10 Habits That Keep Families Wealthy

Courtney Pullen studies wealthy families as president of the Pullen Consulting Group, framed by his 10 Habits of a Healthy Family Culture.

"Maintaining wealth and growing up with wealth is challenging," Pullen, a former counseling psychologist, tells ThinkAdvisor in a recent interview. "Wealth exacerbates pre-existing fault lines."

The primary reason that these families fail, both with their money and the family system, Pullen argues, is "a breakdown in communication [and] lack of trust."

Financial advisors can be a huge help — and not only on the investment side.

"Every family I work with has a team of financial advisors," says Pullen, author of "Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health," released in 2013. "They are a great resource to teach kids the financial aspect of money."

Pullen coaches all generations of families both individually and in groups. And as a management consultant, he works with corporations, entrepreneurs and nonprofits as well as with their leaders' families.

His Healthy Family Culture habits include setting boundaries (Don't let the next generation consider the family money an ATM), practicing skillful communication ("Avoid power games that foster … distrust.") and seeing the family as a steward of their wealth.

ThinkAdvisor recently interviewed Pullen, who was speaking by phone from Driggs, Idaho. Here are highlights of our conversation:

THINKADVISOR: What are the worst habits that cause wealthy families to fail — not just with money but with "the glue of the family system," as you put it?

COURTNEY PULLEN: A breakdown in communication, lack of trust and preparation for the heirs, and lack of family governance.

Most financial advisors just give these wealthy families investment advice, but that's the problem area only about 10% of the time.

You've written about "10 Habits of a Healthy Family Culture" for wealthy families. The first one is to establish shared family values.

As families we're living according to our values in an unconscious way. But it's helpful to articulate what we stand for and what values guide us as a family.

We need to make that more overt and spoken than just having our kids guess at what they might be.

No. 2 on your list is to define the family's mission and vision.

This is so that the kids, or that rising generation, are cognizant of the purpose of the family's money: This is how it's supposed to be used; this is what is important to the family that will help guide us.

The next one is to establish healthy limits or boundaries.

My favorite parenting quote is from [pediatrician and psychoanalyst] D. W. Winnicott. He said, "The primary job of a parent is to optimally frustrate your child."

My concern about the generation we're raising right now, who I call "the trophy generation," is that they get a trophy just for showing up.

No, that's not preparing your kids for how life works.

And we do want to optimally frustrate our kids, in families of wealth, in particular, because if the child says, "I should get a car for my 16th birthday," if you're a family of significant means, you can afford to do that.

So it makes it harder to provide that optimal frustration and to keep the boundaries that are necessary for the health of the kids.

The fourth habit is: Support family members in leading lives with purpose.

It's so important that families do that. In some respects, the wealth can overtake the rising generation.

It's critical that the family invest in the dreams and ambitions of that generation and not say that their identity is they're a member of the Smith family, say, or that they're part of the family business.

We need to be supporting the autonomy or the individuation of these kids' growth.

Otherwise they could grow up wild?

Yes. wild and entitled.

The fifth one is to prepare heirs to manage wealth in ways to further well-being. Families that flourish, you say, do "active financial parenting" with both young and adult children; and when they're adults they seek advisors to teach them about wealth management. What sorts of advisors?

These kids are watching their parents, who are role models. If they're good role models of stewardship and are overt about the power of stewardship, the kids are much more likely to have a sense of responsibility to be good stewards.

Every family I work with has a team of financial advisors. They're a great resource to teach the kids the financial aspect of money.

It's a lot easier for a financial advisor to do that to a higher [level] than the parents.

No. 6 is to practice skillful communication. "Avoid power games that foster dysfunction and distrust," you write.

Many wealth creators don't want to tell their kids how much money they have.

That breakdown in communication and trust is the No. 1 reason that these families fail. So it's important for us as advisors to support healthy communication and not default with negative patterns.

Families that keep secrets and aren't being open about money [are doing children a disservice]. I don't know how many times in my career self-made men and women have said to me: "We don't want the kids to know how much money we have."

The kids are in high school or college! They already know how much the family is worth!

Rather, we want heirs to be well informed and understand that we have significant means and the purpose of the wealth. We want to guide and teach them and be open that we're a family of means and not hide the fact that we have money.

The seventh habit is "to see the family as a learning system. These families are willing to learn from advisors."

The family needs to have a growth mindset, to be learning and growing together and not be static in their learning process. Everyone in the family needs to be involved; Mom and Dad aren't done learning.

No. 8 is "see the family as a steward of the wealth: Talk to the next generation about leaving this world better than they found it."

The concern I hear most often from parents is, "I don't want my kids to grow up to feel entitled." Or if they are entitled, "What can I do about it?"

The primary offset to entitlement is stewardship. It shifts the power: It's my responsibility to be a good steward and help the family engage in conversations about what that means.

No. 9 is to value giving back.

The healthiest families have a value around giving back, about making a difference in the world.

It's the feeling that they're so fortunate to have this much wealth, and it's their obligation to give back in some meaningful way.

No. 10 is having a long-term view of the family.

So many wealth creators I've worked with have a long-term view that this money is to support and guide the family for a few generations.

In order for that to happen, we need to be making decisions today that will be supporting us 20 or 30 years from now.

A healthy company looks at profitability and the health of the company over its lifespan [and so should these families].

You write, "Shift the focus away from seeing the family money as an ATM for the purpose of allowing family members to withdraw what they want whenever they need it."

All the family governance and defining values, mission and vision provides a North Star.

It gets parents out of the good cop/bad cop conversations because if you define "The purpose of our worth is 'X,' if a child comes to their parents and says, I want to buy a $200,000 car," the parents can say, "Let's revisit our wealth purpose statement. Obviously, it doesn't fit."

So it's nice to have that family governance as a touchstone for those kinds of conversations.

Should the parents emphasize leaving a legacy?

"How do I want this wealth to be used? How am I hoping that you all are going to remember me?"

Those considerations need to be happening before death, not afterwards.

Please elaborate on the importance of family communication about the wealth they have.

I want families to be sensitive to the failures that are [common]. Research done years ago says that [the majority of] families with significant wealth will lose everything by the end of the third generation.

The proverb "Shirtsleeves to shirtsleeves in three generations" is a worldwide phenomenon that's been around for hundreds and hundreds of years.

All cultures have a version of it: "Clogs to clogs," "Rice paddies to rice paddies" [and so on].

Maintaining wealth and growing up with wealth is challenging.

Wealth exacerbates pre-existing fault lines. That's why it's so important for the family system to openly communicate.