One of the perennial concerns of high-net-worth families is how to raise their kids in an environment of privilege without spoiling them.
Over the years, I've met with dozens of affluent parents who have brought up happy, well-balanced kids with positive wealth values. The one thing these parents share: the ability to set limits for their children. Simply put, they are able to say "no" when appropriate.
This is obviously an important topic to parents near the top of the wealth heap. But I believe there are good lessons here for every parent, at all levels of wealth, as we try to raise children who have financial discipline in an age where getting and spending seems to be the order of the day.
Limit financial assistance
It's natural: when our child cries "Help!" we come running. But there's a difference between a child asking for a Band-aid and one asking for a handout. If kids feel they always have credit at the Bank of Mom and Dad, they are more likely to make rash and unwise financial decisions.
Most successful high-net-worth parents I know have thought carefully about the message they're sending when they give their kids money.
While they are generous with their children when it comes to giving them an education, life-enriching experiences, family vacations and the like, these parents are cautious with allowances, major gifts, trust funds, and other direct financial assistance. They tell their kids early and often that they expect them to be full, productive members of society and financially independent from the family.
A wealthy business owner I know was approached by his newly married son for help making a down payment on a large home in an expensive part of Vancouver. Dad realized that even with his financial help, mortgage payments and taxes would be more than the new couple could afford on their own.
So he said "no," politely, but firmly. The decision was not well received, but the son learned a lesson about living within his means. As a result, the couple bought a more affordable home, and both son and daughter-in-law are motivated to work harder if they want to move up the property ladder.
Let them make mistakes
When it comes to wealth, experience is often the best teacher. That's why successful high-net-worth parents give their children financial autonomy, allowing their kids to enjoy the freedom to make their own spending decisions - even if that means allowing them to feel the pain when those decisions turn out to be foolish or short-sighted.
A client of mine told me about some wealthy family friends who had recently allowed their teenage son to purchase an expensive mountain bike with his savings - this despite the fact that his old bike was less than a year old.
Because of the purchase, the child didn't have enough money for a biking trip with his friends to Whistler. While Mom and Dad were sympathetic, they didn't bail him out. This caused some grief, but the child learned an important lesson in budgeting and setting financial priorities.
Encourage responsibility
Many of the wealthy families I've met try to instill in their kids the idea of giving back. At an early age, parents introduce charitable work as part of the family experience (many have gone on overseas missions and humanitarian-oriented trips). These actions instill a sense of financial humility, and an understanding that with wealth comes a responsibility to use that wealth for the betterment of others.
Case in point: A wealthy family I know that makes charity a central feature of the holiday season. Each December, mom, dad and their three young boys (the eldest just turned 9) hold a family meeting, and decide on a family charity.
The parents encourage the kids to discuss the cause they want to support (the local animal shelter is a front-runner this year), and why. By getting their boys involved with giving, the parents are encouraging them to develop a financial conscience. They're teaching them not to take wealth for granted, and that the most powerful thing about wealth is the power to change the world for the better. If that's not a positive wealth value, I don't know what is.