A blog in a continuing series on the safeguarding of the family enterprise.
There is a Chinese proverb that goes, “Wealth does not pass three generations.” This fits the notion that when significant wealth is created by the first generation of a family, the second generation gets to enjoy it, but the third generation, which was so far removed from the work ethic of the first generation, squanders it.
The conversation of wealth is often missed between parents and children. For wealthy parents, discussing money with children can be a daunting task. When is the best age to discuss the subject? How much is too much information? What if I want to give my money away to charity? The stress surrounding these questions can often prevent these conversations from taking place.
While these questions, and others, are difficult to bring up, they are essential. They will provide the context to determine the balance between providing enough money so that the children can pursue their dreams without a concern for their finances, and not providing so much of an inheritance that a feeling of entitlement or loss of self-purpose develops. Warren Buffet said it best when he noted that he wanted to leave enough money for his heirs so they can do anything, but not so much money that they can do nothing.
A Wall Street Journal article on the subject gave several suggestions on how to speak with kids about generational wealth. A favorite was the example of a pre-teen son who approached his mother and asked, “Are we rich?” The mother replied, “Your father and I are. But you are not.”
A holistic approach to wealth management can go beyond asset allocation and financial planning. Make sure you participate in the educating of children around family wealth.