After a Texas teenager fled the country to avoid the consequences of a probation violation, “affluenza” emerged as a new buzz word. The term, coined by a psychologist during the teen’s drunken driving trial, implies that financial privilege can make kids unable to understand the impact of their actions.

The notorious defense was debunked after the teen and his mother were apprehended in Mexico and it became clear that the case had more to do with poor parenting than excessive wealth.

But the concept of wealth as ill-gotten, rather than hard-earned, has grown dramatically – despite the fact that most affluent families got that way due to good decision-making, said Paul DeLauro, senior vice president of wealth planning at City National Bank.

“Raising financially literate children is one of the hardest tasks a parent can do,” DeLauro said. “What is often overlooked is the added difficulty that a parent of wealth faces. It may seem counterintuitive, but parents who don’t need to worry about money often forget to teach the life lessons of good financial stewardship, and the foundations a child will need to rely on aren’t there when the child needs them most.”

In order to avoid that, parents should make sure their children learn to manage money prudently.

“A big part of what we try to do as parents is get them ready for grown-up decision making and trade-offs; financial trade-offs in particular. The sooner we can give them practice in trade-offs, the better they’ll be,” said Ron Lieber, author of “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money.”

Children tend to be hyperaware of money’s power, but not often of its source and definitely not its complexities, he said. Like sponges, children pick up all sorts of impressions about money, so families must make a consistent effort to provide guidance.

Where to begin?

Rules of the road: Just as you might discuss traffic laws when you’re teaching a teen to drive, Lieber said, you also can narrate how you handle money. Children then have some guidance when they begin to make their own financial decisions. 

Interest in principles: “Values and language should be your main concern when you are raising children in wealth,” said Joline Godfrey, founder of Independent Means Inc., a Santa Barbara consultancy that teaches affluent families about financial literacy. Be a positive role model and use words such as safety, respect, choices and care to communicate a healthy approach to money, she said.

More than money: Family financial discussions also should emphasize wealth beyond cash and possessions. “If children are raised to understand the purpose and impact they get from non-material wealth – things like intellectual capacity, values, how to behave in community – then they grow up and understand that life isn’t just about fancy clothes and the designer handbag,” Godfrey said. Parents who volunteer and have built companies that make their communities healthy demonstrate that they stand for something positive.

Setting limits: When you may have the means to provide generously for your children, it can be difficult to resist the temptation to give them everything they want and more. Parents can impose helpful boundaries with what sociologists call “artificial deprivation,” said Lieber. “It’s what we do as a parent every time we say ‘no’ to something we could say ‘yes’ to.” Lieber advises parents to be consistent, explain their reasoning and have a goal in mind for the limits.

Back to budget: Financial goals and limits can be imposed by teaching children about cash-flow, said Godfrey. Make a six-month lifestyle budget for children under 10, and annually for older children. On a monthly calendar, let them mark out the cost of items and experiences such as skiing, videogames or online music purchases. “Walk them through the granular things of their lives that cause them to spend money,” Godfrey said.

Work for experience: Let children earn their own money, advised Bruce Weinstein, an author and corporate ethics trainer. Step One is to insist that your kids get a job in high school where they can develop relationships with people from different social classes. Food server jobs that depend on tips are particularly useful partly because children will one day order food from a server.  “They’ll see what a difficult job it is,” he said.

Break the bubble: Affluent children may be sheltered from important experiences such as needing a job to earn money. But they still need to understand the larger world to be aware, philanthropic citizens. “It is especially important to visit other countries and see how other people live and how hard other people have to work just to get by,” said Weinstein. “You have to recognize how much we have.”

Raising children with healthy attitudes toward money and what it can buy – and can’t – begins by being a good role model, DeLauro said.

“Most often the lessons of forming a budget and sticking to it, avoiding improper debt, saving for retirement, and preparing for an uncertain economic future come the hard way with life experience. Laying the foundation so that, when challenged, a child knows how to react is the key,” he said. 

City National Bank's
Wealth Planning Guide

Get tips for the remainder of the 2015 tax season.

Download E-book