Motivating Clients Through Financial Parenting.

From the outside, my clients looked like they had it all: three great kids doing well in school, a business headed for the stratosphere, a beautiful home, a large stock portfolio, great family vacations and lots of toys. But something was missing.

I had covered the financial planning basics: set money aside for college, convinced them to execute wills and trusts and purchase substantial amounts of life insurance. But every time I tried to talk with them about more in-depth planning strategies--business succession plans, sophisticated estate-planning techniques, early-retirement goals--our conversations mysteriously stalled.

Sound familiar? This pattern may signal a client's hidden concern over their children's ability to handle the substantial sums of money that they will inherit someday. It's a scenario that plays itself out more often today than ever before, thanks to the tremendous amounts of wealth produced in the last 20 years. And reluctant clients have every right to be concerned. Too often, the financial free ride of a hefty inheritance can create "trust fund babies"--heirs who find this easy money a ticket to self-indulgence and irresponsibility.

The solution: a healthy, early dose of financial parenting.

FINANCIAL FACTS OF LIFE

Financial parenting is the process of clients taking the time to educate children and grandchildren about the financial and social responsibilities that come with money. Yet too often, it's exactly these financial facts of life that successful parents fail to communicate to their children. This lack of communication can be attributed to many things. It may be the result of a geographic separation among family members or old-fashioned privacy concerns. Some parents just don't know how to get started, while other parents can't or just don't make the time to communicate with their kids.

Financial parenting isn't easy, but it's one of a parent's most important legacies to their children. Ask your clients to start by reflecting on their own value system and what's important to them about money. You'll probably find that their value system spans three basic categories: spending wisely, saving for the future and giving back to the community.

Following are some simple yet powerful financial parenting techniques that I regularly share with my clients to help them convey their own values as they educate their heirs. Some of these techniques are fairly sophisticated; others are really quite simple. But all may be useful tools to share with your own clients--especially those who may be struggling with hidden fears that hinder the planning process.

PROMOTE FINANCIAL AND SOCIAL RESPONSIBILITY

The best time for clients to start educating children and grandchildren about financial matters is early. As soon as a child is old enough to understand money as a reward (usually about 5 years old), clients may want to consider establishing a regular weekly allowance. While some people like to tie the allowance to family chores, others prefer to consider chores a separate responsibility. Whatever their decision, the goal is for children to understand ties that parents have with money.

Clients also should consider educating their children on how to save some, spend some and give back to the community. As they speak with their children about ways to give something back, they should remember to consider the child's interests as well as their own.

The Real-life Lesson: By managing their own money, children begin to understand how to balance savings, social awareness and fun.

BUILD BUSINESS SMARTS

Clients should consider employing older children in the family business after school or during vacations. Simple activities such as answering the phone and greeting customers will polish social skills; while working in the warehouse or matching invoices with purchase orders helps develop organizational skills. Don't forget to advise your clients to instruct employees that the children shouldn't receive special treatment. Similarly, children shouldn't expect special treatment; they should understand their responsibilities and then be expected to meet them.

The Real-life Lesson: Working gives children an up-close look at how businesses function, and a chance to develop confidence and self-esteem by mastering basic skills and taking on responsibilities.

STRETCH SOCIAL CONSCIOUSNESS

Clients should get their children involved in charitable activities or volunteer work to boost their social awareness. For this to be successful, they'll need to make certain that the activity is something the children are truly passionate about.

Some suggested ways to get children engaged? Clients might consider local performing arts for children with an artistic bent; if their child likes animals, encourage volunteer work at the local animal shelter. If the child is into sports, consider donating money or old uniforms, or if they're strong academically, perhaps peer tutoring or tutoring younger children is the answer. They shouldn't forget about religious charitable activities either. The more kids enjoy an activity, the more excited they will be about participating.

Yet another social awareness-boosting alternative: Have clients consider establishing a family-run charitable foundation, with children or grandchildren participating in the distribution decisions. Think the grandchildren are too young? I have a client who established a grandchildren board of directors on which the youngest is 5 years old. It really works.

The Real-life Lesson: Caring means sharing. Children who connect from their heart at an early age with a particular cause or activity will carry that

passion with them for life.

CONSIDER A FAMILY INCOME TRUST

Instead of an outright bequest of their estate, your clients might consider funding an irrevocable Family Income Trust as a way to motivate and encourage--rather than simply support--a multigenerational line of heirs. This powerful type of trust can encourage positive, productive behavior through discretionary distributions made by the trustee and guided by criteria the client establishes when the trust is created.

For example, a Family Income Trust's provisions might direct the trustee to distribute matching funds to double a family member's savings for college education, or reward heirs who maintain a certain grade point average in high school or college with a cash award. In addition, prizes could be given to recognize outstanding contributions by family members in the areas of law, medicine, charitable activities or the arts.

The Real-life Lesson: A Family Income Trust can encourage heirs to maintain a certain value system and reward individual achievements by family members.

ONGOING EFFORT

Financial parenting requires on-going effort, and there is, of course, no single right way to develop financial or social acumen in children. And, as with any teaching tool, financial parenting requires sensitivity to the needs and personalities of each family member.

By focusing on your clients' value system and engaging them early in discussions about financial parenting strategies, you may help them to overcome reluctance and approach long-term financial planning with greater interest.

Joel B. Goldhirsh is a principal with Goldhirsh and Goldhirsh, an Irvine-based wealth management and estate tax consulting firm. Advisory services offered through Lincoln Financial Advisors. He can be reached at [phone] or [e-mail].