1 April 2015

Passing Wealth to the next generation...Seven top Tips: No.4 & 5

Following on from last week’s blog which featured ‘top tips’ numbers 2 and 3 for clients looking to pass money onto children, we continue this week with tips 4 and 5, ‘Don’t give cash’ and ‘The gift of giving’.

4. Don’t give cash

Some parents decide to directly reduce the child’s mortgage or pay off student loans rather than give the child cash in their hands.

A long-standing client of mine makes ISA subscriptions for each of his children every year and, from time-to-time, as he receives cash from investments or paid projects, he pays off a proportion of their mortgage. He feels that this is a sensible approach because, while he is confident his children are mature in relation to money, he prefers not to put the temptation to buy ‘stuff’ in their way. A little distance between the child and cash, he thinks, is good.

Giving children investments also helps, of course, to teach them about savings and investment, a responsibility which, in due course, they are likely to have to take on.

5. The gift of giving

Joline Godfrey, in her book Raising Financially Fit Kids, talks about making children aware of charitable giving and philanthropy more generally from an early age. She states that “philanthropy is a powerful way of connecting kids to something larger than themselves”.

Parents can talk about their approach to philanthropy and perhaps suggest that the child aims to ‘tithe’, giving a tenth of their income (or whatever they receive, be that income or capital) each year, and that the child chooses a charity that they are interested in.

For wealthier families, the child might become involved with the family foundation, or the child may even establish a foundation of their own.

“philanthropy is a powerful way of connecting kids to something larger than themselves”.

Many see philanthropy as forming one of three ‘homes’ that income/capital should be split between, the other two being saving and spending. There are now even piggy banks which have three or even four separate sections (the fourth being ‘invest’), labelled accordingly to instil this message from an early age. Is this the modern-day equivalent to jam jars being put aside to meet the various household expenses?.

Richard is a Chartered financial planner, Certified financial planner, Fellow of the Personal Finance Society, Fellow of the Institute of Financial Planning, and Affiliate of the Society of Trust and Estate Planning. He works with clients in Scotland and in London and has particular expertise in helping individuals and families pass wealth down the generations. View Richard’s profile here.

If you would like to discuss your financial planning options, please contact us with any questions you might have. You can do this by calling our head office on 0131 220 0000, or by emailing us at or you can also follow us on Facebook, Twitter or LinkedIn.

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