He’s 16 and has never held a job. His family doesn’t have the wealth of the other, but probably never will.”

In our work with entrepreneurs and families, we have heard variations on this story over and over again. The families whose children grow up to be hard-working productive contributors are expected to work and be responsible, just like everyone else. They live comfortably but modestly. They also recognize that their wealth is a responsibility, not a privilege. It is to be used for good, not for pleasure.

Five Things You Can Do to Teach Your Children to Handle Wealth Wisely

  1. Let them learn the joy of working hard and the reward that follows. It may be tempting to think that schoolwork is enough to accomplish this, but schoolwork has sadly become more about performance achievement. In contrast, work contributes to the well-being of others and is a piece of a larger enterprise.
  2. Never use money as a reward for achievement such as grades. Such practices teach kids that money is the only reward that matters, and they distract them from the intrinsic pleasure of doing well.
  3. Live modestly. This is often very difficult for those who want to enjoy their wealth. One entrepreneur we interviewed came from significant poverty and loved the lavish lifestyle he was now able to afford. The children of his first marriage had blown through every cent he had given them. He didn’t want the same thing to happen to the kids of his second marriage, yet he couldn’t give up the ostentatious lifestyle. Eventually he had nothing left to pass on.
  4. Be wise with your inheritance strategy.Let your kids know from an early age that they will be expected to work and live responsibly. Make a commitment to yourself that you won’t give large sums of money to adults who have not demonstrated the capacity to use finances wisely. 
  5. Don’t use your wealth to protect your kids from the harsh realities of life. Admittedly, this is difficult for any parent, but your children need to be exposed to those in need in order to build their sense of empathy and gratitude. You can build their hope by demonstrating how your wealth can make a difference in the world. Involve them early in giving back through hands-on service in their community. There are many excellent organizations that provide opportunities for young people to develop their skills. Social Venture Partners (Seattle) is one good example.

There is little in life as satisfying as seeing your children flourish in their lives; delighting in their life’s purpose. Whether they end up with modest or robust incomes, they will need to know how to work hard and manage their finances. As parents you can make a significant difference through financial education and creating a family environment that forms their character and values.

A big “thank you” to Richard Beaton and Linda Wagener of Marigold Associates for guest blogging.  Feel free to contact them directly if you have questions or need more information.  As a reminder, we are hosting a luncheon on February 15th to hear more about the subject of Kids & Money from these two experts. 

If you have an interest in learning about the event, please contact



John Christianson
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