How to make sure your children inherit a financial legacy

Heritage Day in South Africa affords us all the opportunity to reflect on our past, and what it means for our country, and people, in the years to come. Back in 1996 when it was declared a public holiday, the Department of Arts, Culture, Science and Technology stated that Heritage Day should recognise aspects of South African culture which are both tangible and difficult to pin down: creative expression, our historical inheritance, language, the food we eat as well as the land in which we live.

Celebrating your cultural heritage with your family on the day (whether you’re braaing or another endeavour) can be enriching and moving, but it should also be a time to reflect on the financial legacy you will leave for them.. There are many ways you can influence your children’s lives financially beyond the simple concept of an inheritance. This Heritage Day, consider the following four concepts that can have a real impact on your children’s future: 

Pass on your knowledge and skills

Many parents would like to be able to give their children a cash injection from their savings to help them purchase a first property or invest in their business. However, if you were to invest a smaller amount on behalf of your children in their youth, by the time they reach their teens and twenties you will have grown it substantially. You would then be able to include them in the annual review of the investment and show them how the initial investment has grown and which factors have affected this. This is an amazing opportunity for a child to grow up watching the power of compound interest in action – you’re setting them up to understand long-term thinking and be able to plan for their own financial future. This could be the most valuable heritage you leave for them.  After all, little is taught in schools these days about money, finance and tax. 

Give them an allowance

Rather than handing over cash to your kids willy-nilly, whenever they ask for it, start giving them a regular allowance as soon as they’re old enough to understand the concept of money. In this way they can move away from short-term “impulse” buying.  Instead they will know how much they’ll be getting from you and when, and be able to plan ahead for what they might spend it on, introducing the idea of saving and budgeting.  This is the legacy of being financially responsible.

Don’t ditch them with the debt

We all want to give our kids the best we can afford, but this shouldn’t come at the expense of your financial health. There is no point in overextending your bond or cashing in your investments to fund their tertiary education or blowout wedding if it means that in the future they will ‘inherit’ financially dependent parents or an Estate steeped in debt.

Make sure you have a will

If you die intestate (i.e. without a valid will), under South African law your Estate is distributed according to the laws of intestate succession. This means your assets may be distributed in a way that is different from what you would have chosen and your closest relatives will inherit from you in strict, pre-determined order and proportions. The government would also appoint an Executor to wind up your Estate. This may not work in the favour of your children, as the Executor would not know about your personal circumstances or history. You’re likely to leave your kids in a messy and costly situation that could eventually lead to them wasting what you left behind on legal fees.

Prudential Investment Managers is dedicated to building a financial heritage for our clients. To find out more, contact your financial adviser or our Client Services Team on 0860 105 775 or at query@prudential.co.za.