If you had the power to change your family’s financial tree, would you do it?  I think you can, and I will show how with one example.  Let me start with sobering statistics from Beating the Midas Curse by Perry L. Cochell and Rodney C. Zeeb: “In families where new wealth has been created by the first generation, six out of ten of those families’ fortunes will be gone by the second generation.  By the end of the third generation, nine out of ten families will be broke.”  The conclusion was 90% of all traditional inheritance plans fail.  What’s going wrong?  According to these authors, we are putting valuables ahead of values. 

     Giving is a growing passion for me, not just because I assist clients with estate planning as a financial advisor, but as a Christian, I see missed opportunities to allow God to multiply the resources we have through our incomes for our families’ future generations.  If our paradigm of giving shifts from leaving an inheritance to “living giving,” which means taking advantage of   compound interest while time is on their side, God will have future generations of believers with amazing resources He could tap to further His work.  I was awakened to this vision eight years ago while teaching a course at my church called Financial Peace University, a program written by Dave Ramsey, a Christian financial counselor. 

     Ramsey gives the example of Ben, who invests $2,000 a year from the time he is nineteen years old to the time he is twenty-six, for a total of $16,000.  By age 65 he has earned 12% a year on his investment and has accumulated over $2.2 million!  My favorite line from Ramsey’s course: “What if I’m half wrong?!  Aren’t we happy?!” -By which he means, even if Ben had accumulated half that amount — $1.1 million that would still be an incredible accomplishment. In contrast, another investor, Arthur, contributed $2,000 a year from the time he was 27 until he was 65, or $78,000, but he didn’t make as much money as Ben.  He had $1.5 million at age 65 at the same rate of return. Take a look at the attached illustration at the end of this post, which demonstrates the power of compounding from an early age.

     A great tool to build wealth for kids for long term investing is a Roth IRA.  There are a few rules to follow regarding the Roth, but I want to show you the big picture for now.  The Roth allows you to make contributions that aren’t deductible for your tax return, while the earnings grow tax free.  Roths are available for anyone who earns income.  Does your child babysit?  Pet sit?  Mow lawns?  When a child earns money, contribute their earnings to their Roth as a gift.  By the way allowances for doing chores does not count as earned income per the IRS.  The income has to come from an outside source.  (You can Google Roth for Minors to see examples of what is and is not considered earned income.)  Can you imagine what you can accomplish through “living giving” while your kids and grandkids are young and earning income?

     Some of you might be thinking, “Lee Ann, it is not my job to build my kid’s retirement!”  I agree.  This is where a shift in thinking is critical.  You aren’t building their retirement, but rather a legacy that teaches them to use these dollars for the Lord.  You have to view this “living giving” plan as an opportunity to impart your legacy of values that allows your children to have the freedom to serve Christ with these resources.  You are putting them in a position to have more options to follow God’s leadership as they get older.  You are teaching them that our lives are not about us, but about God.  These resources are not about living on Easy Street, but finding ways to minister to those in need.  By implementing such a plan, you are teaching your kids that these resources are a blessing from God and meant to be used for His purposes.  Thus, your job is to TEACH your child how to manage and use these dollars to further the cause of Christ!  It is very clear in Scripture when God blesses us with wealth, He never intended us to hoard it.  His resources aren’t ours to keep, but His to give.  There are multiple passages warning us to beware of greed.  I am suggesting that you can shape the hearts of kids for giving and sharing God’s resources by teaching them God’s values about money, stewardship, giving to the poor, the oppressed, the underprivileged, the hungry, etc. 

     Here are a few ideas for training your children to handle God’s wealth.  Teach your kids how to budget.  Teach them the importance of writing “thank you” notes to God, which we call the tithe in the church setting.  (A tithe is 10% of the income God provides to us.)  Enroll them in the junior version of Financial Peace University.  Show them all the Scripture passages around the blessings of giving.  Pray for them daily and ask the Lord to transform your child’s heart to be a generous giver just like God.  Model giving while your kids are young.  Help them to make decisions around giving while they are young so they can experience the joy of giving.  Once they experience the joy of giving, they won’t look back.  They will desire to find ways to give.  As the custodian of the Roth IRA, you have the privilege to impart your Christian values as it relates to money and how it is to be used and shared liberally for God’s purposes. 

     This vision is ambitious, and there is the risk that your children won’t own your values for themselves.  What if a child gets to age 65 and sees this abundance and says, “I can just kick back, buy a vacation home, and travel the world” instead of getting involved in ministries and sharing the resources?  If this is your fear, introduce Luke 12:15-21 at an early age! God calls a rich man a “fool” and demands his life because “he stored up things for himself but wasn’t rich toward God.”  This parable can’t be ignored.  God is not pleased with hoarding.  Some kids may squander the dollars or not honor the values that you spent years to teach, but you will have peace knowing that you did everything possible to “train them up in the way they should go” (Prov 22:6).  God will honor you for giving your best to place His dollars into action by leveraging compounding and time in the market.  I would rather risk changing the family tree, rather than living out of fear that they will squander it.  God is bigger than we are, and He will work out His purposes if that situation materializes. 

     I see great opportunities with this “living giving” model.  Our legacy will be our values and how we utilize His generous resources, rather than how much we leave in the end.  Many kids earn income before age 19, which was the beginning age used in this illustration.  Imagine what could happen if we start funding Roths for kids who start earning income from ages 13-18.  Let’s transition to “living giving” so that what is left over at our death becomes secondary to the wealth we give while alive.  You may not be able to fund $2,000 a year, but anything is better than nothing.  God says it is more blessed to give than to receive (Acts 20:35), and I believe God meant while we are alive.  It’s hard to enjoy the blessing of giving an inheritance six feet under.  Let’s do it!

Ben and Arthur Illustration from FPU

Blessings,

Lee Ann