FOOL'S EYE VIEW
Don't Make Your Child Too Wealthy

By Nigel Roberts
January 23, 2001

Chippenham -- Children, don't you just love them? You cherish them, clothe them and make sure that they never want for anything. You provide for them until they become adults. After all you want to give them the best start in life that you possibly can. What happens then? Just as your child is growing and maturing, just as they are starting a life or even a family of their own what do you go and do? Yes, you go and die and leave all of your hard earned money to them. Over the next ten years there is going to be a massive and unprecedented transference of wealth from one generation to another.

Saving for your child's future

Here at the Fool we would always encourage parents to save for their children. If you manage to put away a relatively small amount of money over a relatively long period of time you can help set up your children financially to face the future uncertainties of adulthood. We often here it said by Fools that they are investing "so that our children do not have to worry."

The transfer of wealth

Ever since the end of the Second World War people have been toiling through hardship. It would have been rare for them to invest their money into the stock market, but they have been investing never the less, usually in the family home. Over the next decade we are going to see a massive transference of wealth from one generation to another. In the past it was only ever the seriously rich that had money left over at the end of their lives to pass on to their children. Indeed in the past old people usually had to rely on their children to look after them financially in their final years. But that situation has changed dramatically and many people are now beginning to inherit sizable lump sums from their parents.

This transfer of wealth will have a massive impact on many of our lives and on the lives of our children. While providing for our families is clearly an essential and Foolish act, providing too much could be as damaging as not providing enough.

Give your children the right message

The notion that we struggle with life's challenges in order to protect our children from having to endure the same hardships is admirable. There is no greater purpose in life than to nurture and protect our kids. Unfortunately in many instances, parents communicate the wrong lessons. Rather than helping the child be secure in their future, we instead communicate that they do not need to plan nor toil, as all of their material needs have already been taken care of.
 
Parents who have worked hard to provide for their children should take care not to create ambitionless parasites. What a child needs to thrive is only indirectly related to the financial security blanket constructed by his or her parents.

Make your child a millionaire

You want to provide for your children? You want to make them into millionaires? Then you should read Alan Oscroft's excellent best selling book called "Make Your Child A Millionaire".

But you must teach them that there is no need to acquire an item simply because the people down the street have one. Children need to be taught the importance of money; they also need to be taught the value of it. I do not need to deprive my children in order to help them understand the value of a pound, but at the same time were I to provide them with everything they desire, they would have a much lower chance of developing a responsible and healthy attitude toward money.

But do you really want to make your child a millionaire?

The best life lessons are often learned during periods of hardship. If we provide our children with everything they could ever want, and much more than they could ever need, what lesson are we actually giving to them?

In the 19th century Will Carnegie left Scotland for America with his family. They struggled in poverty for many years. His son, Andrew Carnegie went on to become the richest man in the world through exploitation of a new technology -- steel.

In 1881, just as he was considering getting married and having a family of his own he thought about how to handle his own inheritance issues, Andrew Carnegie said, "the parent who leaves his son enormous wealth generally deadens the talents and energies of the son and tempts him to lead a less useful life than he otherwise would."

Later in his life, Carnegie sold his steel business and systematically gave his collected fortune away to cultural, educational and scientific institutions for "the improvement of mankind".

And there's nothing wrong with a little hard work

Let your children know that you are there for them, that you CAN provide for them, but don't stunt their ambitions by making work unnecessary for them. Are you seeking to show them that you love and care about them, or is your goal to make it so they never have to work? The first choice is supportive, the second debilitating. Warren Buffett (who intends to give the vast majority of his $31 billion fortune to charity, not to his children) has famously said, "Give enough money to your kids that they can do anything but not enough so that they can do nothing."

But this will never affect me! I will never be rich!

This is not just an issue for the wealthy. Even those who are in no danger of passing on millions to their children need to teach them proper financial responsibility. Your children are watching and learning their attitudes about money from you. If you become a stranger to your child in the name of gaining more wealth by working harder or spending more time on investing, the message to him or her will be loud and clear. Don't confuse providing wealth to your children with providing them security. For most children there is no greater security than knowing that their parents love them and want to spend time with them.

Where next?
Make Your Child A Millionaire
Fools Guide to Investing For Children
Investing For Children discussion board
Family Fools discussion board