As an affluent parent, it may be tempting to gift your adult children cash or expensive presents. However, it is important to understand the consequences of generous gift giving—it could actually cause your children to lose more wealth than they gain.
Understand that giving cash results in more consumption than saving and investing.
When you gift your adult children a substantial amount of cash (be it in the form of a down payment for a house in a good neighborhood, expensive furniture, tuition fees for a private school for their children, etc.), you can cause them to turn to a high-consumption lifestyle. For example, if you pay for your grandchildren’s tuition at a private school, your adult children will have to pay for books and other such fees. They might even choose to move to a neighborhood on par with the other families who send their children to such schools or get a seven-passenger station wagon to participate in the school’s carpool. Overall, they will end up spending much more, and investing and accumulating much less wealth.
Never tell your children that their parents are wealthy; instead, teach them discipline and frugality.
Lead by example. If you live a lifestyle of moderate consumption, your children will follow. Teach them that there are many things more important than money, such as health, happiness, family, friends, self-reliance, etc.
Gift your children with trusts that will not distribute money until they are at least 40.
This way, they will have established their adult lifestyle before receiving substantial cash gifts and will be less likely to spend above their means.
Emphasize your children’s achievements, no matter how small.
Teach your children to achieve, not just consume. Remember, if you are the best in your field, money will naturally follow.