Wednesday, August 06, 2008

Caring, Responsible (Wealthy) Children

Can wealthy parents raise caring, responsible (wealthy) children?

Wealthy parents worldwide are interested in the answer, and wonder about the process.

On July 30, 2008, Arabian Business posted an article entitled "Wealthy kids to get lessons in finance" by Soren Billing, who related how "Investment bank Merrill Lynch is to teach children of its wealthiest clients how to make the most of the money they inherit, with a special focus on how to effectively invest in charities."

Every year, children of the company’s richest clients are invited to a one week course where they are taught about topics such as different asset types, discretionary asset management and wealth structuring.

“A priority for our clients is equipping their sons and daughters with the skills and responsibility to manage the wealth they will inherit,” said Amir Sadr, Head of Middle East Wealth Management. * * *

This year’s London programme will include a special day about effective charitable giving. * * *

The programme will also focus on life coaching, developing leadership skills and personal security, giving the participants, aged between 18 and 25 years old, practical advice about how to keep themselves safe when they travel or go online.
Wealthy Arab families are not alone in wishing to inculcate skills, sense, and sensitivity in their children. Recent articles evidence that wealthy Americans pursue the same ends for their offspring.

On May 12, 2008, The Wall Street Journal's "Wealth Report" published an article entitled "10 Things the Wealthy Should Leave Their Kids — Besides Money":
When it comes to understanding the dysfunctions of wealthy families, Peter White is among the wisest.

He’s spent more than 20 years counseling wealthy parents and privileged children about how to better understand the adverse effects of wealth and to search for more meaningful lives.

He’s plied his trade at his own firm, as well as at Citi Private Bank and U.S. Trust. * * *
The article lists and briefly explains Peter A. White's "Ten Elements of Care" by parents towards their children. He recommends parents' attention to:
  1. Necessaries
  2. Affection
  3. Affirmation and Support
  4. Boundaries
  5. Guidance
  6. Respect
  7. Trust
  8. Forgiveness
  9. Religion or Spirituality
  10. Letting Go
The article notes (and the readers' posted comments ratify) a key point:
The list isn’t just for rich parents. But as Peter told me, it’s helpful for wealthy parents to learn that “the first thing to be concerned with is loving children in a way that enables them to take charge of their lives as adults, so they can use wealth to enhance, not diminish, their lives.”
Clearly, there are risks involved where children are raised in wealthy circumstances. An article entitled "Psychological Costs of Material Wealth" (summarized from "The Culture of Affluence Psychological Costs of Material Wealth" by S. Luthar published 2003 in Child Development, Vol. 74, Issue 6, by The Society for Research in Child Development, Inc.) suggested that affluent teenagers might be "troubled":
Children in wealthy families are usually thought of as being happy and well-adjusted, but recent research suggests that that they can be quite troubled.

In two studies affluent, suburban teenagers reported higher levels of substance use, as well as symptoms of anxiety and depression, than did other children of the same age. Exploration of causes suggested that two factors might be implicated: excessive pressures to achieve, and isolation from parents (both literal and emotional). * * *

Studies also indicate that parents in very wealthy communities can be more emotionally vulnerable than those in the middle classes.

When adults place inordinate emphasis on material success, for example, they tend to compromise attainment of other rewards critical for their psychological well-being, such as close interpersonal relationships. At the community level, too, material affluence can inhibit the formation of supportive networks, as services – such as child- or elder-care -- tend to be bought and not shared with neighbors. * * *

Not surprisingly, advisors, institutes, and organizations seek to address clients' concerns of educating children about money management and social responsibility.

For example, the
Gallo Institute professes its two founders' belief that "The Most Important Service Financial Professionals Can Offer Clients Is Helping Them Educate Their Children About Money!"
According to a recent study [conducted by The New Retirement Mindscape, Ameriprise Financial, in conjunction with Harris Interactive, Inc., in January 2006], 61% of affluent parents with financially-dependent adult children rated “advice to help children become more financially savvy” as their top priority. And 52% of adults planning retirement share this concern as well.

Eileen and Jon Gallo have spent more than 20 years helping financial professionals and their clients navigate the complex issues of family wealth. Through their books, seminars and media appearances, the Gallos provide tools to help affluent parents raise financially intelligent children. * * *
The Gallos wrote a book, Silver Spoon Kids, as "a parent's guide to raising financially responsible children in an age of unprecedented wealth."
Drawing upon their experiences as members of the renowned NYU Family Wealth Institute, they tell you how to talk to kids about money, how to teach them to handle it responsibly, and how to instill in your kids a sense of giving to their communities.
Eileen Gallo (a psychotherapist) and Jon Gallo (an estate planning attorney), of Los Angeles, California, were interviewed as the authors of Silver Spoon Kids: How Successful Parents Raise Responsible Children by about "money, kids and the sudden discovery of being Jewish" after their book was featured in a Time magazine article.

The Inheritance Project (also known as Trio Press) seeks to smash myths that the "possession of wealth brings happiness" and that "[t]hose who inherit (money they did not earn) do not deserve their wealth." That organization offers ten "publications for heirs, wealthy parents, and professional advisors" that address "the many complex issues that surround inheritance."

More recent studies indicate that wealth is a positive factor in families, if properly handled.

On March 26, 2008,
a summary entitled "How wealth affects children's cognitive achievement" noted that "a new study published in the March/April 2008 issue of the journal Child Development found that family wealth might partly explain differences in test scores in school-age children."
The study, conducted by researchers at New York University, also found that family wealth is positively associated with parenting behavior, home environment, and children's self-esteem.
In Pennsylvania, on February 12, 2007, PNC Bank issued a Press Release about its commissioned study, released as "Growing Up Wealthy", that found "affluent teens don't fit tabloid stereotype."
PNC Wealth Management's "Growing Up Wealthy" study depicts an affluent youth culture that is privileged yet more responsible, hard working and ambitious than the perception fueled by the antics of young celebrity socialites.
On the PNC Bank website, "Growing Up Wealthy" resources are offered: a Press Release, Survey Highlights, a PowerPoint presentation, and various "sound bytes" by Bruce Bickel, Managing Director of PNC's Private Foundation Management Services.

Another resource for bringing awareness to a child about personal and social responsibility in the setting of an anticipated inheritance is the Fox Studios movie, released in February, 2007 -- The Ultimate Gift. Its website offers discussion materials. For additional background and links, see PA EE&F Law Blog posting "The Ultimate Gift" Movie (03/12/07).

Finally, parents might wish to consider another resource: a

On March 12, 2008 the
Wall Street Journal published an article entitled "Games Can Help Rich Kids Value Money" by Josee Rose, who described "a board game, a stock-market contest and donating $1,000 to charity" as "techniques financial advisers are using to help wealthy parents introduce concepts of financial and social responsibility to children of wealth."
Wealthy families frequently worry that, as money trickles down through the generations, its value is lost. The first and second generation sacrificed to accumulate their wealth, and they tend to pamper the next generation, says Glenn Kautt, president of the Monitor Group, a wealth management firm in McLean, Va. "That generation is the one that has the sense of entitlement."

Financial advisers find that sometimes the easiest way to raise the topic of the responsibilities of wealth is by playing a game.

GenSpring Family Offices LLC, which serves 600 families whose collective worth exceeds $15 billion, created a board game called "Shirtsleeves to Shirtsleeves," meant to open a discussion on family-wealth issues.

The name is based on the old proverb, "Shirtsleeves to shirtsleeves in three generations," and the game, which feels in some ways like the game Monopoly, asks the question, "How long will your money last?" * * *
The game addresses a "curse" that may be real: Marilyn Gardner described the "Midas Curse" in "The curse of vanishing wealth" originally published by The Christian Science Monitor, then posted by MSN Money:
"Almost everybody knows a family or has seen a case where the money hurt somebody in the family, or the kids or grandchildren blew it all," says [Rodney] Zeeb, an attorney and coauthor (with Perry L. Cochell) of "Beating the Midas Curse" [Heritage Institute Press, 2005,] a reference to the destructive relationships with money that splinter some families.

So widespread is the problem, that six out of 10 affluent families will lose the family fortune by the end of the second generation, Zeeb says. And nine out of 10 will have depleted the family wealth by the end of the third generation.

It's a modern-day drama summed up in an ancient Chinese adage: "Wealth never survives three generations."

Nineteenth-century Americans updated it to read, "From shirtsleeves to shirtsleeves in three generations." * * *

See also: "7 ways to raise kids who can hold onto money", by Terry Savage, posted on MSN Money, who advises: "Strengthen your child's grasp of financial matters by starting early, keeping lessons simple and setting an example."

That game, "
Shirtsleeves to Shirtsleeves", was featured in an audio article entitled "The game of wealth management" broadcast June 25, 2008, on National Public Radio's "Marketplace." You can listen to the show to determine if you (or your children) might prefer it to Monopoly.

[Graphic Source: Educational Week, here]