Several years ago, my five-year-old was sitting at the table as I prepared his breakfast of cereal and fruit. I slid a bowl of Cheerios to him with a glass of milk and began peeling a banana. Just before I handed it to him, I took a large bite off the end.

“Hey,” he remarked, indignantly. “Why’d you do that, Dad?”

I looked at him with a wry grin and replied, “Taxes.”

Even at an early age, you can begin preparing the youngest of minds for what they are eventually going to face as maturing adults – the complex world of financial responsibility.

In poll after poll, the majority of wealthy clients share a similar concern — will my children grow dependent on the wealth left to them and fail to realize their potential? They don’t want to give their children too much money too early and risk indulging them and making them irresponsible.

Instead, most wealthy individuals want to raise their children to be good stewards (i.e., good beneficiaries) of the family wealth so that they, in turn, can raise their children similarly. They want to connect their own family values with financial responsibility in order to increase the chance of avoiding the generational dissipation of family wealth (sometimes known by the phrase “shirtsleeves to shirtsleeves in three generations”), where 70% of family wealth is gone by the second generation and 90% by the third.

Professional advisors can help reinforce good financial behavior in the next generation, but the foundation is laid at home by parents and other family members. A teenaged son once stole his parents’ credit card to buy a pair of $150 sneakers. When caught, his father shrugged, said, “I was going to get them for his birthday anyway,” and let him keep the shoes! Children will model the behavior of those they most observe and trust, so provide them a positive example to follow.

Here are four simple things that parents and grandparents can do to help develop sustainable financial behavior in their children and grandchildren.

First, encourage and support the next generation in pursuit of their passions. They may have a desire to excel in education and follow a traditional career path or explore entrepreneurial goals. They may have a love for philanthropy or a unique talent to develop or even a dedication to raising their family. An attorney once told me, “Beneficiaries need something to wake up to each day and be passionate about.” It takes more than the expectation of trust income to motivate and challenge a person. They will need something personal — help them discover it.

Second, educate them on basic financial principles. What is the difference between principal and income? What happens to income when principal is reduced? What is a sustainable earning/spending plan? Too often, easy access to trust fund assets can prevent good lessons that will bolster a beneficiary later in life.

Challenges will occur. The safety net of a trust fund is reassuring but need not be the first place to turn for assistance or rescue. Instead, consider and instruct that other options are available (and possibly preferred):

  • Reduce expenses (eliminate unnecessary services, change locations, buy a smaller vehicle, etc.)
  • Increase income (change or get a job)
  • Borrow funds from a beneficial source (try a bank for home/car purchase based on favorable interest rates)
  • Ask friends/family for help (use reduced interest loans or annual gifts)
  • Sell something (unneeded items or investments)
  • Go without (just don’t buy it)
  • Wait for time to pass (desires may change)
  • Contact trust officer (for thoughts and ideas before an actual distribution)

Third, expose your children to the family’s advisors – accountant, attorney, trust officer, etc. Do the advisors come to your home? Do the children see them in a variety of situations and are they comfortable around them? As they approach adulthood, are they establishing meaningful relationships? Is someone already beginning to advise them? (The answer is yes, but be sure the right people are doing the advising.) Personal information will need to be shared in the future to have an effective relationship (salary and debt information, family challenges, personal goals and desires, etc.). Help establish trust relationships early so that they will be effective later when needed.

Fourth, teach them to give back. Knowing how to give with intention doesn’t come naturally. Talk to the next generation about which charitable institutions you contribute to and why, whether it is volunteering or donating. Consider offering to help the charities that are important to them, possibly through a matching program. Teaching family members about giving can help them discover causes they care about, develop budgeting skills and financial literacy, and open their eyes to valuable tools to help create change in the world.

Children can be taught simple economic concepts very early to help them learn about choices, consequences, and how to appreciate family wealth. They will then be better prepared to act responsibly and sustainably with any assets over which they become stewards. It can even begin with a hands-on example of a banana and taxes.

For the record, I used the same method with cookies.