You've spent your adult life diligently working, saving, and investing, and now you want to ensure the fruits of your labor benefit your children and grandchildren.
But it's about more than just money. Proactively equipping the next generation with the skills, knowledge, and work ethic that will help them succeed on their own with what you can leave them can be just as important.
Start by setting a good example. It stands to reason that sensible spending, saving, and investing habits are more likely to take hold among them if they're modeled by you.
Be a transparent parent and grandparent. Within your comfort level and theirs, explain your principles and actions, like saving and budgeting. Encourage their entrepreneurial ventures from that first lemonade stand. Reward judicious spending and saving habits and discourage thoughtless consumption.
With your guidance, they can avoid pitfalls and replicate your successes. This isn't just about making them rich; it's about equipping them to sustain and build on the wealth they'll inherit. Here are three great ways to do that.
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1. Fund them through trusts and wills
Trusts and wills can be critical to ensuring your wealth benefits your descendants in the way you intend. Choosing between them, or deciding to use both, requires careful consideration and knowledge about the myriad options.
Trusts offer control over how your wealth is distributed and who can access it. They can also take effect before you die -- living, or revocable, trusts are the typical vehicles for that. Make sure you designate a trusted trustee to administer it.
Wills, on the other hand, are executed after you die, and are overseen by your executor. The executor specify who will receive your assets after you pass away.
Wills are generally simpler and less expensive to set up than trusts, and an expert in these matters can help you create an estate plan that can specify conditions around how your assets are distributed. (Consider including gifting causes that you care about as part of this process. Your children and grandchildren will see your values in action.)
It's especially important to consult an expert in estate and retirement planning once you add in direct gifting and your own retirement and senior living plans.
2. Invest in their education
An education may well be the greatest gift you can give. College costs have skyrocketed for years, and millions of Americans have college debt they'll be servicing for years, with no end in sight for many.
A great way to finance an education is through tax-advantaged 529 accounts and similar plans that can be used for college, and in many cases for K-12 and career training.
Other options like simply directly paying for your children's education out of your other assets, or some combination of the two, may work best here too. Work with financial advisors to choose the best educational funding ideas for your family.
And this is a great place for transparency. Make sure beneficiaries are involved, and not just so they appreciate you. Bluntly, higher education is something many can't afford without help or debt, and that kind of appreciation can also help build a sense of general gratitude and social responsibility. Paying it forward can be a nice byproduct of that kind of thinking.
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3. Foster their financial education
Last but certainly not least, push for financial education for youngsters and, when it seems necessary, the young adults in your family. This can be informal through your own conversations and examples of how you do all things financial, and also through the many opportunities for financial literacy learning both online and in person.
Many schools, credit unions, banks, community organizations, and private companies that specialize in interactive online learning offer such courses, and they're a great way to promote money management skills, including budgeting and prudent borrowing for homes and vehicles.
Such knowledge may seem basic to you at this point in your life, right? But ensuring your children and grandchildren know the facts will help limit the impact of their mistakes.
Sound financial literacy education will also reinforce lessons you teach through savings accounts and allowances from an early age, accompanied by discussions about money management as the years go on.
Preparing the next generation with patience and consistency
Preparing the next generation for financial security -- a great measure of success in itself -- requires patience and consistency, wise planning, and judicious giving. But with guidance and structure, an inheritance can help secure your children's future without spoiling their work ethic and initiative to achieve on their own.
Above all, use experts when you need them, and then make sure to lead by example. The financial foundation you provide yourself may be the most powerful lesson of all when it comes time to share the wealth -- both in money and wisdom -- with your heirs.
