Wealthy Americans who have worked hard for their financial success often have difficulties instilling in their children the same hard-working conscientiousness that helped them achieve financial success.
Financial advisers can play a role in helping their clients overcome that challenge by convincing them to resist their natural inclinations to give their kids everything they want and shield them from all money woes.
"You can't duplicate your humble beginnings for them," said financial adviser Rebecca Walser of Walser Wealth. "But you can teach your kids the skills they'll need when they're making their own way in the world."
With the goal of preparing children to best handle real-world financial decisions, clients who have younger children can take steps like creating a weekly allowance that the child must budget for themselves and teaching them the value of delayed gratification.
For older children, there are structural ways to guide children to making positive lifestyle choices, such as trust agreements that provide funds for a wedding only after the couple takes premarital classes, or funding the purchase of a house only if a prenuptial agreement has been signed, Ms. Walser said.
In some cases specific to clients who own businesses, succession planning agreements may call for the child to achieve certain milestones related to firm operations or other criteria before the child can take over the reins of the business.
"This type of trust language is meant to reinforce that you don't get these advantages without making the right lifestyle choices," she said.
Age as a litmus test
Covie Edwards-Pitt, chief wealth advisory officer at Ballentine Partners, said parents often ask her how old their kids should be before they inherit their wealth, or even begin to come into it. But better than pegging it to an age, she recommends parents look at whether their children have attained certain "success factors," which she identified doing research for her book, "Raised Healthy, Wealthy and Wise" (BP Books, 2014).
Successful adults from wealthy families tend to have supported themselves financially at some point in their lives; have persisted in a career (not just pursued one passion after another); have created an identity for themselves outside of the family; and have pulled themselves out of a difficult money situation without relying on family funds to "save" them, she said.
"If a young adult has developed these four factors they will be well prepared to handle financial gifts," Ms. Edwards-Pitt said. "If not, financial gifts can be derailing and stop them from moving forward."
Jennifer Myers, president of SageVest Wealth Management, said her firm recently launched SageVestKids.com, a resource for parents to promote financial literacy for their children, directed at kids from age 3 up to 18 years old.
The website is focused on helping parents provide financial education and guidance in their childrens' formative years, describing when they should be introduced to banking, and when to think about short- and long-term savings goals.
"You can't just have a birds-and-the-bees type discussion with your kids and teach financial literacy in an afternoon," Ms. Myers said.
Being a role model and being cognizant of the lifestyle that the family is living and the impressions parents are creating, also is important.
"If you're well off, it's important to strike a balance between creating opportunities and creating entitlements," she said. "Watching how the significant adults in their lives approach financial management is a huge influence in shaping a child's future relationship with money."