As our children are growing, whether we realize it or not, we are constantly shaping their views on money. From treating them to an extra dip of ice cream, to weekly allowances, to paying for college – you have said something to your child about your family finances. But many of us have adult children who are beyond those simple decisions, and if you have children in their twenties and thirties, it may be time to think about making them full partners in the family’s financial life. It is generally much easier for young adults to become financially responsible when money and estate matters are discussed openly and education begins early.
The key to achieving balance is to educate your children without revealing more than they need or would like to know. They do not need to know the exact amount of family assets to learn the basics of financial management and become involved in the family’s financial activities. They need to think about what will happen when you pass without getting caught up in the mortality of their parents. Your children should at least know of the existence of assets or liabilities. Compile a list of your bank accounts, brokerage accounts, retirement accounts and IRA’s, annuities, leases or contracts, real property descriptions and insurance policies, together with a summary of long term obligations such as mortgages. The listing should include the account numbers and the name of the broker or agent that you work with. If you own life insurance policies, you should indicate the location of the original policy.
Either give the outline to your children or tell them where it can be found. It is as equally important to keep your estate planning documents updated. Even if you do not want to share the details of your will with your children, they should know that it exists, where it is located, and that it is up to date. If you have executed a living will, which is an expression of your wishes concerning life support and treatment in the event of a terminal illness, it is very important that copies be provided to all family members who would be involved in your care.
In addition to talking to your children about your family’s particular financial situation, here are a few basic concepts you should familiarize your children with:
- Financial Planning: Financial planning is important because it allows you to ensure you will have funds available to meet the needs of your future, and your present. Every young person needs a basic framework to help them make responsible decisions about spending and saving. Work with your mature children to draw up a financial plan for each of their children.
- Investing Fundamentals: A good place to begin an investing discussion is with an explanation of the three asset classes – stocks, bonds and cash – and the concept of asset allocation. Lay the foundation for smart financial investing and consider sharing some basic information about your family’s current portfolio structure.
- Estate Planning Basics: The importance of having a legal will in place is invaluable. If you don’t’ have a will, the state will decide what happens to your assets, children, etc. and it may often be in contrast to your wishes. Power of Attorneys and living wills are also integral parts of any complete estate plan. Trusts should strongly be considered for minimizing estate taxes, protecting your estate from lawsuits and creditors or avoiding the time and expense of probate. Though it isn’t always an easy conversation, families that speak freely about estate planning can sometimes address awkward situations that might arise, like the choice of the executor — who is in charge of distributing assets after someone dies — or succession plans for a family business or the leaving of assets in trust How families handle delicate issues depends both on the particular circumstances and the personalities involved. Sometimes it is best to have a series of talks, rather than covering everything all at once and you should take your particular family dynamics into account when addressing the topics. Regardless of how and when you decide to have the conversation, you will be happy that you did.