In last month's column, we explored potential damages to families and individuals when children of wealthy families grow up unprepared for responsibilities they'll inherit. While the stories of rich kids in trouble may fill tabloid pages, it represents a true failure for the families and a missed opportunity for key advisors to have
steered everyone to a better outcome. For advanced planning teams working with a family where money maturity is in low supply, adding a family "money counselor" could not only help the parents and children but strengthen the foundation on which any financial plan is based and therefore increase its chances for success. Adding this professional dimension to the team also enhances the team's credentials for being comprehensive in its approach and differentiates it from other practitioners.
Financial literacy for the children of affluence starts early–just as models of nonproductive behavior do. Advisors to affluent families have observed the extraordinary pressures that many wealthy families put on the young, teen, and young adult children in the family to excel. Average performance in school, sports, social life, and career is not acceptable in families that consider themselves "above average."
While the pressures to surpass the ordinary are part of the family culture, the necessary skills are not necessarily present–creating children with emotional challenges if not depression. Very successful parents sometimes forget that they became successful because they had a lot of skills or they developed those skills in business or creativity or other factors that led to their success, according Dr. James Grubman, a therapist who works with wealthy families and advisors. "You have to teach kids skills from a very young age," he notes. "The prime age for learning good money skills and financial literacy is between ages of 6 and 14, which is much younger than most people realize."
Beyond Good Intentions
While parents may have good intentions for raising money-mature kids, they often fail to succeed because they don't move from soft intentions to a realized program of financial education tailored to the age and interests of the children. "The kids who do well have parents who've gone from good intentions to being intentional," observes Joline Godfrey, a consultant to affluent families on financial education and the head of Independent Means, Santa Barbara, California. "Every parent has the good intention for their kids to grow up financially intelligent. But few of them really act on it. Those thought leader families who are committed and intentional and actually provide good financial education are the ones that have a different outcome. For example, when you look at what Warren Buffet has done [leaving his children some money but more assets going to their foundations for them to manage the charitable work], he's very clear what he expects from his kids."
Those families who pursue the preparation of the next generation for their responsibilities of wealth view it as an ongoing program, not just an afternoon discussion between tennis lessons and homework. Every year or every quarter, there are activities, plans, messages, everything they need to do in a very repetitive way over a period of time that helps ground the children in the basics of financial literacy appropriate to the family wealth factors and long-term responsibilities, such as philanthropic commitments. "I know I'm not working with a thought leader family when I get a request to come out for an afternoon to work with their kids," says Godfrey. "This is a process, it's not an event. One afternoon is going to have the kind of results that one would expect from that kind of half-hearted attempt."
Families Gone Wild
When family wealth counselors start their work they may quickly identify the children's lack of financial understanding, but they must first focus on the parents. Their spending habits, origins of wealth for both, and their attitudes toward affluence are all influential models for the children to observe long before any expert arrives. Old money parents who have never discussed money matters with their teenage children and spend moderately send one kind of signal. A quite distinct signal is sent by a first-generation wealthy entrepreneurial couple with teens old enough to have experienced the growth from mid- to high-net-worth and to live a family lifestyle that demonstrates aggressive spending. Each set of children would require a different approach to financial education.
"The reality is that most people who come to wealth do so in their lifetime," notes Grubman. "They're first- generation wealth, and they're sort of like immigrants to the land of wealth. They grow up in a lower economic environment and they wind up being very successful. Their kids, though, may have a different experience."
A single approach for all children in a family won't necessarily work either, since their relationships to money are completely different. Often, the older children–the first or second born–may have had experiences that enable them to remember more of the middle-class life than younger siblings (much as older immigrant children often have greater understanding of the family's native culture than children born in the U.S.). The youngest ones of the HNW and ultra-HNW families, though, may have grown up only when the family was affluent. They had different experiences than their brothers and sisters, who may only be five or six years older. What is sometimes attributed to personality for differences in good money-management skills among siblings may have more to do with birth order and the distinct family experiences they had during childhood.
