Wealth Management Blog

Posts tagged Education

How to Talk to Your Kids About Wealth

By JJ Burns

May 15, 2015

For some people—especially those with considerable wealth—talking about money is difficult. Some families believe it’s inappropriate to talk about money, or that it’s simply not the kids’ business to know what the family’s assets are.  For children with wealth, it’s important to understand the various ways money functions in today’s society.

As trusted advisers we encourage having a well-crafted approach to the “money talk”.  In our experience this provides the foundation that will sustain a families wealth and legacy for future generations. 

Where to Start: Developing Family Values

Every family’s values are different. Some may be dedicated to philanthropy while others may be about working as hard as you can. The first step is taking a good look at your own behaviors and values:

  • Are you consistent about spending, investing, and giving money away?
  • Do you tell your kids to spend judiciously but are extravagant on yourself?
  • Do you demonstrate the difference between wants and needs?
  • Do you have your own written financial plan?

The goal is to help your kids create a purposeful life that reflects what’s important to the family. Additionally, you want to be able to protect your children—and eventually grown adults—from people who might take advantage. The more you know about finance, the less likely your children will be manipulated into investing all their money in a dubious scheme or engaging in illegal activities.

The 5 Key Financial Traits

Financial professionals identify 5 key traits that will help children with wealth succeed now—and in the future.

  1. Learn how to save. If your kids and grandkids don’t know how to put off instant gratification and save for something meaningful—whether it’s a car or a donation to charity—then there is the potential to squander their inheritance.
  2. Learn how to manage money. What do you do when you have an inheritance, investment income, perhaps a salary, and possibly employees? What can you do to maximize your funds rather than deplete them? Sure, you can hire financial advisors, tax experts, and staff to manage your wealth. However, hands-on knowledge will help your children to understand the power of compounding interest, how mortgages and loans work, and how to leverage other investments, such as property, to continue to build their wealth.
  3. How to be paid your true value. Most people enjoy contributing to something useful, whether it’s the family business, a start-up they helped create, or a foundation. Understanding money gives you negotiating skills and insight into the value of your contributions.
  4. How to handle credit. As a wealth generation and business tool, credit can help you build a financial empire. Used inappropriately, credit can decimate even large estates.
  5. How to speak the language. Just like other industries, finance, investing, and money management have their own distinct languages. Identifying financial mentors who can present age-appropriate concepts throughout the years will give your children a significant advantage as they begin to spend and invest their wealth.

We believe that families who devote time and effort to understanding and defining their financial heritage will sustain their wealth for generations.

Through heritage planning, we ensure that your family members are prepared to receive their inheritance. We mentor and train your loved ones in money management, leadership, and other key skills. We also encourage communication across all generations, so your family is united in its mission and goals. Find out how talking to your kids now can make a difference for your family for generations to come.

Crash Course on Paying for College

By JJ Burns

March 29, 2013

There’s good news in the mail: Johnnie or Susie just got accepted into a top college. Naturally, you’re proud of your child. But now comes the hard part—figuring out how to pay for four years of education at an elite school.

Tuition costs at private institutions, in particular, can seem staggering. Still, there are ways to send your son or daughter to a great college without bankrupting your financial future. Start with these five steps:

1. Compare and contrast financial aid offers.

There’s no standard format for the wording of award offers, so carefully review the information in each one your child receives. Typically, the offers will list financial aid from several sources, including school scholarships, work-study programs, and federal loans, and also will note your “expected family contribution,” calculated from the information you provide on the Free Application for Federal Student Aid (FAFSA). But some schools provide more information than others, so try to compare apples to apples.

2. Do the math.

Once you determine how much aid each school will provide, figure out your how much you will have to provide. Incorporate the amounts you expect your child will be able to cover—perhaps for such things as books, meals, and entertainment—into your calculations. That will give you a better handle on what you’re really facing.

3. Expand the hunt for financial aid.

Don’t give up just because your child isn’t a star athlete or a computer genius. You can find scholarships to fit a wide range of niches and groups on websites such as Fastweb.com, SchoolSoup.com, and SallieMae.com. In addition, students may qualify for state aid. Also, many corporations offer scholarships to children of employees. And remember to reach out to civic, religious, and ethnic groups within your community.

4. Consider a payment plan.

Frequently, colleges provide tuition payment plans that charge little or no interest. You may have to pay just a small up-front fee. Contact the school for the necessary arrangements.

5. Explore loan options.

If your family must borrow money, start with federal loans, which typically have the lowest interest rates. Currently, a subsidized federal Stafford Loan offers a fixed interest rate of 3.4%, while the federal PLUS loan features a 7.9% rate and Perkins loans have a fixed interest rate of 5%. Apply for these when you fill out the FAFSA. As a last resort, you might turn to private loans, but be aware that the interest rates on those tend to be higher.

This is just a quick lesson on navigating the financial aid waters. The schools your son or daughter is considering also may be able to provide ideas for reducing the financial burden on your family.

Pros and Cons of Section 529 Plans

By JJ Burns

February 10, 2013

A Section 529 college savings plan can be a tax-smart way to help your children pay for their higher education. But you should also be aware of several potential pitfalls of this planning device. Here’s a brief rundown on the main pros and cons.

The Pros

The account can make money.

A Section 529 plan works much like a mutual fund, with account assets typically invested in equities by professional money managers. They do the hard work while you sit back and watch the account grow.

Count on the tax benefits.

Contributions to the plan are gift-tax-free, the earnings within the plan are income-tax-free and any distributions that are used for qualified education expenses are also income-tax-free. That’s a hard combination to beat.

Funds may be invested automatically.

Frequently, a plan will let you have funds automatically withdrawn from your checking or savings account. Not only is this convenient, it also takes some of the guesswork out of saving for college.

Contribution limits are generous.

State law effectively controls the amount you can sock away in a Section 529 plan, but the limits are favorable. In some states, you can contribute as much as $200,000 to your child’s account, which should be sufficient to cover tuition for four years at most schools.

Account assets are portable.

Although 529 plans are sponsored by individual states, the money can be used to pay for college wherever your child attends. Also, if funds are left over when your son or daughter completes school, you can use the excess to pay college expenses for another child. You don’t have to close the account until the youngest child reaches age 30.

The Cons

Funds must be used to pay qualified expenses.

If you make a withdrawal and use the cash for any other reason—say, to pay emergency medical expenses—the distribution attributable to earnings is taxed on both federal and state levels, and you’ll owe a 10% penalty. You’ll also be taxed on any leftover amount you receive after closing the account.

The investments are out of your hands.

This is the flip side of having professional money management. If you’re a savvy investor, you may prefer to have greater control over the funds. Should you be inclined to use a different investment option outside of a 529 you’ve established, you’ll be taxed and penalized if you withdraw funds and invest them elsewhere.

It might affect financial aid eligibility.

The impact of a Section 529 plan is usually negligible if held by a parent. Nevertheless, it must be factored into the equation to determine the “expected family contribution” (EFC) for college costs.

For most families, Section 529 plans are a good deal, but they’re not for everyone. We can provide the necessary guidance.