Earlier this year, I wrote a blog titled Why I Feel Sorry for the Rich Kids. It turned out to be one of my most popular blogs ever. In the blog, I discussed the dangers of not teaching Rich Kids about money. In this blog, I share some tips for Rich Parents to help ensure that their Rich Kids don't become Spoiled Rich Kids. Before I go into the art of raising rich kids, let me first provide a quick recap of the dangers of not teaching rich kids about money.
The dangers of not teaching Rich Kids about money
They live a life which is materially above their own means (so end up spending more than they earn when they are adults)
They don’t have a sense of the value of money (they don't see the difference between their wallet and their parents' wallet)
They are less incentivised to work hard as they already have money in the bank (which can lead to lower earning potential)
They have a strong sense of entitlement (which is likely to damage their self-esteem when they get into the real world of working)
There are limited opportunities to develop the skill of being patient (which is the superpower of the wealthy)
They are more likely to feel that money leads to happiness (which we know is not the case)
The most extreme version of Rich Kids who experienced all these downsides was the Vanderbilt children. The Vanderbilts were once one of the richest families in the world but lost nearly all their wealth within a couple of generations as the children and grandchildren didn't know how to look after the money. To learn more about this epic riches-to-rags story, please read my Vanderbilts blog.
Conversely, the Rockafeller family who made most of their vast wealth in the 1800's are still going strong. They have successfully passed on their wealth to many generations. They have been adopting many of the tips I outline below.
Note: I have used the term 'Rich Kids' throughout this blog, rather than 'Wealthy Kids', as it is more commonly searched for on Google. If you'd like to know the difference between rich and wealthy, then please read my blog Rich Kids vs Wealthy Kids
The Art of Raising Rich Kids
Below are some tips to help you make sure your kids don't grow up spoiled/entitled with money. I note in advance, that some of these are not easy and will require you to make sacrifices (which is tough as you feel that having money means that you shouldn't have to make as many sacrifices in life).
As I researched this topic, practising gratitude came up again and again when trying to raise Rich Kids. Whilst you as a parent might feel a sense of your kids being lucky as they get to experience things you didn’t have as a child, your kids just see their life as 'normal'. It's therefore really important to take the time to practice being grateful for the things they have. Find a regular time to discuss how grateful you are for what you have and get them to do the same. Important point: This isn't to make them feel guilty for their privilege, it's to make them grateful. Another way to help your kids be grateful for what they have is to role model giving to others. As your kids give to charity, they will see that what they have is not the same as what other people have and this can make them feel grateful. If you haven't already, please check out my blog 3 Positive Impacts on Your Kids from Giving to Charity
They are not rich
One of the dangers of rich kids is that they become entitled. They believe they should be eating in nice restaurants all the time as they are a member of your Rich Family. I love the quote from the Shaquille O'Neal (basketball player) blog when he talks to his kids about money:
"You are not Rich, I am Rich!"
It's really important that your kids understand that they are not Rich, they are experiencing a rich life due to your hard work and fortune. It's important they know that if they want to keep experiencing the same lifestyle when they are adults, they will have to work hard and find ways to make money. If you do have money, teach your kids about the hard work that was put into getting that money. Help them learn how this money is being looked after. Teaching your kids about how to earn and manage their money is more important than just giving them money. These lessons will ensure that the money that is given to them, or which they earn, will last.
Get them working to learn the value of money
This is a hard one for many rich parents. "Why should my kids waste time working for money now, they should be working on their studies?". Getting kids to do some work and earning money is one of the best ways to help them appreciate the value of money. Depending on their age, this could be doing jobs for you, starting their own mini-business or getting a part-time job. If you pay them to do jobs for you, make sure you aren't too generous with how much you pay them - you want them to have a realistic sense of what it takes to earn money. The other aspect of understanding the value of money is to get them to appreciate where your money goes. If you haven't already, check out the Monopoly Money experiment. This helps kids appreciate that whilst they might only see their parents spending money on nice things like clothes, holidays and cars, most of the money is spent on bills/tax/food. Highlighting these expenses can help them appreciate what money is needed for.
Set boundaries on what you'll pay for
Be clear with your kids about what you will pay for and what you expect them to start paying for. As they get older, make sure they are responsible for paying for more themselves. Without these boundaries, kids will grow up believing that their parents pay for everything and will continue to believe that even as adults. They then become entitled adults (if their parents do continue to pay) or they are hit with the harsh reality of having to start paying for everything. The money might still be coming from you in the form of an allowance (pocket money) but they know they are responsible for using this money for certain things. It might be toys when they are young but as they grow up they become responsible for paying for casual clothes or going out with their friends. This is the really important bit! Once you set the boundaries, you have to stick to them. If you give your kids weekly or monthly pocket money and they are responsible for using that money to go out with their friends, you can't just give them more when they have overspent. They need to take responsibility for their spending and learn to be patient. Setting boundaries is hard as you don't want to see your kids miss out but it's so important you stick to them. If you don't then they will forever live above their means.
Create a plan for their money
When your kids are growing up, start talking to them about what they want to do with their money when they become adults. Get them to plan for what they might spend and how they can make their money last. This is important for a number of reasons:
One: Stops the Lottery Effect
Kids who are given a lot of money when they become an adult get over-excited and can easily go on a spending spree. Just like many lottery winners, the money doesn't last long. By having a plan, it stops (or at least reduces) spontaneous spending.
Two: Gets them thinking about looking after their money
A plan helps them consider their priorities. With your help, you can get them thinking about the impacts of their plan. For example, if they plan to buy a car, you can discuss the ongoing costs of managing a car, with higher ongoing costs for more expensive cars. As part of the plan, you should discuss how they can use the money to last for a long time by getting them to save/invest some of their money so it grows and generates an income for them. Use this time to highlight that you will not be the 'Bank of Mum and Dad' when they are adults (of course, I'm sure you'll help them if needed but create a plan which doesn't rely on that).
READ MORE: 4 Traits of Wealthy Kids
If your kids do grow up to be spoiled/entitled, it is because you have 'enabled' them to be like that. Therefore, you have to take action now to ensure they:
Are grateful for the life they are experiencing now
Appreciate that you are rich, not them
Understand the value of money
Have boundaries for what you buy them
Have a plan for their money
Taking these actions means your kids can still enjoy a childhood with all the amazing experiences that come from having money but also ensure they don't take it for granted and will look after their money as they grow up. IMPORTANT: If you are going to take the actions above, make sure you are aligned with your kid’s second parent! I've seen a lot of cases where one parent is taking the right actions, only to find out that the other parent is giving their kids money and undermining all the hard work. If you found this blog useful, please take 10 seconds to share it with another family. Links to the blogs mentioned above:
Thanks for reading! (Subscribe below) Will P.S., If your kids are under 13 years old, one way to help them grow up looking after their money is to get them a copy of Grandpa's Fortune Fables. Available on Amazon or you can order here as part of our Special Bundle Offer which includes extra games, an online course and a Money Tracker.