How to raise a “rich” kid

Growing up, my dad taught me everything I know about money. He has a way with words and can drop these backwoods one-liners that make you think and laugh at the same time.

He didn’t care how much money anyone had, he cared how you acted. He would say things like, “people are either good, bad, or broke.” To him, being broke was never a moral failing, it was just a symptom of fear. He taught me how to treat money like a boomerang saying, “if you have the courage to ask for it, money has no choice but to respond.”

It wasn’t just money, though. He used the same approach for everything in life to show me that I was in charge of my own destiny and success. I was probably Beau’s age when it dawned on me that daily tooth brushing was my first never-ending responsibility. Every time I would complain about it, my Dad’s response was always “well just brush the ones you want to keep!”

I know his parenting style might not fly in this day and age but back then, he gave me a sense of agency and confidence that has served me well in my adult life and that’s something to cherish.

But not everyone learns about money from their parents. In fact, most parents don’t feel ready to talk to their kids about money at all. A survey by Capital One found that only 22% of parents felt prepared to have money conversations with their kids.

A separate study by Merrill Lynch reveals how this problem actually cuts across all income levels. They looked at the family dynamics of high-net-worth individuals and asked how parents felt about different financial tasks. The one they felt the least confident about was “teaching children about finances” 🥴.

It turns out that even rich parents don’t want to talk about money with their kids, and it’s not like they don’t have their reasons.

The most common reason given was they worry that telling their kids about their wealth will make them lazy and spoiled. Some of them want their kids to stand on their own feet and earn their own money. Others feel nervous or guilty about the money talk and don’t want to mess up or confuse their kids. The rest say they just don’t know how to talk about money because no one ever taught them.

But none of these reasons are good enough to avoid “the money talk” because our kids are watching us anyway. If we don’t talk to them about money, we’re leaving them in the dark about something that will affect their lives every day. We’re setting them up for unrealistic expectations or misunderstandings about how much money we have and how we use it. And we’re risking conflict and resentment later on when money issues come up.

So I want to help take the pressure off. You don’t have to worry about how your kids will use the information you give them in the future. Research shows that half of them may choose to do things differently anyway, just like our generation did.

You also don’t have to be a perfect communicator or a financial expert to talk to your kids about money. There’s a study that shows that kids as young as 5 understand that the world is not fair and that some people have more power and money than others.

Kids already understand what’s happening around them and they’re capable of more. But when we don’t tell them the truth or answer the questions they have, they freak out. They look for answers elsewhere and they find stuff that is wrong, biased, and scary.

Our kids are the first generation of kids who will grow up in an incredibly information-rich environment. A lot of it is crap, but we can help them build a stronger knowledge base than any other generation if we just focus on the facts.

What matters the most is that you give them the facts when they’re young. That’s when their brains are most receptive and curious and they’re soaking up everything like a sponge. That’s when they’re building the foundation of knowledge that will help them make smart decisions later on.

This is not about ruining their innocence, this is about helping them grow. I want caregivers and parents to see these hard and important conversations as a way to make their kids more caring, smart, and aware of the world.

Our approach to teaching Beau about investing and financial literacy is very similar to my Dad’s approach to teaching me.

First, we make saving money normal. Beau has two investment accounts where we put his money to work for him. He doesn’t know all the details, but he knows money can grow if you let it, so we routinely invest 50% of any money he receives on his behalf.

We want him to have a healthy relationship with money so he’s free to do whatever he wants with the remaining half. But once he learned that saving up for something big is more fun than spending it all right away, saving quickly became his favorite thing to do with leftover funds. He got into the habit of saving and investing young, and we think that will benefit him throughout his life.

We also use time to our advantage. We invest his money more aggressively than ours. Why? Because he has more time to let it compound and recover from any losses.

He has about 25% of his portfolio in individual stocks and the rest is in tech sector index funds. Even if all of the stocks go bust, he won’t lose everything. He won’t miss out on retirement or becoming a homeowner someday, he’ll just lose 25% of his money. But if they do well, he’ll have a lot more. That’s the real benefit of starting this young. We can cap the downside while keeping him open to tremendous amounts of upside.

We also set some limits to teach him that money isn’t everything. He can’t have whatever he wants, whenever he wants it. At the end of the day, our goal is for him to have a safety net, not a hammock. He knows that if he breaks or loses something, we won’t just buy him a new one. He has to deal with the consequences or buy it himself. 

Perhaps the most interesting thing has been how video games and sports have reinforced a lot of these financial lessons. They’ve taught him invaluable lessons about teamwork and what it takes to earn something.

The bottom line is we need to stop making investing for kids a big deal. It’s not a tax loophole, an extra credit activity reserved for the elite, or something extra that we do as parents to signal how great we are. Romanticizing it is counterproductive and defeats the purpose in a lot of ways.

Investing is like brushing our teeth. It’s just common sense and we do it because we need money, just like we need teeth.

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