Here's How Affluent Parents Prepare Their Kids

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Affluent parents -- defined as households with investable assets of at least $500,000 -- generally understand the cost of raising a child and have planned for their child's future as well as their own retirement and legacy, according to a new study from Personal Capital. That's a wallet being pulled in a lot of directions, even for relatively wealthy families.

"Affluent parents are trying to best prepare for their children's futures by financing higher education, helping them get their first jobs and tackling important money conversations," said Personal Capital Vice President of Private Client Services Michelle Brownstein in a press release. "Fortunately, these individuals are starting to cut the purse strings on their adult children to prioritize their own retirement saving and spending."

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What are the priorities?

Affluent parents largely understand that education can help keep their kids doing as well as they have. Seven in 10 reported that they will pay for their child's college education, while only 36% said that they didn't spend, or don't plan to spend, anything on their child's K-12 years.

Half of affluent parents did say they have stopped, or plan to stop, supporting their child after college graduation. Another 39% expect to help their child land his or her first post-graduation job.

And while 50% of affluent parents said they will stop supporting their kids after college, at least some make exceptions for certain major expenses, since 71% of survey respondents said they would be paying for at least some of those. The big ones that affluent parents said they had paid for, or would pay for, are graduate school (70%), a car (50%), and a wedding (68%). Those are higher numbers in all cases than the survey respondents said their children expected.

Taking care of everyone

Two-thirds of those surveyed said they will choose to "spend their money on themselves in retirement versus passing on an inheritance to their child." Despite that, only 19% of affluent parents said that they "do not expect to have to change their retirement plans in order to support their children."

Roughly three-quarters (71%) of affluent parents expect that their children will be as wealthy as or wealthier than they are. Most affluent parents, however, aren't leaving that to chance and talk to their children about a number of financial issues, including:

  • Saving and investing (77%).
  • Working hard (75%).
  • Budgeting and spending (70%).
  • The family's net worth (38%).
  • Philanthropy and giving (36%).

Most (85%) of affluent parents don't believe their child will cause a risk to their own financial wellness, "such as being overly financial dependent on them or irresponsible with money," according to the report. Nearly all affluent parents (98%) plan to leave an inheritance for their children, while 32% plan to leave something to charity.

"Affluent parents use varying financial products to make their money work for them and to create a financial legacy for their children," according to the Personal Capital report. "Three in four (74%) are invested in the stock market."

In addition, 86% had checking accounts, while only 72% had savings accounts, and only 41% said they have a high-yield savings account. That's something Brownstein was bothered by.

"While Affluent Americans are spreading their wealth across several different investment vehicles, they are not necessarily managing their cash properly," he said. "Every person, regardless of wealth, should have a savings account for emergencies, and ideally those should be high-yield savings accounts so investors can earn on the cash they're holding onto and achieve their long-term goals."

Prepare your kids

The kids of affluent parents have some inherent advantages. They may have access to better education, and it's easier to make money when your family already has money.

That doesn't mean the parents of more modest means can't give their kids a leg up. Teach your kids the value of money early on. Lead by example and show them how to budget, save, and invest for the long term. You don't have to be wealthy to share those lessons, and if you teach them, then your kids, no matter how much money you have, will have a better chance at success.

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