Money and children

Anna Gosling

Hi, my name’s Anna and I’m Tom’s eldest daughter!

At the time of writing I’m in my second year at  university. My dad asked me to give some perspectives on money and children from the recipient’s perspective.

When I was quite young, my dad was promoted to partner at PwC. Following this promotion, my parents decided that they wanted to become financially independent so they could pursue a different style of life from age 50. This meant they had to start thinking more carefully about how they were going to use their money efficiently in order to reach this goal. Part of this included how they were going to manage mine and my two younger siblings’ money effectively to ensure that we not only had enough to support us short term e.g. allowances and pocket money, but also how they could set us up for the future. They wanted to get the balance of this philosophy of provision right and not be too indulgent nor too parsimonious.

Your personal philosophy will always play a massive part in how, and how much, you provide for your children. When it comes to giving them money they won’t have had to work for, it is important to get the balance right in order to provide for your children adequately, but not spoil them.

Family inheritance expert Howard Sharfman summed this up perfectly to Wealth-X: “Parents are concerned about making sure that the children have meaningful lives, lives of significance and they don’t want their financial fortunes to hurt that. They want to help, and that’s a very hard balance.” Obviously, if you have the means to do so, you will want to provide for your children’s future in some way, but it is natural to be genuinely concerned about how over-indulging your children could seriously affect them.

“I think it is always a good idea to leave your children something, as it would be hurtful and could feel unreasonable if your parents had the ability to help you out but chose not to.”

Warren Buffet and Bill Gates have been open about the fact that their children will not inherit a large amount of their wealth. That said, their children inheriting even a fraction of their wealth will still leave them comfortably off, so it’s all relative. But this shows even the super-rich struggle with this question of whether to give your children everything or nothing; a hand-up or a hand-out – or, as Buffet puts it, ‘enough to do anything but not enough to do nothing’. I think this last phrase encapsulates a good middle ground between being excessively parsimonious and overindulgent.

When considering the prospect of how to provide for your kids the most important thing to remember that it is a very personal subject which is unique for everyone depending on a lot of factors. How much you earn/have and your own personal values on providing for children will all contribute to your decisions. It is important to find the right balance for your family.

In my opinion, I think it is always a good idea to leave your children something, as it would be hurtful and could feel unreasonable if your parents had the ability to help you out but chose not to.

Equally, you don’t want to be leaving them so much that they know they’ll never have to work a day in their lives — an inheritance shouldn’t be a way that they can live for free! I appreciate my parents giving us money to help us earlier in our lives and I prefer this to the idea of profiting from my parents’ death!

The decision should be made between you and your partner privately before having any discussions with your children about their inheritance and when they might receive it. Having made the decision, it’s an important step to talk to your children about what they can expect, reducing uncertainty and potential upset in the future. Yet according to the Money Advice Service fewer than 1 in 10 people have talked to their children about their inheritance.

“Knowing that I have something to fall back on in an emergency has certainly helped my own feelings of security.”

I feel I have greatly benefitted from receiving responsibility for money at 18. My parents adopted a balanced approach with me and my siblings. My dad explained to me that they used some of our junior ISA allowances to build a fund that was enough to be useful (e.g. go towards a house deposit at some point) but not so big to corrupt us at age 18.

They also made some pension contributions, meaning that whatever happens we will always have something to fall back on in retirement. This approach has given me great solace, because it means that I have money to fall back on if my life takes a drastic turn for the worst, but it isn’t so much that I won’t have to work hard for a good living. It means that I have funds to make achieving important milestones more realistic, such as buying a house, but doesn’t give me a bottomless bank account to splurge on bad decisions.

I also appreciated the fact that they trusted me to be responsible with my money and didn’t feel the need to tie it up with lots of restrictions. At the same time, I’ve had the education to figure out the right way to use it.

Different people will have different views on this approach. Some will read this and think it’s indulgent to provide children with an ISA at 18 or to pay for their living costs at university. Of course many people have to do without these benefits. But with everything that’s going on, it can be an anxious time and knowing that I have something to fall back on in an emergency has certainly helped my own feelings of security.

The structured way my parents have gone about it means that at each important stage of my life I know that I can rely on a helping hand to get me started, but not enough so that I am being spoilt or overindulged. Giving your children these advantages provides you with a feeling of satisfaction that you are able to give your children the privileges that perhaps you didn’t have growing up.

And as for your children, they are the ones receiving this care and consideration, and from firsthand experience I can tell you it feels pretty good!

Now read my thoughts on what you need to think about at different life stages for your kids.

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