Forget E. F. Hutton; when Warren Buffett talks, people listen. And I don’t feel like that’s simply because he’s the world’s most famous investor, though he is. He’s a person of wisdom. A wisdom that seems to have been applied not only in his investing, but also in his marriage, his parenting, and his own personal finances.
So when he recently offered his personal advice on estate planning—on how, when, and why you should talk to your kids about your estate plans—it certainly got my attention. And it offers a framework for all of us, regardless of our net worth.
Buffett’s Estate Planning Advice
“When your children are mature,” Buffett said, “have them read your will before you sign it.” So, the when is pretty clear—when our children are mature and before our will is signed. But how?
“Be sure each child understands both the logic for your decisions and the responsibilities that they will encounter upon your death.” Buffett’s instructions on how also require another step here, because to explain the logic and the roles children play in our wills, we have to understand them. You need to know your plan well enough to explain it.
This wisdom can—and should, I believe—be applied in every aspect of our personal finances. I realize that there may be many intricate complexities of some financial strategies and vehicles that require the guidance of a professional. Yet, a great rule of thumb in personal finance is that you shouldn’t enact a strategy that you can’t explain to a 5th grader. (Thanks, Larry Swedroe.) And yes, that means if you currently have strategies in place that you don’t understand, I recommend reaching out to your financial advisor to gain that understanding.
But you’re not likely to put this good advice to use without understanding why, and Buffett doesn’t leave us hanging here. He says, “You don’t want your children asking ‘Why?’ in respect to testamentary decisions when you are no longer able to respond.”
Indeed, it’s hard enough for a family to navigate the loss of a loved one, and our estate plans are, quite literally, our last words to those we love the most. Too many estate plans—either for lack of effective planning or lack of effective communication—result in a last word that is mysterious or confusing, at best. And we can eliminate that confusion by discussing our plans before we’re gone.
Estate planning certainly isn’t the first or only time we’ll have an opportunity to discuss money with our children, so how can we apply this why, when, how framework in discussing money with our kids?
Why?
First, let’s retrace why we’d discuss money with our children in the first place. Notably, Buffett comes from a generation for whom discussions of money, with just about anyone, were considered taboo. But is it not our chief responsibility as parents to raise our children to be independent and contributing members of society? How else will they learn how to grow, protect, give, and live, if not from us? (And no, despite an enormous effort to integrate financial literacy and wellness into our educational systems, we’ve largely failed at changing our archaic approach to academia.)
And here’s the best why I’ve ever heard for being willing and able to articulate your financial and life lessons to your children:
We want to get there first.
Whether the topic is sex, drugs, rock’n’roll, or money, we want to get there first as parents. We want to provide our children’s foundational understanding of these most important issues before they come home from school or a friend’s house having had their foundation poured by some kid with an opinionated older sibling.
When?
So, we have to know our opinion before we can share it, but how do we know when to share it?
Buffett gave us two instructions here, one that is clear and one that is a bit more nuanced. First, he tells us to share—in this case, our estate plans—when our children are mature. That, of course, will be a sliding scale for each child, parent, and topic.
I can imagine that having your kids read your will falls later, if not last, on this inculcation timeline, if only because reading legalese is over the heads of most seasoned adults. Yet, learning how to spend, share, and save via three jars in the kitchen can come much earlier, followed by understanding credit and money in the digital domain, borrowing, taxes, insurance, and one of the most fertile fields for financial understanding—education planning for your children.
But how do we know when our kids are mature enough to handle these topics? When they demonstrate genuine curiosity.
Yes, this means that it’s not a planned schedule on the calendar of couch speeches. It requires a fluid approach and the ears to hear when our children express genuine curiosity. Even then, it may require unearthing the root question that really needs to be satisfied—and choosing an age-appropriate answer.
Now to the more nuanced point Buffett makes through his advice. He said, “When your children are mature”—check—“have them read your will before you sign it.” Before we sign it, Warren, but why?
I surmise here that this is yet another opportunity to grow our kids up. By having them review our wills before we sign; by discussing our move before putting the sign in front of the house; by letting them know our role was downsized right before their junior year of college, putting the private school tuition out of range; by discussing the opportunity to buy a second home; by enlisting them as part owners (however small the percentage of ownership) in these decisions that certainly feel big for them, we are using these conversations as one more opportunity to add to our children’s maturity resumes. And we are normalizing these weighty decisions when they are still under our care, better preparing them to make those decisions as adults.
How?
But how?
Let’s use the classic example that has persisted through generations. Your teenage kid asks, “How much do you make?”
They’ve expressed curiosity, but does that mean it’s time to hand over your paystub? Probably not. Let’s follow Simon Sinek’s advice and “start with why.”
“I appreciate your question, and I’m wondering what sparked it. Why are you curious how much I make?”
You may have to ask a few questions to arrive at the motive, and that, combined with your intimate understanding of your child’s maturity, will no doubt illuminate your final answer. And it’s possible, if not likely, that your answer won’t even include any numbers. Remember Buffett’s advice here: “Be sure each child understands both the logic for your decisions and the responsibilities that they will encounter…”
In my experience, the younger our kids are, the more logic itself will suffice—but as our children age and mature, it’s altogether possible that actual numbers will be beneficial, if not necessary. After all, especially as it relates to the subject that was our launching point, estate planning, our kids will eventually find out what the numbers are. Therefore, in lieu of making it a total surprise, shrouded in mystery, why not discuss it now—invite them into the discussion, teach them the logic behind your decisions, enlist them in the implementation of your plans, and help them learn how to make life’s most important decisions with competence and confidence.
So, I’m curious: do you feel better prepared to have your next meaningful money conversation with your kids, regardless of their age?