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Wealth, privilege and responsibility
Most do not have to consider the vexed issue of legacy and succession. Most don’t have to fret that when they die, their children will have choices that they are ill prepared for. Some fret that their children expect to inherit and thus live waiting for their parents to die. This is the point where aging parents face the inflection of privilege turning into entitlement.
Behaviour to wealth that comes from a sense of entitlement rarely ends well over the long term. Hence the saying one generation makes it, the next loses it.
How do families, and for that matter society, change the thinking from ‘this is MY right’ to ‘this is a privilege’? Why is this now topical?
Firstly, the aged are living longer and their own children will be aged before they themselves inherit.
Secondly, some of these aged children have had a privileged background and have failed to thrive or strive due to a sense of entitlement of what will come their way and or the previous generations’ absenteeism as a parent. For many of these children, they feel frustrated, resentful and unfulfilled.
Thirdly, both the parents and children are struggling to take the next step to purpose or legacy.
What is the purpose of wealth? Is it to live well in the moment, pursing self-gratification and then give the rest away? Perhaps to create and grow a shared endeavour? Is it to separately achieve freedom and choice, and if so, from what and for whom?
Beyond choice becomes which choices and why, paraphrased this is ‘what is your purpose?’ What will be the legacy of your life? These reflections are deeply personal and often quite distressing.
If any of this relevant to you, these are great problems to have. You may not think you have them because you don’t think you are ‘wealthy’. Are you wealthy? Ask yourself these questions:
- Can I choose to buy whatever I need and want, whenever I want or need it, and am sure I can pay for it?
- Do I feel that I will be able to do this for as long as I live or want to?
- Do I have to work in any way actively to be able to live as I want for the rest of my life?
- Can I choose what I will do, when I will do it, and with whom I will do it, without fear of lost opportunity or retribution?
If you have answered yes to all of these questions you are wealthy, because you have freedom and choice.
Clearly if you have modest needs or wants you can have freedom and choice with limited material wealth. Wealth is as much a mind-set as it is a balance sheet.
But equally once you know what you might need or want or expect to need or want, a passive balance sheet of cash or investments can be modelled to come up with a number that will deliver this to you irrespective of your mind-set. What then?
Many then choose to pursue even more, in short run like rats on a treadmill to end up with an end result. This is a game you can never win but if it is your joy, all power to you.
Many choose to stop and reflect, and a large portion of these choose to give it away to charity, research, venture capital, etc. Some choose to give it to their kids and leave them to decide.
One reasonably wealthy associate who came from wealthy parents and thus had a childhood of expectations and entitlement, was plunged into disarray when his parents lost everything. Frustrated entitlement turned in his case not into despair, but into a different sort of freedom in which he thrived. He now sees life as a privilege and a responsibility and his guiding words in respect of his own kids which are still very young is “cause no harm.”
Does expectation and entitlement cause harm, mostly yes.
Does instant wealth without preparation cause harm, mostly yes.
Is this progressive, is more a greater moral and harm causing hazard than less, what is the cut over point?
If you provide your children with security, will it kill their motivation to strive?
Does striving matter anyway?
How do you prepare children for wealth without creating entitlement?
You will appreciate this vexed self and family examination is actually more of a philosophy discussion than a financial one, and thus from here on in, everyone has to do what feels right for them, thus it is now a collection of thoughts.
If you have achieved freedom and choice you will appreciate that it is a gift beyond value. If you have children you should wish that they have this gift early so that they are free to make their own choices. However, accept that what you think is good and bad is a value judgment and that they will make different judgments to you. If they get to start making choices early, and fail, hopefully they will learn. A wipe out at sixty years old is harder than a wipe out at thirty.
So what amount gives freedom? It varies, but a secure home, some seed capital and an education is a good start. A house purchase price is enough to start.
If they don’t make any risky choices at all, do you give them more? Probably not, just accept that they will get an income off the family shared capital and move on. If they do take a risk, fail, and lose the home you gave them do they deserve a second chance? Well maybe. It’s not failure that matters. What matters is how they failed, how honourable they were, what values they displayed and whether they learnt anything or not. A second chance is a gift that good people deserve.
So when do you start them off on this freedom journey? All kids are different, but if you haven’t done it before their thirties, you should probably just do it. If they are drop-kicks let them have something and lose it, (if that is going to happen). They will learn something and you will know more.
If they are habitual idiots then they need protecting, beyond death. Do you want to do this?
I have never seen a case (beyond where it is serious medical need that all accept) where making these judgments and imposing them from beyond the grave has ended well emotionally for your next generation.
Sometimes, a second generation leader emerges that all accept as the driver of family wealth. This can allow what you have created to be retained as a superior economic lot, rather than divided. Don’t under estimate the burden on that child. They will indeed have to be capable and fair minded to the point of selflessness and be immensely patient and forgiving.
I often am appointed to trusts and have to deal with these issues. Upon the death of the wealth maker, I normally try to assess what is right for each family (if I don’t already know). This is often driven by the principle that all children should be given freedom and choice – no child should be pitted against another – and wherever possible, all share equally. The worst legacy to leave your children is a war with each other over something as worthless as money.