Watching your children grow up is both amazing and terrifying.
One day you’re changing these tiny peoples’ nappies, the next you’re driving them off to university. They grow up quickly, but ask most people if they’d trust their children with their finances and they’ll probably answer “over my dead body” (which, given most parents wait until their inheritance to bequeath assets, is quite an apt response).
However, as unnatural as it may seem, there are numerous advantages to bringing your (adult) children on board with financial conversations. And, as we’ll explain, there are benefits to the whole family from involving children in financial planning and letting them act as an adviser.
GIVE THEM AN EDUCATION
First, it’s well known that financial education levels are poor in the UK. According to this study, 77% of UK adults said they had never received any formal financial education, with 79% admitting they wish they had. This means many children grow up without a full comprehension of how money works and what considerations they need to make about their own financial future.
The responsibility of education falls at your feet, so it’s in your best interests to get them up to speed. For instance, your children could look at your lifestyle and surroundings and think you’re, to put it bluntly, ‘rich’. However, they may have no idea about the impact of higher rate taxes, your current debt obligations or even how comfortable you really are.
A skin-deep knowledge of money can be damaging in the long run, so by involving your children in discussions about your money and where it comes from (plus, how much of it there is) you can empower them. With a greater knowledge of money, your children can be involved in discussions about your financial future and their legacy.
INVOLVE THEM IN ESTATE PLANNING
Transparency is vital to estate planning. Unclear inheritance plans and wills containing nasty shocks can lead to long-running disputes in the family. Research has found most Britons overestimate how much they may inherit one day, with the average expected sum of £132,000 statistically likely to be nearer £50,000.
Discussing inheritance with your children is a double whammy of taboos (covering money and your mortality), but this can be invaluable in the long run. Not only can these conversations allow you to structure your estate to better help your future generations, but you can also make financial planning decisions together.
Third, bringing your children into such important discussions, could be crucial as you get more vulnerable in your latter years. Here, the use of a lasting power of attorney (LPA) – a legally binding arrangement that allows someone to make important decisions on your behalf – can be extremely useful.
An LPA is a serious responsibility and there are benefits to having a loved one sign up as they will inherently have your best interests at heart. This will still be a difficult time for them emotionally, so involving them in your financial planning decisions beforehand and ensuring they are well prepared can make a huge difference.
THE PAYOFF
Involving children in financial planning will involve some tricky conversations. And, unless you want to try and explain inheritance tax (IHT) to a toddler, you’ll have to wait until they’re mature enough which is something that will vary with each child. However, having your children help advise on your wealth and take part in decisions can be invaluable for your entire family and potentially be the best decision you make for your future.
If you would like to discuss your financial planning, please get in touch using the CONTACT FORM HERE.
