raising a child with money

Raising a Child To Be A Responsible Owner Of Wealth – Part 2

Last month we discussed the challenges of raising the next generation to ensure they are prepared for the challenges that wealth provides.  This month we will explore the principles and tools which can help find the balance between providing the next generation with a comfortable lifestyle while exposing them to value-added experiences and the values and culture for which you and your family stand for.

 

It is our experience that the key Principles in raising a child to be prepared for life with wealth are based on 5 key principles:

1. Values Guide Actions

2. Money Must Have Meaning

3. Family Comes First

4. Involvement Equals Commitment

5. Freedom Within a Framework

 

1. Values Guide Actions

 

The process begins and ends with values. Values must inform and guide all actions and family wealth decisions.

 

Heirs will share and support their family’s priorities and mission only to the extent that they see their values reflected in those of the family. Talking to children about how they should behave and the values you want to instill is important. But as we have experienced, often actions speak louder than words and kids can struggle with the implicit message “do as I say not as I do”. It is for this reason that we recommend the education process focus on instilling values in the next generation both through formal and informal education as well as through role modeling the behavior you want to see. For example, if you want to instill the importance of giving back, have the family engage in some form of philanthropic activity to which the family can feel passionate and involved with.

 

2. Money Must Have Meaning

 

We believe families must be bound together by more than financial and legal ties. If family wealth has only economic meaning, it will be spent. In preparing the next generation to inherit wealth, it is important that the process includes not only teaching about wealth itself, but teaching about the family’s history and values through sharing stories and traditions over generations. This enables inheritors to feel proud of the family’s achievements, connected to the family’s wealth and motivated to continue the legacy.  This is what makes money have meaning

 

Through celebrating your family’s past, the next generation will likely feel connected to the source of the money and the hard work, dedication and perseverance of the wealth creators and subsequent generations. Memories and photographs fade, the value of story telling is everlasting. Families write stories about their history, create photo albums and build family websites as a way to capture the memories. Preserving family memories is highly recommended but detailing your family’s history in a book that sits dusty on the shelf falls short of accomplishing the goal. A client once said that they know more about their work colleagues and associate’s accomplishments than they know about their own families. Many of us can likely relate to this in today’s society. It is the stories we pass from generation to generation that make up our lives and remind a family of the values and meaning behind the money

 

3. Family Comes First

 

It is our experience that the most successful families put family relationships as a priority over money. The money is best when it is in service to the family, not vice versa. This, of course, does not mean making poor financial decisions.

 

The key is to keep the family in mind when making these decisions and not sacrifice one for the other. It is important that family leaders be open to making decisions that will be best for the whole family rather than the individual. It is helpful for leaders to learn to communicate effectively and manage conflict without the emotional involvement that is inherent with family members

 

We encourage families to have a formal governance structure in place that makes explicit the family’s shared values and family mission statement that sets the long term direction for the family as a whole.  We recommend  families discuss the importance of education and consider the needs of the next generation to ensure they are prepared for the future roles and responsibilities as wealth owners.

 

4. Involvement Equals Commitment

 

Open, honest, and healthy communication between family members creates trust, and trust can help prevent family conflict. Develop a plan as to how to incorporate the next generation into your family enterprise. Start having portions of your family meetings be inclusive where the next generation is encouraged to ask questions, speak their mind and seek feedback on their interests and where they would like to be more engaged.

 

We have found that involvement in family decisions helps with the development of personal and professional competencies. Heirs will begin to take ownership of their life, defining success by their own terms and identifying individual passions that can help grow wealth. In turn, they become better equipped to raise their children in the same way.

 

5. Freedom within a Framework

 

Wealth provides opportunities but comes with responsibilities.  Communication is vital as mentioned earlier, however as we all know within families it can be highly emotional.  Establishment of a framework, or process is vital.  The use of an independent advisor is also critical to help guide the safe passage of a number of these processes and act as voice, mentor and sounding board to individual members as and when required and often removes many of the emotive elements from family discussions.

 

Heirs are much better prepared for their inheritance if they become educated about both the opportunities and the challenges of living with wealth and develop the ability to recognize attitudes and emotions related to wealth.  This is key to managing the “sense of entitlement” or “complete disengagement” of the families wealth and legacy.

 

Conclusion

 

Though the challenges to successful wealth transfer across generations may seem overwhelming, they can be overcome. Success requires a commitment of time and energy by the entire family, as well as guidance and facilitation by experienced independent advisors.

 

The end result…

• You have improved the odds of sustaining and growing wealth across generations.

• Your child’s self esteem and sense of self worth is enhanced.

• Your children are better educated and positioned to be happier and more successful.

• Your family relationships are deepened.

 

What better legacy can you leave?