Should you Spend Your Kids’ Inheritance?

Guest Author
Holiday

Warren Buffett is worth $100 billion, but his children will only get a tiny fraction of that wealth. In fact, he’s halfway through giving his fortune away to charity, because he believes it can help improve the world for everyone.  

While the average Kiwi parent doesn’t have billions to consider, the question of whether your children should receive an inheritance is still a tricky one. Leaving money behind for your children is a lovely idea, but only if it doesn’t come at your own expense. And there may be better, more enjoyable ways to share all your hard-earned wealth.  

Your quality of life comes first

It’s not uncommon for retired parents to spend less on themselves so they can leave something for their children. That’s a personal choice, but don’t cut your spending so far that you make yourself uncomfortable or miss out on the experiences you’ve always dreamed about. You certainly shouldn’t be turning down the heater or putting off a roof repair to save money so that your kids have more to inherit.

You earned your money by making sacrifices and good choices when you were younger – now it’s yours to spend. You shouldn’t feel guilty about it. Why not take that dream holiday, learn a new skill, buy a new car or renovate your house?

Your legacy should be more than cash

A huge sum of money isn’t necessarily going to set your children up for success in life. They may spend it irresponsibly so it never benefits your grandchildren; one US study found that half of all money inherited was “spent, given away or lost quickly”. Another possibility is that your children never strive for personal success because they’re assuming your money will fund their own retirement.

You might like to consider what kind of legacy you want to leave beyond simple cash – what will help set up the next two or three generations for success and happiness? As Buffet says to wealthy parents: “Leave the children enough so that they can do anything, but not enough that they can do nothing.”

Here are a few ways you could use your wealth to create a longer-lasting legacy:

  • Set up a fund specifically to pay for your grandkids’ education, or pay off their student loans.
  • Help your children or grandchildren get onto the property ladder.
  • Invest in financial education for your children so that they learn how to maximise and manage their own money.
  • Initiate a dollar-matching savings programme for younger children or grandchildren, perhaps invested in KiwiSaver, to help encourage them towards positive savings habits.

This type of investment could do far more for the future of your family than a simple cash injection.

Give it away while you’re around to enjoy it

Assuming you have more than enough to support your lifestyle, why not spend that money on your family during your lifetime? You can create memories that your kids and their kids will remember with happiness throughout their lives, and experiences that can never be repeated.

For example, you could:

  • Take everyone on a fantastic family holiday overseas.
  • Throw a huge family Christmas party every year.
  • Pay for your grandchildren to participate in a sport they love, and watch them play each week.
  • Commission professional family photographs, beautifully framed and hung, for everyone in the family.
  • Buy a big holiday house where you can all spend time together.

Seeing first-hand the positive impact your money can have on your family is surely more satisfying than letting them spend it all once you’re gone.

Can you have your cake and eat it too?

If you’re able to hold onto your nest egg, while still enjoying a high quality of life in retirement, that’s an ideal scenario. Protecting your nest egg gives you a substantial buffer in the future, and it may allow you to leave something behind for the next generation as well. Well-chosen investment can help with that, and Zagga has been an important tool for many of our clients for generating reliable returns while keeping their principal intact.

Zagga’s secured lending, currently returning 7.55% per annum can earn our investors around $580 per month for every $100,000 invested. By dividing your investment across many loans, you can also reduce your risk. Combining Zagga lending with other types of investments is a way to invest for a predictable income stream once you’re no longer working. Talk to your financial adviser about how Zagga might fit into your retirement income portfolio.

Make your intentions clear

Whatever you choose to do with your money, it’s important to talk to your adult children about your plans.

If you want to SKI (‘spend the kids’ inheritance’), then they should know that, so they’re not banking on your money to pay off their mortgage or fund their own retirement. If you plan to leave them money and other assets, try to communicate your intentions clearly so the will doesn’t come as a surprise. No parent wants their estate to be the cause of a family conflict that drives a wedge between siblings, spouses or grandchildren.

Talk to your financial advisor and accountant about your assets, income and expenditure – they can help you make a plan to spend the inheritance or retain it, without compromising your quality of life.

 

Keen to find out more about investing through Zagga? Visit our Investor page, or talk to our team on 0800 286 286.

Tags

Interested in learning more about Zagga? Join our mailing list
Interested in learning more about Zagga? Join our mailing list