Description of Problem/Opportunity
Sometimes as parents or guardians we find our families in a position where our children have received a large amount money. Often this money is preceded by an unfortunate occurrence such as a settlement/award at the conclusion of a lawsuit or from the inheritance bequeathed by a loved one. There are also joyous occasions that result to the financial benefit of a minor. No matter what the origin of the money, it is often followed by new problems never imagined by most.
Common Contributing Factors/Parental Concerns
Most people mature with age and experience, but sometimes the knowledge of an imminent “big payday” is counterintuitive to this fact. Parents and guardians are right to be concerned as to the possible effects this can have on a minor’s growth. There are other foreseeable factors that present causes for concern. Some of these factors are:
Being influenced by others
These influencers come by way of family, friends, or possible business opportunities. Sometimes they mean well and other times their intentions are less virtuous.
Lack of impulse control
Money “burning a hole” in someone’s pocket is a common phrase used to describe someone eager to spend or someone who lacks fiscal responsibility. Not all spending is bad spending or frivolous, but sometimes it needs to be thought out so that it is done in the most responsible way.
No Plan for the Money
At the end of the day, the minor received the money for a reason. Occasionally this fact gets forgotten with a newfound high bank account balance. Planning should not wait until the minor reaches the age of majority.
Behavioral Finance/Education
Once the settlement has been awarded or the inheritance has been disbursed, financial education should begin. This is not to be confused with financial planning or financial management. Financial education counters many of the fears that come along with realizing that the clock has begun for when a young person will receive unfettered access to a substantial amount of money.
Moving Forward
Keep it Private
Sometimes the simplest solution is the best solution. Keeping settlements or awards private is the first step towards preventing many of the hardships that come along with sudden wealth. If the settlement is not public information, fewer people will see the minor as an opportunity. This also allows the minor to act in a proactive manner so that his/her wishes dictate all decisions made. The tail should never wag the dog.
Money is a Tool not an Asset
This is the most important concept to youth finance. Getting the proper financial education so that they recognize sound guidance as soon as it hits their ears. When thinking of money as an asset, only two options are available regarding how the proceed. One option is to save it, and the other option is to spend it. When thinking of money as a tool, you find that there are many options to consider for your next step.
Define Your Circle
Keeping people around the minor who have his/her best interests at heart is the single most important thing to do. Good intentions are never enough when it comes to money, you must combine them with competency. For the first time in the minor’s life there will be a need for two “circles”. A financial circle and a personal circle need to be identified, and there may be some overlap between the two.
The financial circle is better served to have professionals in it. This is advisable because it is an added layer of protection for the minor. Look for professionals who have a legal and ethical fiduciary responsibility to the minor or trust. It is always a good idea to have someone who is accustomed to having difficult conversations to help keep the minor on the right track. As with everything concerning money, this person should be free of any conflict to ensure that the minor’s best interest is always the only factor considered in actions.
The social circle is simply keeping people around the minor who sincerely care about him or her. If the lines are ever blurred, the financial circle can add clarity and the professionals are the last line of defense.
At the end of the day, there are many variables to be considered when looking out for minors. Often, an influx of cash adds to the uncertainty. Hopefully, this helps point anyone affected in the right direction.