About the wealth, that is... Before I answer that question, it makes sense to lay some ground work. Some of this will seem obvious, but that doesn’t mean that the issues always get the attention they warrant. In any event, I have been working with very wealthy families for almost 30 years. The question I am almost always asked is essentially: How do we not screw up the kids (or grandchildren) with this much money?

Double Edged Sword

Like it was yesterday, I remember my experience with a particularly wealthy family client. Notwithstanding that I was 22 years old and fresh out of college, it only took a few months to see the situation clearly. I had an interesting vantage point since I didn’t come from money. I was an outsider looking in. I worked hard and knew I had to create whatever success I was going to achieve in life. That wasn’t the case for the family’s youngest son, who was two or three years older than me. I got the differences then and understand them better now. He seemed to have everything he could ever want. However, it was clear that his future would be fraught with struggle and disappointment. It was.

To paint this picture, let’s start with some notion of the typical middle class kid. His or her life is full of challenges. Values, education, boyfriends, girlfriends, questions like “what do I do with my life,” work ethic, skills, opportunity, the economy – the list goes on and on. Inject a lot of money and what happens?

“Rich kids” face most of the same challenges as everyone else. However, like it or not, they have to overcome an additional set of issues that most people simply would fail to understand. Wealth adds powerful dynamics that are both good and bad. The good includes less financial pressure, access to unique experiences, a great education, the opportunity to take career and financial risks, and lots of choices. The bad includes—well, it’s those same things.

Don’t get me wrong, wealth is a beautiful thing. Somebody put in years of dirty hard work to create it. The family deserves to enjoy the benefits. However, “taking off the pressure” had better be done carefully. I’d rather have too much pressure to succeed than not enough. The privileges that wealth provides can help shape a life in ways most don’t get to experience. However, the kid had better understand the cost of those things and how you earn the right to them.

Building Blocks

The starting point for families with wealth is not much different than for other families. It’s about being good parents and teaching values. This can be harder and even more important when wealth is present. We had all better get our arms around those values and, whatever they are, make sure that we firmly instill them within our children. One client of mine has a family mantra, “Smiths don’t lie and Smiths don’t quit.” In our family, we have really focused on stressing the importance of work ethic. I have been saying to my girls since they were little, “we really work hard in our family.” Young people must learn that hard work is necessary for good things to happen in their lives. It is very hard to undo a sense of entitlement.

We must all lead by example. Said better, our children and grandchildren will develop from the examples we set for them. What we do has a much greater impact than what we say. Ultimately, those fundamental values are where it all starts. There isn’t much chance of success without these strong building blocks.

Not to be Taken Lightly

What more should I do to prepare my children and grandchildren for the unique circumstances in which they find themselves? The answer is “a lot!” All parents want to raise their children to become productive adults with their own sense of achievement and self-worth, and who possess the skills and knowledge to handle their particular life situations. When substantial wealth is present, this becomes much more challenging. Unless we focus on the impact of wealth on our children and grandchildren and act accordingly, their chances for long-term personal success will drop dramatically.

This topic is much too complex to do justice with a few paragraphs. This article isn’t intended to include a great deal of “how to.” Raising Financially Fit Kids, by Joline Godfrey, is a great book.Herfirm,IndependentMeans,isanoutstandingresource which we tap to help us advise our clients. I suppose everyone by now has read Outliers: The Story of Success, by Malcolm Gladwell. I found it to be incredibly interesting and another valuable background piece.

Answer the Question

I started with the question “when do you tell the kids” and then took the discussion back to matters that might seem most applicable to young children. Whether your offspring are 8, 16, 24, or 32, the facts remain the same. The points I am trying to make are valid no matter the ages or paths our children are on. All of us would no doubt like to go back in time and redo a couple of those building blocks. However, it is never too late to take action as warranted. Whether a kid is 16 or 32, there is certain knowledge that is required in order to optimize success. There are effective steps to be taken to develop that knowledge.

The answer to the question is probably “now.” I understand that it’s not that simple. I am not suggesting that you provide a 12-year old with your audited fair market value balance sheet. However, I am recommending that you talk about the matters surrounding the impact of wealth. We can’t pretend they don’t know. They know – maybe not the details, but they know. The kids aren’t stupid, and being honest and open with them will likely have a positive impact. Too much secrecy can backfire. We had better be talking about the advantages of wealth and about the hard work it takes to obtain it. We had better talk about the responsibilities of stewardship, about giving back, family dynamics, how to choose an advisor, and much more.

Wealth is a blessing that exists because somebody took risks and put in the long hours to make it happen. Making it happen for the next generation involves a lot more than trust and estate planning. That is the easy part. It’s about passing on values, knowledge, and skills. If success is having wealth be a positive force in the lives of our children and grandchildren, those are the keys.

Don E. Scott, Chief Executive Officer,
Wanger OmniWealth, LLC