From Allowance to Affluence: Instilling Financial Independence

Clients often ask us how to ensure their children understand the value of money and become financially independent decision-makers. It’s not just about revealing the magnitude of wealth; it’s about equipping heirs with the skills and mindset to manage it responsibly.

I remember the day my father asked for my wallet at my graduation brunch. I thought he was going to slip a congratulatory check inside. Instead, he took out the family credit card and cut it in half, signaling that I was now on my own. It was a dramatic gesture, but it underscored an important lesson: financial independence is a journey that requires preparation and support. Here are some concrete ways to engage the next generation in meaningful discussions about wealth and financial independence.

Starting the Conversation

When a young adult receives a substantial gift, say $100,000, they might feel overwhelmed. But by framing the conversation around the “three-bucket” concept—spending, saving, and giving—families can provide a clear and manageable way for heirs to think about their assets. Breaking it down into distinct categories also instills a sense of care and foresight.

One of the most effective ways to begin is by using relatable analogies. Think about your refrigerator. You put milk in the fridge, and a pizza in the freezer, but bread can be left on the counter since you use it every day. While it may sound simple, teaching heirs how to apply this analogy to their wealth can be incredibly helpful.

For instance, the “bread” bucket covers daily or monthly expenses, ensuring that immediate needs are met. The “milk” bucket is for medium-term goals, like saving for a splurge vacation or a charitable donation at the end of the year. Finally, the “pizza” bucket represents long-term savings, money that is set aside for future security and growth.

How much do you allocate to each category? It varies by family, with some opting for general “rules of thumb” (say, a third for each). But in general, it’s safe to say that your freezer is smaller than your refrigerator because young adults tend to put away less for a longer period of time, given where they are in life. Thinking through these three categories encourages heirs to develop a structured approach to managing their wealth over different time horizons.

The Role of Education Programs

Family education programs can also be instrumental in preparing heirs for the responsibilities that come with wealth. These programs offer more than just financial literacy; they foster family cohesion and strengthen relationships across generations. In our proprietary research, Wealth Beyond Measure, we conducted deep, one-on-one interviews with 40 UHNW Bernstein families at different points in their wealth journey. Our conversations revealed that one in five families considers these programs crucial for building connections and engaging younger members.

For instance, one family started by scheduling a series of virtual meetings with all of the 20–30-year-old family members. Sessions covered topics from financial basics and budgeting to trust and estate planning. Another long-standing investment-focused family office runs cross-branch, cross-generational classes to teach investment and behavioral finance fundamentals, while transmitting the values that are important to the family. “We want to inoculate this family from investing risks, but also teach them some of the values that might make them a little bit more low key and less flashy about whatever they’re doing…be a little bit humbler and more circumspect about how they manage finances.”

In another case, after selling their family business, two brothers set up a financial boot camp for their children, nieces, and nephews. This program not only educated the next generation in basic finance but also provided a forum for open discussion and bonding. One brother remarked, “They’re getting a definite education, and they actually look forward to it. I was busy with work, and never really introduced them to the world of finance...I guess they took some classes at school, maybe economics. But when you’re hearing it from professionals, I think that’s a better learning tool. Plus, now I talk more openly with them on some of the financial stuff compared to before.”

Building Financial Independence

The ultimate goal for many families is to prepare their heirs for financial independence. This process often begins at a young age, around 9 or 10, when children start to grasp the concept of money. Training wheels, in the form of allowances or controlled spending, can help young people learn to manage their finances. By gradually increasing their financial responsibilities, they can develop the skills needed to navigate the complexities of wealth. This preparation is essential for ensuring that they can eventually “ride the bike” on their own.

Almost a quarter of the families we interviewed rely on philanthropy to instill valuable lessons about the responsibilities that come with wealth. Sometimes it’s simpler to engage the next generation in financial decisions through active participation. For instance, several families mentioned developing next-generation boards for the family’s philanthropy.

One family’s youngest generation become members of their Junior Foundation Board when they turn 13. Each Junior Foundation Board member receives a small amount of the foundation’s annual distribution and researches an organization they feel passionate about. They present their choice organization to the other members of the junior board, culminating in a group consensus grant recommendation, which is then presented to the entire family. “We provide them with experience to work through the decision-making process and exercise working together. Primarily, our strategy has been focused on shared experiences and including them in a fun but impactful way.”

Charting a Path to Independence

Teaching heirs about wealth management involves more than just financial figures. Instead, think of it as a way to convey values, responsibility, and connection. By using simple analogies, engaging in open conversations, and implementing structured education programs, families can prepare the next generation to be responsible stewards of their wealth. It’s a journey that requires patience, empathy, and a willingness to adapt, but the rewards—a cohesive, financially savvy family—are well worth the effort.