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Should You Give Cash To Your Kids?

The average Auckland home is worth over a million dollars. Will leaving that to your children be a wonderful gift or lead to fights? Amy Hamilton Chadwick talks to the experts about generational wealth.

18 October 2021

Autumn 21

The world’s richest investor has a US$85 billion fortune – but his kids won’t get much of it. Most will go to charities.

That’s because Warren Buffett famously says: “A very rich person should leave his kids enough to do anything, but not enough to do nothing.”

Even for those of us who don’t have a fortune, how to leave money to your children (or even whether you should) is a tricky issue.

One of the reasons many people create wealth is to make life better for the next generation.

Being able to help your kids get a degree or buy a house, for instance, can make all your efforts feel worthwhile.

On the other hand, having (or expecting) an inheritance can be a motivation-killer.

Your kids, or their kids, could burn through that hard-earned money in just a few years. ‘Shirtsleeves to shirtsleeves in three generations’, the saying goes.

Simon Hepple, wealth adviser for Pie Funds, says: “As a general rule, I’ve found someone who’s given something for nothing is a lot more likely to spend it than if they’ve earned it.

“I say to my clients, give your kids enough money to create opportunities for them, and give them the education to know how to use it.”

Should you spend it all yourself?

If you’ve amassed some wealth, it’s up to you what you do with it.

For most people Hepple sees aged between 60 and 80, leaving money behind is a secondary consideration compared to spending it now, he says.

As an earlier generation used to say, ‘The last cheque I write should bounce’.

Travel is a priority for his clients, which might include paying for holidays with the kids and grandkids, as well as living a high-quality lifestyle.

Spending might also include funding education for the children and grandchildren during their lifetime, while explaining that they shouldn’t expect any inheritance.

‘Entitled’ kids

An increasing number of wealthy people say they don’t want their kids growing up feeling entitled, says Donna Nicolof, who volunteers in schools to teach kids about money.

“The family will provide a good education, but often expect kids to make their own way,” says the Nicolof, chief executive at Pāua Wealth.

“When children make their own money, they not only develop a solid work ethic but take pride in their own successes.

“By the same token, those who have come to expect handouts can become resentful, which is why purpose is so important.”

Financial education is vital

Whether you leave your children a huge estate or nothing at all, instilling in them a solid understanding of money management is something valuable you can pass on.

Ideally, teaching them about money should start even earlier, says Nicolof.

“I’ve read research showing that if you educate kids on the basics of budgeting and saving at age seven, they retain those skills for life.

“By supporting your kids, you can make sure they have the right knowledge to handle whatever wealth they build or inherit.”

Hepple agrees that educating your children about money is the safest way to protect your wealth for future generations.

He’s recently been working with a mum who brings her adult kids along to meetings, so they can get the benefit of Hepple’s advice on their own finances.

“Your kids need to differentiate between wants and needs,” he says.

“They need to understand good and bad debt, how to use a credit card, and investing 101.”

By investing in financial education, you’re doing more than most to ensure future generations can benefit from the wealth you’ve created.

Prevent conflict and animosity

Unfortunately, an inheritance can create conflict between family members, sometimes causing legal battles which can rapidly erode even a large estate.

“Conflict within the family is often the biggest risk to private wealth, sometimes more so than market, business, and creditor risks,” says Henry Brandts-Giesen, partner and head of private wealth at Dentons Kensington Swan.

“Siblings falling out is common. But conflict also happens between parents and children. Where the family is blended, then the level of risk increases.”

That’s why it’s important to talk with the people who will inherit your money, so they understand not only your purpose for the wealth, but your legacy.

Use a facilitator if you need to, adds Nicolof.

Managing huge estates

If your family’s net worth is NZ$25 million or more, you might want to consider a family office.

A family office effectively turns your investment portfolio into a business that generates an income for future generations.

Keeping the estate together allows for more buying power and growth than splitting your wealth up between your children.

“A few families have the financial means to set up and sustain a family office, with in-house human resources and tools to carry out these processes, much like a financial institution,” Brandts-Giesen says.

“This can lead to better returns on investment but, more importantly, also empowers and protects family members. Wealth provides both benefits and burdens.”

The ‘rule of 92’ is that 92 per cent of an estate is destroyed by the third generation. Family offices aim to avoid this pitfall.

With good advice and the right set-up, it can be achieved. The Todd Corporation, with NZ$4.3 billion in equity, is New Zealand’s most famously successful example.

The principles are the same

Whether you’re worth billions or just starting out, you want the best for your kids.

If you’re wondering what, if anything, to bequeath, start by talking to a financial adviser about how best to handle it.

In the end, good relationships, education, and excellent life skills are a better legacy.


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