Updated: Oct 19, 2020
There are some startling statistics out there regarding children and inheritance:
50% of the children that receive an inheritance this year will spend it all in 6 months
80% will spend it all within one year
The average length of time between receiving an inheritance and a major purchase is 16 days
The divorce rate goes up significantly after one spouse receives an inheritance
These are the same kind of statistics that we see for people who have won the lottery! People do not have the same level of responsibility for money and things they did not earn themselves!
What do we owe our children? One of the most important things to help your children understand is that “your money is not their money.” If they are going to be productive and successful, it is best if they do it on their own, with a little help and encouragement from you. Help your children to feel the value of receiving the fruit of their labor and not just the fruit of your labor. Make sure you do not rob them of the joy of earning a paycheck. Reward behavior that you want to encourage. Be careful that you provide your children with “capital assets” and not “operational subsidies”.
A capital asset is something that will enable and prepare your children to be successful. The right education, elective medical procedures, a loan to start a business, an internship or gap year in charitable service or a down payment for a home (that way they will have to qualify for a loan at their income level).
An operational subsidy is a regular stream of income that causes them to live above their means. If you were starting a business and you went to a bank for a loan it would make a big difference if you were borrowing for a piece of equipment that would make your business more successful verses trying to borrow to pay off past debt or employee salaries. The bank would make the loan for a capital investment because it would increase the businesses ability to be more successful. The bank would not make a loan for salaries or past debt because it would just be subsidizing a business that is not successful.
Do you want to give your children a chicken that lays an egg every day or one big chicken dinner! Start your capital investing now so that you can see how you children will use the opportunities!
As Larry Burkett used to say, “Do your givin' while you’re livin', so your’a knowin where its goin'.”
The trick is not to burden our children with our expectations. Our goal should be to help them become everything that they want to be, not everything that we want them to be. Encourage them to develop their own dreams and visions. Treating children equally does not always mean treating them the same. Take time to structure each child’s capital investments and inheritance around their skills, circumstances, careers and responsibilities.