Teach Your Children How to Spend Money
When we lecture about the relationship between cash gifts and economic achievement, people from the audience typically ask: “If not cash, then what form of gift are more beneficial?” They are eager to learn how to enhance the economic productivity of their children. Here again, we remind them that teaching their children to be frugal is critical. Often those who are trained to be otherwise as children become adult hyper spenders, needing cash subsidies during their young and middle adult years.
What intergenerational transfers could help your children become economically productive adults? What should you give them? The affluent have a great appreciation for the value of a high-quality education. We asked millionaires if they agreed with the following statement:
- Schools/college learning is/was of little use to me in the real world of making a living.
Only 14 percent agreed; 6 percent had no opinion; and the balance, 80 percent, disagreed. That’s why millionaires spend a large amount of their resources on their children’s educations. What was the most frequently mentioned gift that millionaires received from their parents? Tuition!
All other economic gifts are mentioned by a significantly smaller proportion of millionaires. About one in three received some financial support in purchasing his first home; about one in five received an interest-free loan during his lifetime; only one in thirty-five ever received funds from his parents for mortgage payments.
What can you give your children to enhance the probability that they will become economically productive adults? In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership. Yes, the best things in life are often free. Teach your own to live on their own. It’s much less costly financially, and, in the long run, it is in the best interests of both the children and their parents.
There are countless examples of the invers relationship between economic productivity and the presence of substantial economic gifts. Our own data, collected over the past twenty years, repeatedly support this conclusion. Independent of college tuition, more than two-thirds of millionaires received no economic gift from their parents. And this includes most of those whose parents were affluent.
Weakening the Weak
So, what are affluent parents to do with their wealth? How and when should they distribute it among their children? We will detail the distribution of wealth in the next chapter. But at this point, here’s some food for thought: Most affluent people have at least two children. Typically, the most economically productive one receives the smaller share of his or her parent’s wealth, while the least productive receives the lion’s share of both economic outpatient care and inheritance.
Consider for a moment that you are a typical affluent parent. You noted that your oldest son or daughter even at an early age was extremely independent, achievement-oriented, and well disciplined. Your instinct is to nurture these traits by not trying to control his or her decisions. Instead, you spend more time helping your less resourceful child make decisions, or you actually make decisions for him. With what result? You strengthen the strong child and weaken the weak.
This Article is taken from The Millionaire Next Door
Written by Arshad. A