Growing up, we often hear the adage that “money doesn’t grow on trees.” Even if it did, odds are it wouldn’t make us happy. In fact, studies suggest that children who are raised in affluence actually suffer more than those less privileged. Anxiety among affluent boys and girls is 20 to 30 percent higher than it is among the less affluent, and affluent kids are more prone to alcohol and substance abuse.
For affluent parents, it’s especially important to focus on preparing children for financial success later in life. Many theories posit why affluent children falter. Some people believe that this gap is caused by a failure to develop any “immunity” to poor circumstances, and never learning to manage scant resources to survive.
Obviously, circumstances and causes vary from person to person. But the data substantiates that affluent children are at a significant disadvantage when it comes to the skills, knowledge, discipline, and Emotional Intelligence (EQ) to attain long-term financial stability.
The Risk of Affluence
Affluence also increases other risks. Affluent children are more prone to substance abuse, chronic depression, and low self-esteem, in frequent measure due to parental and household pressure. Parents who are wealthy and successful often expect the same from their kids, who can, in turn, interpret that the wrong way or place too much pressure on themselves.
Research conducted at the Family Institute at Northwestern University identified that, along with several other risk factors, affluent adolescents will likely face direct challenges to their development. Parents who hire expensive tutors place too much emphasis on results and not enough on the process. Affluent teens suffer from burnout and lose joy or interest in learning because of perceived pressure. Affluent kids also likely have working parents on the go and therefore live in higher isolation than kids whose parents have lower financial means.
The Illusion of Security
If the risks of affluence are not recognized and proactively addressed early on, children tend to fail later in life. The illusion of security or perceived financial success and abundance at home can create the delusion that the child is set for life. He or she typically has no idea how money is made, how it gets used, and is rarely told “no” when it comes to material possessions. The problem is that this bubble will most assuredly burst, as even successful parents still have bills, loans, and mortgages to pay—and there’s always the risk that the parents lose their wealth.
The illusion of security is of great concern on several levels. Aside from giving children a false sense of security, it disincentivizes them from learning about finances throughout their formative years. This lack of ongoing education can nullify the benefits of coming from a wealthy family.
What good is a hefty inheritance if the child isn’t equipped with the skills and EQ to effectively manage a liquidity event? Most people who hit the lottery end up broke within five years, and there are similarities to how children of the affluent manage their windfalls.
Applying Emotional Intelligence
It’s not all bad news: Many of the traits that created parental wealth, such as being goal-oriented and achievement-driven, pass down to kids. The challenge lies in recognizing the risks mentioned above and harnessing the child’s inner drive towards ongoing financial preparedness. One of the most important steps that a wealthy parent can take is to get to know and understand their child’s emotional profile, known as their Avatar.
One of the biggest determinants of financial success and an individual’s relationship with money is their Avatar. Their individual belief system that manifests as their Avatar influences their money management on a constant basis. If a child likes to solve puzzles, he or she will tend to take a problem-solving approach to investing. Their Avatar may be the Problem Solver.
If a child is a social butterfly, they’ll likely grow up to be a Giver or Connector who connects with others in emotional ways. This will spill over into their relationship with money. A child’s Avatar is set early in life and does not change. Parents should take note to find the best approach to financial literacy based on each distinct Avatar.
There are many simple tactics and strategies that wealthy parents can take with their kids to help them grow their muscles to face financial adversity and develop the skills necessary to manage money.
For younger children, it may be as simple as delaying gratification when they want things, even when financially inconsequential. When a child becomes old enough to go shopping, give them a small amount of money, like $3, and tell them to buy as much as they can. It will be a good lesson in finite resource management.
Affluence, something frequently taken for granted, acts as a curse for children who are ill-prepared educationally (not to mention emotionally) when it comes to managing their financial futures. By recognizing the risks of affluence and removing the illusion of security, we can guide them in developing their EQ. Parents can take a more active role in making sure that the wealth they’ve worked so hard to create stays in the family.