According to Cerulli Associates, Baby Boomers may transfer $53 trillion to the next generation.[1] Are your kids equipped to handle the windfall?
Transferring assets to children or grandchildren is a common concern for our clients, so starting them early on sound money management principles is paramount. Here are a few suggestions to help you transfer wealth and prepare your kids for their inheritance.
- Give your kids a weekly allowance. A weekly allowance allows your children to handle money regularly, giving them confidence when they are older. It’s beneficial to let them spend their money without restrictions.
- Open a checking and savings account for your kids. Take them to the bank so they can deposit money into their accounts.
- Give your kids a credit card when they start driving, and utilizing a credit card with spending limits while young can give them a credit history and the discipline to pay it off monthly.
- Introduce your children to the power of giving. Let them select charities that are close to their hearts. A giving mentality will help those in need and allow them to focus on others. If your kids can donate money while they’re young, they will do it when they’re old.
- Give your kids the annual exclusion. You can give away $18,000 per person.
- If your kids generate earned income, open a Roth or traditional IRA to give them a headstart on fortifying their retirement savings.
- Buy them a few shares of stock in their favorite company – Apple, Nike, LuLuLemon, Coke, Pepsi, McDonald’s, etc. Owning stocks will teach them much about the economy, business, and the stock market.
- Consider hiring your children if you own a business. My grandparents owned a business, and I worked in the shop occasionally. My grandfather taught me how to use the machinery, while my grandmother introduced me to inventory management and accounting. I should have paid more attention to the latter.
Mastering responsible spending with smaller amounts of money lays a foundation for confidently managing more significant sums in the future. Of course, if they’re spendthrifts and spend with reckless abandonment, consider establishing a trust with a corporate trustee to handle their inheritance. A trust can ensure that their resources will last a long time.
Ultimately, your kids will model your financial behavior and spending habits. If you give to others, save often, and spend wisely, so will your kids. As John Maxwell said, “More is caught than taught.”
The best way to teach your kids about taxes is to eat 30% of their ice cream. ~ Bill Murray
January 3, 2024
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice. Past performance is not a guarantee of future performance.
[1] https://www.nbcnews.com/business/consumer/generational-wealth-transfer-baby-boomers-cant-save-gen-x-millennials-rcna128099, Marley Jay, December 29, 2023