Most parents work their whole lives to earn as much as they can with the hope of making life easier for their kids. But what if everything you worked to pass on disappeared within a generation or two?

According to the Nasdaq blog, 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. Theories abound for why this is, but generally speaking, the further a generation is removed from the effort that produced the wealth, the less likely they will be able to manage it responsibly.

To avoid this problem, it’s important for families to instill principles of financial literacy into their kids — and they should start as early as possible.

Talking to Kids About Fiscal Responsibility

One of the first steps to help kids understand money is talking about it. Families are often uncomfortable discussing financial issues, regardless of how much wealth they have. That can be counterproductive, especially as kids mature into adults. Without a foundational understanding of where wealth comes from and how it works, they will approach their own quest for affluence on shaky footing.

These issues can spill into other areas in their later years, too, when the need for financial planning becomes more urgent — during estate planning, for example. The last thing you want is for your kids to fight over inherited assets they didn’t even know existed — let alone how those assets are structured.

It’s essential to talk about money with your kids so they can learn the same habits that allowed the wealth to accrue in the first place, as well as what to do with it once it is in place. At the end of the day, money is a matter of fact, and that calls for frank conversations.

Teach Responsible Financial Decision-Making

Some of the most powerful lessons are the ones you teach by example. If you aren’t going to talk about family finances, strive to model responsible financial decision-making. If your kids see you negotiate better deals for service or hear you express concerns that some purchases may not be truly necessary, they will understand that your family’s lifestyle is a complement to those kinds of behaviors.

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When actions become behaviors and behaviors become characteristics, your kids will be well positioned to protect the family wealth — and potentially contribute to its growth.

Finding ways to help kids understand how money applies to their lives is another impactful way to teach by example. Kids don’t often make hands-on decisions about money, so your family’s wealth may be an abstract concept that’s difficult to understand. 

For instance, explain to them why they should turn off the lights or take a five-minute shower instead of a 20-minute one. These are examples of practical, money-saving techniques. These requests are often “in-one-ear-and-out-the-other" for many kids, so incentivizing their participation can help. For instance, telling them if next month’s utility bill drops, you will pay them the difference between the two utility bills. Suddenly, they become more aware of how they can help and might even call you out for leaving the lights or TV on! 

There are plenty of opportunities to invite kids into financial decisions, even if they don’t fully understand the tools under discussion. Consider the process of buying a house. Families often have to weigh the balance between mortgage interest rates and closing costs.

It’s tempting to assume our kids have no interest in this type of thing, even if they knew what we were talking about. (However, they often know more than we give them credit for). Try to find a way to involve them in the process in a way that will resonate.

For instance, you can say something like: “We have two options for buying this house. We can either pay less now but pay more over time, or we can pay more now but less over time. Paying less now means we can get nicer furniture when we move in but paying more now would help us buy a second home in the future. What do you think we should do?”

This is an excellent way to give kids experience with thinking critically about personal finance, while also bringing some of those complex topics down to earth.

Encourage Your Children to Earn Their Own Money

Many families are comfortable allowing their wealth to carry their kids into adulthood, and there are plenty of legitimate reasons for doing so. For example, allowing them to focus on their studies during college without having to work can translate into better academic performance. However, managing a job while managing their studies can also teach them time management skills.

Unless your child has an innate desire to work, it may take them a while to fully grasp the need to earn their own keep. Home is a great practice environment for the real world. Assign them chores in exchange for allowance or motivate them by using academic performance for larger purchases. This helps to set their expectations that wealth isn’t just a part of the air they breathe and follows them wherever they go.

The French economist Thomas Picketty points out that income from wages rewards work done in the present, while income from inheritance rewards work done in the past. Because of this, it’s important to instill a good work ethic in kids so they are less inclined to take their wealth for granted. Financial stewardship is an essential discipline among families who want to keep their wealth intact.