Financially illiterate children of wealthy parents may need a “coach” to implement a crash course in financial learning, says A.J. Sohn, founder and managing partner of Antaeus Wealth Advisors LLC, a financial services firm in Boxborough, Mass.
Children of the wealthy often do not know how to handle money, but they need to learn, particularly if they are going off to college, says Sohn. What is his primary advice? Start early.
“A very high percentage of children of wealthy parents get off on the wrong foot financially,” he says. This usually is brought to the attention of the advisor after the child has shown he or she cannot handle money. “We like to get involved as soon as possible, even when the child is in his or her teens or preteens.”
Parents should teach their children the value of money by requiring them to have a job or to manage an allowance. They should not be handed money whenever they need it, Sohn says.
One of his clients, for example, owned a hospitality business and required his child to work in the business.
Another used a spontaneous opportunity when looking at homes for sale to talk about mortgages with a 9-year-old, who asked surprisingly good questions, he says.
Still another family that was successful in real estate asked their children if they wanted to put some of their Christmas money in the family ventures each year and track how the investments did.
“We try to talk with the children and parents together once a problem has been brought to our attention,” Sohn says. “Then I can act as the coach or teacher. A child will listen to advice from an outsider, when he or she won’t listen to the same advice from a parent. I can be the fall guy if they don’t think they are getting enough money.”
Sohn says he also talks with the children alone and sometimes finds out about debts or money left over from a too-large allowance that the child would not tell the parent about.
One way to teach a child how to handle money is to send them off to college with a set amount to last for a month. The parents can then review the finances at the end of each month and, if it is being managed well, they can send money every two months and then each semester.
“That way the child is managing money for a longer and longer period of time,” he says.