Monday, September 21, 2015

Kids Wealth and Consequences

I am currently reading Kids Wealth and Consequences by Richard Morris and Jayne Pearl. Although it is a book written for seriously wealthy parents who desire to hand off the family assets to their children in a responsible manner, I recommend it for any parents who want their children to have a healthy relationship with money. It is a difficult read. The authors are not in the business of providing answers. They are in the business of asking serious questions with psychological and spiritual overtones. They provide examples to illustrate the problems involved in raising children who know how to handle money as a component of a healthy well balanced life. They also provide illustrations of how the well intentioned actions of the best parents can backfire in unplanned disasters.

It turns out that academic studies prove that the old sayings are true.

“Shirtsleeves to shirtsleeves in three generations.”
American Proverb

“Rice paddies to rice paddies in three generations.”
Japanese Proverb

“The father buys, the son builds, the grandchild sells, and his son begs.”
Scottish Proverb

“Wealth never survives three generations.”
Chinese Proverb

Wealth has a way of redistributing itself. Over the passage of time, a sense of entitlement and a lack of motivation can lead children to dissipate the family fortune. A single mistake in the second or third generation can wipe out a fortune--forever. Even if the money is wisely managed in the second and third generations, a growing number of children and grandchildren can lower the value of a share of the inheritance into a number that can guarantee a comfortable lifestyle, but not enough to provide significant bequests to the great grandchildren.

Parents, no matter if you are rich or poor, your children are watching you. They will learn how to handle money by studying your actions. A recent study found that 87% of parents believe that their children will learn everything they need to know about money at school. In fact, during my K-12 years, I learned essentially nothing about the management of money in the classroom. Given what I see, I don’t believe this situation has improved in the slightest. If you don’t believe me, the same study indicated that 90% of schoolchildren stated that they learned everything they knew about money from their parents.

Let’s see how that is working out in the real world.

62% of high school seniors failed a personal finance exam.
12% of high school seniors scored a grade of C or higher on this exam.

Parents, they’re your children. You are responsible for showing them how to handle money. Don’t believe for a minute that incredibly important job is going to be handled by the school system unless your child attends one of a very few private academies that actually include basic financial literacy as a part of their curriculum. The book actually mentions some financial “boot camps” provided by trust companies and banks for the progeny of high net worth parents. After reading about one of these things that is offered by one of the University of California campuses, I found myself thinking, “Can I go? Please? Please?”

Alas, at age 64 it is too late for me. I will have to learn it on my own and as I do, I will share it with you.

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