How to Teach Your Kids About Money, From Allowances to Inheritance

We all strive to prepare our children for financial success, but where do we start? It can begin with everyday conversations about money, turning simple tasks like chores into learning experiences about earning and saving. As they grow older, more complex discussions about investments, philanthropy, and understanding the value of money become crucial. The goal is to prepare them to make informed decisions and responsibly handle any wealth they may earn or inherit.

In this episode of Capital Conversations, CERTIFIED FINANCIAL PLANNER™ professionals Colin Day and Brian Pultman take a step back from market analysis or 401(k) advice to talk about something closer to home. How do you instill the right ideas about money in your children? How can you responsibly pass money down to the next generation?

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Below is the transcript for our most recent podcast, "How to Teach Your Kids About Money, From Allowances to Inheritance."

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Colin Day: Welcome back, everyone, to another edition of Capital Conversations. We have two CERTIFIED FINANCIAL PLANNER™ professionals with us today. It's me, Colin Day, and Brian Poltman joining us.

Brian Pultman: Good morning.

Colin Day: Thanks Brian, for joining us today. I think we have a very interesting conversation to be had, and this one's all about kids, Brian.

I think we both qualify as parents at minimum, having children at least. And I think having the conversation around kids and money [should be] very early. If you had to think about it, Brian, when was the first time you think you had a conversation with either one of your kids about money? How old do you think they were?

Brian Pultman: Back when they were probably about 10 years of age.

Colin Day: What was going on?

Brian Pultman: Back in elementary school. Just setting them up to have some type of allowance, to have them do a few house chores and give them an idea of what money can do.

Colin Day: Okay, because I have that conversation almost on a weekly basis with my kid who's supposed to be taking out the trash, cleaning his room, cleaning the playroom. So I'll be looking for some tips so that he can actually earn that money as opposed to just complain about it the whole time. Because when we go to the grocery store and we want he wants that matchbox car or whatever it is. “Well, how much allowance money do you have bud?” Well, it's been zero for a while, so I might need some tips from you in a minute.

But what we're going to talk about today is not matchbox car money, but rather the great wealth transfer. So that is definitely something of interest to us as financial advisors as our clients, the baby boomer generation, just getting older and getting to the point where a lot of those assets are going to need to move down to kids, grandkids, et cetera and so forth.

So with this great transfer, they're estimating that about $84 trillion will need to migrate from the baby boomer generation to Gen Z, Millennials, Gen X by the year 2045. So that's $84 trillion. And if we were to divide that up by each inheritor, they would all receive about $750,000. Pretty incredible.

Brian Pultman: It is.

Colin Day: So we want to have conversations with our clients’ children to make sure that that wealth transfer happens in the most appropriate way.

So maybe we start here, Brian. I'll ask you the question. Talking about preparation for the next generation, if you had to think on a high level, what would be some of the tactics that you might use with a client when we need to have these conversations about wealth transfer?

Brian Pultman: I think it's very important for us to start early with our children, perhaps when they are at the age of 10 or so, and they can understand a little bit more about what money is and what it can do for you. And when you start them off on some type of an allowance at the very beginning, you perhaps want to let them know that they can save that money, they could spend it, or they can actually give it away to charity to help other people. And try to instill some of those concepts very early in age. We can't expect the kids to be good stewards of finance if we don't have these conversations throughout their life. [If] all of a sudden one day they inherit a few dollars, they won't know what to do with it.

Colin Day: Yeah, because I think about my son, who's eight years old at the time of this recording. We gave him a three lego block piggy bank set, I guess you'd call it. And it had those same concepts. It was what can I spend? What am I saving for the future? And then what [are] my charitable donations? So if I'm getting four dollars every week by doing my chores, how am I taking those four dollars and dividing them between the three banks? Maybe I'm putting two in spend, one in save, one in charity.

We try to build that up over time and, hopefully, by 52 weeks in a year, you've accumulated quite a lot of money to go between those three.

We're just talking about bigger dollars though, right?

Brian Pultman: Absolutely.

Colin Day: Yeah. So in terms of the preparation side of things, we have these conversations early for a reason. So that we don't have children that are spendthrift, that maybe don't understand the concept of money. Again, you can bring your own children into this – goodness forbid you would – but they're young adults [having] those kinds of conversations. What do you think might've been some of the more important lessons that you offered to your kids as they were growing up and now that they're in their full time positions [to] make them good stewards of their own money?

Brian Pultman: I think the number one thing that I was instilled in my life with my grandfather and my father was a good work ethic. Making sure they understand that regardless of the family wealth that they're expected to make it on their own.

Number two, in terms of trying to find something they have a passion for. Families that have means, perhaps the kids have a little bit more flexibility in terms of changing jobs or doing a career path that they have a little more passion , whether it might be in the arts or theater, perhaps. Otherwise try to find something that they really enjoy that it's not like they're going to be working their whole life doing something they resent.

Colin Day: Yeah, right. I mean, and it's important that we have these conversations early because really, these are the building blocks. These are the Legos – so to speak – of how we build good habits. By knowing those good habits, we build the other kinds of tangential habits like work ethic, and making sure that they understand that yes, while parents can step in from time to time to assist, you're on your own. We want to make sure that we're raising kids in that kind of manner.

Brian Pultman: Correct. The third step would be for us to take a look, including your kids before they go to college. Let them know, “Hey, your family, your parents are going to go ahead and make a commitment of $40,000 or $60, 000, you got to think through this process. Is that investment going to pan out down the road? And what your expectations are if they're going to go to some type of a school to make sure they can get some type of degree where they actually can get a job and give back to society.

Colin Day: Right. Exactly. And I think that's probably the most pivotal point in the conversations I've had with parents who are our clients about transferring of wealth, not at the time of death, but rather at the time of the most actualizing part of the finances for a young adult, which is if they're going to go to college.

I had a conversation with a client last week. It was, “Hey, here's the money that we have for these children. The money runs out. It's on them.” So they make the choice. Do you want to find a very cost effective method or do you want to find a more expensive method? And then, does it pan out?

But having those conversations early so that they understand, “Here's what's on the table. You can pick and choose what you like, but not everything is available to everybody.”

Brian Pultman: Correct. And if you talk about different stages, once again younger kids, young adults, and as they go into their careers, have them a little bit more involved in your family business. Maybe you don't want to disclose everything, but at least give them a taste and understanding. And with the tax law [that] is going to be perhaps changing at the end of 2025, it might be a situation where you and your spouse are actually gifting money to the kids and trusts, perhaps, and let them know that money is set aside for the future and not to let that money, let's say, derail them from their future goals. Make sure they stay focused, they stay within their budget, and they didn't make changes in their lifestyle to make sure they can afford things on their own going forward.

Colin Day: Yeah, absolutely. And we were talking right before filming this about a book called Die With Zero. Unfortunately I don't remember the author's name off the top of my head, but one of the things that they preach in there is the idea that you are setting up your kids for success early by allowing them to experience the wealth that you've accumulated. But to a point where they still need to actualize, they still need to have the work ethic to understand that mom and dad aren't going to be here forever, mom and dad aren't here to play piggy bank for you. But we want you to experience the wealth while we can watch you enjoy it. So if you've got grandkids and you're thinking, “Hey, I want to make sure that we're doing the fun things as a big family, that we can.” Well, maybe that's a part of this transfer of wealth as well. But again, it's always at the risk that we're giving a little bit too much away too early. There needs to be the long term focus as well.

How about philanthropy? How about gifting money to charitable organizations, Brian. Does that come up often with the clients that you're talking to?

Brian Pultman: Very much so. As each family decides what kind of charities they may be interested in supporting, it's nice to get your kids involved and ask them what charities they find of interest. And if you're gonna allocate X amount of dollars, let them know, empower the kids and say, “Hey, listen, here's $100 or $500, [whatever] it may be, and identify a charity one or two that you'd like to support.” To help them learn early in the stages to be a giver and give back to society.

Colin Day: Yeah, absolutely. And I think it's important to note that as somebody is nearing a wealth transfer event, so that your loved ones understand that, “Hey, these particular organizations are important to me.” And they might be a part of my estate plan. Not a hundred percent of the money is going to Jack and Jill the two children, but rather it could be Jack and Jill and my favorite charitable organization, my church, my synagogue. It's important to make sure that everybody has an expectation in terms of the amount of wealth that they might receive.

Brian, this is a fun conversation. Of course we could banter on and on about this all day. If you have any parting thoughts or some things to share with folks, what would you want to share with the audience?

Brian Pultman: I would have to say that here at Correct Capital Wealth Management, we are totally focused on supporting families to help in this process of having family meetings. Educating their kids about being a good steward of their family's finances. Then finally, we've actually increased our team with a couple of new financial advisors to kind of help and focus just on our children, the grandchildren, and their children to help them with their next chapter in their life.

Colin Day: Yeah, absolutely. It's important that we develop the muscles on our clients so that they can have well informed conversations with their loved ones so that when this wealth transfer happens, everybody's hopefully on the same page, if not better off for just having the conversations up front.

Brian Pultman: Well stated. Thank you.

Colin Day: All right for Brian Pultman. I'm Colin Day. Thank you all for joining us on another Capital Conversation. We'll catch you in the next one.

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing.

As always, please remember investing involves risk and possible loss of principal capital. Please seek advice from a licensed professional. Correct Capital Wealth Management is a registered investment advisor. Advisory services are only offered.

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Whether you’re still picking out colors for your first kid’s nursery or you’re wondering how to equitably split up an inheritance amongst your adult children, Correct Capital is here to meet you and your family where you are now and help you get to where you want to go. If you're interested in meeting with a member of Correct Capital for estate planning, or any other financial planning service, you can schedule a meeting with a member of our advisor team, contact us online, or give us a call at 877-930-401(k).