Born Rich, Stay Rich
Lessons On How To Keep Your Children Wealthy
Some teens with ultrawealthy parents have been known to go prom-dress shopping in Paris, drive an $80,000, fully loaded Range Rover to college and leave their laundry for the servants to wash. It sounds great, but it also has its perils: What if these children lose their potential to ennui or bad choices and end up squandering the huge sums of money their parents give them?
With $41 trillion in private wealth set to be transferred in the United States in the first half of this century, both old- and new-money families are wondering how to prepare their children for the riches coming their way. The important question is, ‘How do you build confidence and competence in the next generation so they can handle whatever inheritance you leave them?’ Parents may want children to show that they can live on a budget, manage a portfolio, start a career or have a variety of life skills before receiving great sums of money.
Financial readiness comes from parents who act as role models when it comes to their family values, enforce limits and consequences and find ways to offer practical and continuing financial training. In a survey of affluent families, only 27% of parents said they had shared or discussed the family budget with their teenage children. While some families play down their wealth and its history, others incorporate their legacy as an important aspect of child-rearing. Most wealthy parents aspire to raise their children with middle-class values but with an upper-class balance sheet, says Kristi Kuechler, director of the Institute for Private Investors. The challenge, she says, is how to convey the importance of those traditional values of hard work, accomplishment and self-reliance to young people whose wealth could permit them to pursue none of those things.
A family’s charitable foundation or business can be a bridge between generations — and a way to share both family values and financial acumen. Some wealth managers advise bringing in the next generation, starting in the teenage years, to work alongside the older generation. Ms. Kuechler also advises parents to make sure that their heirs receive formal investor education so that they can interact confidently with their financial advisers and ask the right questions. Many wealth management firms do provide educational opportunities for their high-net-worth clients. Some firms may consult with family members one on one. Some parents take financial education into their own hands. Wealthy parents often wonder about when to tell their children about the family’s money — or that they will inherit a great deal of it. Telling them too early may disable a budding career, but telling them too late may squander the time needed to teach them how to manage it.
While independence in children is highly prized, its recommended to promote interdependence in children, too. To avoid siblings fighting over the family fortune when their parents are gone, he recommends that they work together as they are growing up on less confrontational subjects like philanthropy or planning the family vacation.
