Raising Wealthy Children
“Mommy, are we rich?” is a question parents dread and do not know how to answer. This article gives a number of practical suggestions for parents. The key guidance is to answer truthfully (as with all other topics) but also to understand what the child’s questions are really about. The values that are passed along about money and wealth become nearly unconscious and always quite emotional. Many say the topic is harder to talk about than sex!
Has your child asked “Mommy, are we rich?” or “Daddy, are we rich?” Do you know how to talk to them about family money? Are you worried that they will not have a work incentive?
The children are asking “Mommy, Are We Rich?” The parents don’t know what to say!
The parents are asking their own hard questions:
- “Should we tell them about the money?”
- “How old should they be before we tell them about the money?”
- “What should we say?”
- “What will happen if they find out they are rich?”
Talking to children about family money is not easy. Most parents are afraid. In fact, they often say that it is easier to talk about sex than to talk about money.
We will examine why it is so difficult for parents to talk to their children: what are the many meanings of money and wealth? We will look at some possible solutions. Finally we will end with a very workable strategy.
“Should We Tell the Kids 1 and If So
-When, What and How?”
The meanings of money
It is very hard to find any positive proverbs about wealth. The Bible warns that “it is easier for a camel to go through the eye of a needle than it is for a rich man to enter the kingdom of heaven.” (Matthew 19:24)
The successful American industrialist Andrew Carnegie refers to “the curse of the almighty dollar.” He wrote his own Gospel, called the Gospel of Wealth, in which he warned: “The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would.”
In the Qur’an we are told that “they who hoard up gold and silver and spend it not in the way of God, unto them give tidings of a painful doom.” (Qur’an 9:34).
Money often gives power, and right to control others. The proverb of the “golden rule” (in the Bible the golden rule is to love your neighbor like yourself; to do unto others as you would have them do to you.” Matthew 7:12) is reworded to say “He who has the gold makes the rules.”
Even in the times of ancient Greece wise people worried about wealth. The great thinker Sophocles wrote that “surely there never was so evil a thing as money, which maketh cities into ruinous heaps, and banisheth men from their houses, and turneth their thoughts from good unto evil.” (In the Bible is the famous saying “the love of money is the root of all evil.”)
Current American descriptions of having wealth go so far as to compare the wealth to an illness (“affluenza” meant to remind one of the illness “influenza”) and even to death (“sudden wealth syndrome” as an analog of the babies’ fate with “sudden death syndrome”.)
Like Andrew Carnegie there are modern industrialists who still believe that too much money is bad for children to inherit. Warren Buffett has announced that he is not giving his fortune to his children. Instead he is giving them only enough “so that they can do anything, but no so much that they can do nothing.”
So what is it that parents worry about? They have many different kinds of worries about money.
- “If they learn that we are rich, they will act spoiled.” (And there is a phrase for it: “spoiled little rich kid.”)
- “If they learn that we are rich, they will spend too much.” (And there is a phrase for it: “a spendthrift.”)
- “If they learn that we are rich, they will give away too much.” (“Go ask moneybags.”)
- “If they learn that we are rich, they will not ever work hard.” (“The idle rich.”)
- “If they learn that we are rich, they will not appreciate how hard it is to earn money.” (“Born with a silver spoon in his or her mouth.”)
- “If they learn that we are rich, other children will be jealous of them.” (“Just because they have so much money….”)
- “If they learn that we are rich, they will always wonder if friends (and suitors) like them or their money.” (“Marry a rich heiress.” “Marry for money.”)
One self-aware parent who was himself raised in a very wealthy family, explains the feelings family members may have about their wealth this way:
- “We are undeserving of the money and feel like frauds.”
- “We were motivated by financial gain in our professional career. We can’t imagine our children being motivated by much else, and we are worried that the money will sap their drive, make them bums and ne’er do wells–a final, horrible legacy of our success.”
- “We fear becoming a target. There are many people in this world who simply resent you because you have money and sometimes need no other reason.”
- “A close, close corollary of #3 is our fear of being victimized by those whose true interest in us is only for their own gain – “a wolf in sheep’s clothing”.”
Resentment by Others
Especially in America, the “land of golden opportunity” those who are born wealthy are subject to endless resentments. There are books about “the silver spoon kids”. To say of someone that he or she was “born with a silver spoon” is to make a negative comment.
The origin of the phrase is interesting. The phrase “born with a silver spoon in his mouth” probably referred to the habit in England, in the 1600’s, of carrying your own silver spoon with you when going to a friend’s to eat. To own a silver spoon was a mark of higher status, and was often one of the more valuable items in the household. The phrase also appears in a book of Scottish proverbs published in 1721, as “Every Man is no born with a Silver Spoon in his Mouth.” There are endless negative labels. These include “filthy rich” and “idle rich” as well as the fake sympathy of “poor little rich girl.” One heiress was so affected by the many negative responses to her family wealth that she eventually wrote a poignant book, called Navigating The Dark Side of Wealth. She now counsels other wealthy young adults.
Facing the Issues
Ignoring the topic of family wealth…does not work.
As a result of all of the negative points just mentioned, many families prefer to ignore the entire topic. But when a family has significant wealth, that is a fact and somehow the parents and the children need to deal with it. In today’s information environment it is also quite difficult to hide the fact that a family is wealthy!
By not facing the issues connected to family wealth, the parents are sending harmful messages to their children. As Joline Godfrey (in Raising Financially Fit Kids) writes: “The problem with withholding information is that it communicates a lack of trust, takes away from kids the chance to act responsibly, and leaves a void for fantasy and imagination that won’t necessarily be filled in ways you’d hope.”
A leader in the field of offering support for wealthy families, Jay Hughes, has said that by not answering their questions, parents “inadvertently teach 2 in an effort to caution them to be skeptical of other people’s interest in them, that no one is trustworthy.” (Family: The Compact Among Generations.) I still remember the answer when I asked one wealthy man what regrets he had, and he answered that his main regret was that he was taught not to trust anyone.
The Issues Seem to be Spreading
When I co-authored the book “Mommy, are we rich?”: Talking to Children about Family Money in 2001, the focus was the United States, because the issue was so widespread among U.S. parents. Like immigrants in a “new” country (a helpful metaphor offered by Dennis Jaffe), the lack of familiarity with family wealth was causing anxiety. The questions in many homes and in seminars were “How much is too much?” and “When do I tell the children about the money?” and “What do I say if they ask if we are rich?”
These same issues seem to be spreading around the world. In 2006, a second generation son in Saudi Arabia asked me to tell his father that a benefit of the family wealth was that the son could pursue one of his academic dreams (See chapter 8 in Mommy Are We Rich, “I might be rich when I grow up…“how much money does a ballerina get?”).
In 2007, a Wall Street Journal reporter in New Delhi phoned me. Parents in India were worried about the impact of recent family wealth on their children. “Our children are growing up with…air conditioning, and shopping malls.”
In 2008, an English father with a long history of family wealth described his own efforts to teach his children to become self-reliant (like being able to find their way in the forest!), just in case.
In 2009, a father in Switzerland confided his worry: “Our own children know only five-star hotels.” The words are different; the concerns are the same.
In 2012, several patriarchs in Saudi Arabia swore to me that if their great wealth ever would cause harm in the family relations, they would give away all the wealth. (In fact there are a number of high profile lawsuits there with great harm to the family relationships.)
Not all countries share the “Puritan” work ethic that is so strong in the United States (where “unearned” money is somehow suspect) but all parents seem to worry about how to talk to their children about family money.
As reported in Barron’s in “Goodbye Family Fortune” cover story on Sept.19, 2011): “The hysteria among the super-rich is palpable. They’re worried their kids and grandchildren will fritter away the money it took forebears lifetimes to earn. They’re asking: How do you prevent a child from growing up to be ne’er-do-well? Should you leave a spendthrift heir nothing? Or money with lots of strings attached? And what if a family squabble escalates into an expensive lawsuit?”
So what are some solutions?
I will start with some standard “solutions” and explain why I do not think they are successful.
- Train the children to be “stewards” (and not owners) of the wealth.
The main reason I object to this approach is that it has left out any input by the child. This is a strong example of “Father knows best.” The goal is to hope that the children will not treat it as their money, but like the Patek Philippe watch, they are only holding it for their children, who in turn will hold it for their children, etc.
Under this strategy the child does not learn how to take risks (an essential life lesson)—risks are not allowed by stewards.
Under this strategy it is common to use a trust—so that in fact the child never does have any input or responsibility or chance to grow and develop as an adult person.
- Decide that “how much is too much” can be answered (Warren Buffett: “Give them enough so that they can do anything, but not so much that they can do nothing.”)
One objection I have to this approach is that once again the child is not given any input into the decision. Another is that the parent assumes the question makes sense!
One of my most widely-read articles is “The Next Generation and the Pursuit of Happiness.” I begin with: The conclusion that large wealth is harmful to children is based on two premises. The first is the assumption that if children have large amounts of wealth, they will have no incentive to work for a living. The second assumption is that someone who does not work for a living is leading a “less worthy” life. Let us examine each of these. Is it true that wealth removes the incentive to work? If this were true, we would be saying that the only reason that people work is because they need to earn money. This assumes that given a choice people would not choose to work.
I look at the many reasons that people “work” and even what the concept of “work” means. If it is using talents in a satisfying manner—that is the key definition of a good life and even of “happiness” itself. Money is not a factor. Even in country studies, research is showing that it is not the amount of household income that correlates with statements of “well-being.”
- Hire a consultant to “teach them good values”
Children learn values from those they see in action around them. The parents’ behavior will be teaching them, not a late arriving short-term consultant!
This actually takes place in the United States. ( “Come out to my yacht to teach my son the values he should have about hard work, humility, etc.”)
- Send them to a financial “boot camp” to learn investment skills.
The Wall Street Journal “Wealth Report” had a special focus on boot camps “Preparing the Next Generation” Jan.1, 2007) as early as 2007:
One of the chief concerns for today’s wealthy is preparing their kids for their inheritance. We’ve all heard the stories of naïve trust-funders squandering family fortunes on clothes, cars, partying or bad investments. . . .
The wealth-management industry, ever on the lookout for ways to attract and retain clients, came up with a solution a while back: wealth-education courses. The classes, which usually last a couple of days, teach wealthy offspring the basics of stocks, diversification, alternative investments and trust law. The classes have become a top client draw for wealth-management firms. Almost all the big private banks, trust companies and brokers now have some kind of wealth-education program for their client’s kids. Some business schools and private consultants also began to offer them. They can be as short as a weekend or as long as a summer. As mentioned in the 2011 Barron’s article:
With at least $41 trillion in private wealth expected to be transferred from one generation to the next in the first half of this century, the stakes are high. As a result, rich families are sending kids to financial boot camps or giving them crash courses in money management at home.
My concern: those skills take years to learn and are part of a lifetime of learning and adapting. There is no “boot camp” short cut.
- Control their money through the use of one or more trusts. (Think of the sad name-calling of them as “trust fund babies” for the rest of their adult lives.)
In the United States trusts are commonly used to take over the control or ownership of wealth—for the “benefit” of the children or spouses in wealthy families.
One of my first law firm clients was a 70 year old trust beneficiary asking me to end the trust: “I think I’m old enough to control my own money.”
There are many valid reasons to create trusts—but I would recommend that the planning discussions should include the beneficiary.
What is the best strategy?
Talk and talk to children about all of their money questions!
In Mommy Are We Rich we give many examples of the kinds of money-related questions that young children will ask, and we give advice about how to answer them.
- Question: “Where does money come from?”
- Common Answer: “Money doesn’t grow on trees. We work hard for money.”
- Better Answer: “Money comes from a lot of different places. Some money comes from working. Some money comes from gifts. Some money comes from saved money that turns into more money, through investments.”
- Question: “Sammy says his parents have three houses. How many do we have?”
- Common Answer: “It isn’t really nice to count and compare. We have a very nice house.”
- Better Answer: “Some people use their money to buy houses or cars. We like to spend money on trips and we also save a lot. People are different. And some have a lot of money sometimes and not so much other times.”
- Question: “Mommy, are we rich?
- Common Answer: “Yes because we have a wonderful family.” Or “I am but you are not.
- Better Answer: “Let’s talk about this. First, let me know why you are asking and how many questions you have, and I’ll try to answer them.”
As with all other parenting topics, honest (age-appropriate) answers are the right ones. This does not mean sharing a family’s balance sheet with a young child! The honest answers can include: “It makes me nervous to give you much of that information now, because…… (when I was young…or your friends might …or …people might think…or whatever the reason is ).
As I wrote in my article on “The Next Generation and the Pursuit of Happiness”: I submit that the best way in which we can help the next generation is to focus on their individual pursuits of happiness, on the challenges that interest them and for which they can have sufficient skills to feel motivated and satisfied.
All the same, if there is a large amount of family wealth…that is a factor to include in their lives.
Additional Best Advice
Include the whole family in the discussions. And keep talking and talking.
Family meetings are the best way to reinforce healthy (and happy) family relationships. Families who develop a careful process of meeting together, raising difficult issues and respectfully listening to different opinions and resolving the issues….will be families who do not show up in court with nasty family fights!
Most families agree that at least for the first year or so they really cannot have this kind of meeting without the help of a skilled facilitator. There are reasons that the tough issues about wealth have not been discussed, so it is not easy to start. But it is the best way to get rid of the “elephant” in the room.
Family meetings are the core concept of strong family “governance.” Just as with countries, an informed, participating membership leads to a better and stronger group. Just as with big businesses, the hallmarks of transparency, accountability and participation can serve a family well.
Generations do not cease to be born, and we are responsible to them because we are the only witnesses they have. The sea rises, the light fails, lovers cling to each other, and children cling to us. The moment we cease to hold each other, the sea engulfs us and the light goes out..(James Baldwin)
I submit that we owe it to each other to support the next generation and their pursuit of happiness.