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Do Competent Kids Need an Inheritance?
| September 17, 2010 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Competent children don’t need an inheritance, and incompetent children don’t deserve one. In other words, if you have truly taught your children how to fish, they can find their own way; otherwise, placing significant wealth in their hands can be irresponsible and disastrous. While this is certainly a pragmatic philosophy, many parents with substantial wealth struggle to balance providing advantages that will propel their kids towards greatness and removing the incentives for hard work and productivity.
Don’t Want to Raise A Spoiled Brat
A couple months ago, my wife and I went to Jamaica with several of my friends from high school. As the topic shifted to starting families, the conversation got interesting. Incidental, none of us have children, yet we had so many ideas about the ideal way to parent. Perhaps the most poignant moment of the entire conversation was when I proclaimed that: “I refuse to raise a spoiled brat.” I believe I would personally consider it a failure if my kids turned out as entitled monsters. In truth, time will tell; however, my rationale is that spoiling kids does not do them any favors. We all know the story of the kids who had “everything” but amounted to nothing. A dated pop culture example would be the characters of Sebastian (Ryan Philipe) and Kathryn (Sarah Michelle Geller) from Cruel Intentions. (Oh come on, you know you watched it too 🙂 They were so bored with life, because everything was handed to them, that they became destructive. The idle mind is the devil’s workshop. There are plenty of real life examples as well, but you get the point. The thought that an inheritance or other gift could ruin the life of your precious offspring is certainly troubling to say the least. It is all quite tragic.
Recently, I read “one of the most precious gifts you can grant your children is the true independence they gain when they learn to earn what they covet and become stewards of their own happiness.” Personally, I think this is a very rich quote because it suggests that by lavishing gifts on your children you may be impairing their development. Interestingly, sibling studies further support this theory. Often, the oldest child receives less from parents and is forced to be more responsible than his or her younger siblings. As a result, the oldest child often develops more independence while the younger children will need help longer, sometimes… indefinitely. In effect, the parents continue to strengthen the oldest child while hurting (enabling) the younger child. Parental subsidies can greatly impact the growth and potential of their children.
Nepotism
Some have decided that they don’t intend to leave an inheritance, so this isn’t a big issue for them. For example, Yu Pengnian is a Chinese real-estate tycoon who is committed to giving away his billion dollar fortune entirely to charity. When asked how his children felt about receiving nothing, he said that they didn’t oppose it. (Notice he didn’t say, they celebrated the decision). Mr. Pengnian logic is rather simple though:
“If my children are competent, they don’t need my money. If they’re not, leaving them a lot of money is only doing them harm.”
Along this vein, it appears that giving your children wealth is akin to saying that you lack confidence in their ability to find their own way. Inherent it the tone of his comment is a dislike of nepotism. Nepotism is favoritism granted to relatives or friends with no regard to merit (Wikipedia).
I find Mr. Pengnian perspective especially interesting given his Chinese heritage. Wealth in Asia is dynastic. I previously referred to this distinction subtly in Creating Phenomenal Wealth Over Time. Several Asian companies invest in where they will be in the next century, which vastly different from the short-term business plans many of us are familiar with. Thus, Mr. Pengnian decision to ignore tradition in pursuit of his passion for giving back is quite compelling.
Suppose your children have proven their merit?
Some would argue that families of some means don’t have to follow Mr. Pengnian’s model to have successful children. For those of us who purpose to leave an inheritance for our families, the challenge becomes finding the appropriate way to bestow our inheritance so that it enhances instead of destroys.
There are some interesting examples of how this is done. Possibly, the best example is Warren and Peter Buffet. Recently, Peter wrote a book entitled: Life is What You Make it: Finding Your Own Path to Fulfillment. It suggests that parents focus on giving their children values rather than spoiling them. Peter says it was the values he was brought up with that helped remain normal despite his family’s wealth. He writes “values are the steady currency that earn us the all-important rewards.” Moreover, he argues that it does your children a disservice to give them everything they want. Remember, his father is the ultrarich billionaire who famously lives in the same home that he purchased in 1958 years ago for $31500. Bufftet has also committed to giving away a 85% of his wealth to charity (the Gates Foundation). Thus, Peter argues from an extremely rare perspective.
Other prominent examples are Ivanka, Donald Jr., and Eric Trump who all finished school and went on to work for their dad’s (Donald Trump’s) enormous empire. Interestingly, it appears to me that Ivanka Trump finds it particularly important to prove herself. She graduated summa cum laude in economics from the University of Pennsylvania, initially interned some place else, and even got a mortgage in one of her dad’s buildings. Gary Vaynerchuk and Dylan Lauren (daughter of billionaire designer Ralph Lauren) are two additional examples of prominent offspring who have successfully moved beyond their parents brand to become successes in their own rights. I would probably even throw Nicki Hilton (Paris Hilton’s younger sister) into the mix. She designs and famously said “I’m not a celebrity like my sister… I just design clothes…” when an interviewer was asking too many personal questions.
Not The Money That Ruins the Child
All of these examples show that money doesn’t necessarily have to ruin the child. Now if you have a deep desire to donate most or all of your wealth to charity, such as Yu Pengnian, I doubt anyone who matters can really fault you. After all, you were the one who created the wealth in the first place. (Note, only 2 out of 10 millionaires inherited a substantial portion of their wealth). However, I don’t see it necessary to disinherit kids in an attempt to prevent them from being spoiled rotten. In many cases, it was providing for your family that initially prompted you to pursue wealth in the first place. Thus, it would appear unfair to some if they were deprived the privilege to give to their children. However, according to Peter Buffet, the key to not raising trust-fund babies is making sure that your kids embrace the values you hold dear, such as strong work ethic, trust, tolerance, belief in education etc. As the seemingly well-adjusted son of the third richest man in the world, perhaps we should listen.
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Creating Phenomenal Wealth Over Time
Questions
What do you think about leaving kids an inheritance? Does a “good man” leave an inheritance for his children and their children?
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
I liked this article. Personally I think that one should use a combination of care and tough love, and provide for the kids needs while letting them figure out how to meet their wants. Lead them by example, love, and care.
Spoiling them is just lazy and leads to all sorts of problems. It's easy to pay off your kids with money, but much harder to devote the time and energy to raise them properly. The rewards of doing so are so much greater, though.
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Well, there are always various factors at play. You also see plenty of successful people coming out of families that had nothing, successful people who didn't even have families, and you also see plenty of failures among the same groups as well… parents have some degree of control, but there are always other factors and exogenous factors that can affect things, too.
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Absolutely agree. Parents can only control so much… gifts, personalities, passions play into whether one succeeds big time.
I always tell clients that "Money can do good things and Money Can do Bad things." There is a difference between inheriting assets outright and inheriting them in trust for the child's benefit.
Additionally, everyone talks about Buffet giving away 85% of his fortune? So what does that mean his children inherit only 8,000,000,000 ($8 BILLION – assuming he is worth $50B at death)?
I hope to leave as much money as possible to my children, with the knowledge that I'll put the rules in place so that they don't get it all at 21.
BTW Pretty deep convo while on Vaca!
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I would leave some type of inheritance, but at the rate I'm going, it wouldn't be much… 🙂
Nice article, but don't believe those silly movies, "Cruel Intentions" was probably written by some lonely man that was rejected by some rich chick when he was young. So he make up a story to make rich chicks look bad. Even Paris Hilton has a kind heart (IMHO)…
Great article, I would like to add that once you have kids, you really see yourself in them. If that doesn't make sense yet, it will 🙂
Hello Evan,
Very interesting point. I do see your distinction between inheriting a lump sum without much guidance versus being the beneficiary of a trust. I can understand how having resources (+) guidance and maybe (-) control may be optimal, especially if the heirs aren't ready yet to manage that wealth well.
Until I wrote this post yesterday, I don't think I every thought about the dollar amount that he we was leaving behind to his family (most likely). That's is still a very sizable piece of change indeed.
I think we're in the same boat as you with regard to our heirs, we want to leave as much as we can to our children. However, this will not just be a blank check, for their benefit… I guess I would want an irrevocable trust with a non-challenge clause similar to Michael Jackson's.
There were two real financial guys, and three biomedical (my wife and I are both biomedical), so yes the conversations were not really vacation like. Often this my fault though.
My recent post Do Competent Kids Need an Inheritance
P Hilt seems really nice, and she is also a rare breed of entrepreneur: she gets paid top dollar for not acting, not singing, just being. That's mad skill in my book. She just needs to keep her nose clean (no pun intended).
With regard to how children will impact me, I look forward to it. I have so many friends with kids, it's always joyous hearing them talk about their families. Kind regards,
Shawn
My recent post Do Competent Kids Need an Inheritance
One thing you learn when you have kids is that you can't completely control how they will turn out… they have minds and personalities of their own that may be the opposite of what you want, and they will rebel against authority. I hate nepotism, but it is prevalent in families trying to build dynasties either in business or politics. In my case, whatever money I have will be placed into a trust for the kids that they cannot access until they turn 35. I believe they should have to make it on their own initially, and I hope by the time they are 35 they will be mature enough to make good use of the money and not blow it.
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Oh I can definitely see how you cannot control how kids come out just by looking at myself. Good point.
Nepotism (resources without merit) is annoying. My only conflict though is I am not a redistributionist, so the only way that I know how to combat it is to educate.
No money until 35 to give them a chance to mature and experience life seems very pragmatic. I completely get it. Thanks for the comment.
My recent post Do Competent Kids Need an Inheritance
I think a lot has to do with the timing of the inheritence as well. If you're lucky enough to live a long life and pass on your wealth to your children when they are say 50 or so, there are some benefits. This probably gives them enough time to develop some independence and grow into healthy adults. But it also may allow you to help support putting your grandkids through college or retirement for your children. And with the insane increases in tuition and the disappearance of pensions, you may not be spoiling them, but merely bringing them up to par with previous generations.
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"I think a lot has to do with the timing of the inheritance as well. " Great point. Evan and the Grouch were also making it as well: it is a lot different giving someone an inheritance at 18 or 21 years old versus 35 or even 50.
Also, the increases in costs is notable like you mentioned. Things that were taken for granted are no longer expected today, so I can easily see how leaving a chunk of money (especially if divided among many) may not go as far in today's dollars as it would 30 years down the road.
That's good stuff. Thanks for the insights.
My recent post Do Competent Kids Need an Inheritance
I don't have billions so do plan to leave all to our kids; if we live a long life it won't be a large amount after splitting it 5 ways!
I agree though more important than money left is what parents instilled in the kids in terms of values and character.
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Hey Bucksome!
A fortune split 5 ways certainly would dent the beneficiaries portions substantially. One thought though: if you delay their receiving it until they are of age (i.e. 40 y.o.), who knows what their inheritance would grow to through the magic of compounding?
Yes, at the end of the day, values are what's more important for virtually all kinds of wealth, (money and beyond).
Thanks for sharing your thoughts!
Shawn
My recent post Do Competent Kids Need an Inheritance
Great post. It sounds like all the commentators would agree with Buffet's belief that at most to "leave enough so they can do what they want but not so much that they can do nothing". I see clients on all sides of the table. Some want to leave a lot, some want to leave it to the grandhildren, some say they felt their "obligation" was over when the paid for the kids' education and now their objective is to "die broke".
Raising 3 kids to lead happy, productive lives is my proudest achievement. My wife and I sometimes wonder if we could do it today with all the Facebook/Twitter craziness. It was hard enough back then keeping the "Gameboy" out of their hands.
Ha, I remember Gameboy, Gamegear and all those video game systems. Good times indeed.
Robert, I can definitely see why this topic would be so heavily debated. People don't want to feel like they are contributing to the demise of their children, yet they want to give them every reasonable advantage to achieve their goals. That's quite a conundrum.
Twitter, Facebook, technology in general, and all that jazz certainly will make it interesting for raising today's youth… quite a lot of distractions, opportunities, and predators. I guess I'll see this first hand, one day.
Thanks for the comment!
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I have already told my two kids, don't expect an inheritance from me, unless you have your own life together. I also told them, don't expect me to pay for your houses and weddings, because I am saving for retirement. I saved up for their college funds and now I expect them to make it on their own.
Hey Kris,
I'm so happy you got a chance to comment too!
I like your plan to distribute the inheritances as the "kids" come of age (whatever that may be). I would say that my bias is towards leaving kids an inheritance, but as I listen to counter-perspectives like yours, I am gaining much insight into the matter.
I never think self-care is selfish. If kids are raised and taken care of until adulthood, then your parental job (financially) is done in my book too.
Great tie in with regard to the economic climate. I completely see how the irresponsible behavior that led to the mortgage and other debt crises has set the stage for repeated misbehavior for the next generation! It's quite sad and the reason why we most focus on increasing their financial literacy.
Great discussion, thanks so much for the comment!
Hey Bret,
Straight and to the point. I completely know where you are coming from and agree. If your life is a mess, the money will only hurt you: giving a drunk a drink, so to speak.
I also see your point about being finish with the financial responsibility for grown children, especially since you saved for their college. That's the way most of us were raised, and I think it's right.
Shawn, Parenting has turned out to be quite different than I anticipated when I started out. As DIY said, kids turn out with their own traits and personalilties. I believe it's less about the money itself, but avoiding indulgence, teaching accountability and responsibililty to a child is my number one priority. If the child proves him/herself responsible and independent, then offering some extra cash now and later is ok with me.
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Hello Barb,
I definitely understand your point. My concern is creating dependent kids, but as you mention this becomes much less of an issue once a child proves himself or herself. That's why I like using the Trump kids as examples. As an outsider, it looks like he did a very good job. I never hear any recklessness (unlike many of the other socialites), and they stand to inherit quite a substantial fortune.
Thanks, as always, for bringing your fresh perspective.
My recent post Do Competent Kids Need an Inheritance
Good article. I think that the best situation is to raise kids that are fully able to not only survive, but THRIVE on their own and be self-sufficient. Ultimately, they should be able to live without any need of an inheritance whatsoever. Then, when you provide it to them, they know how to handle it responsibly. While my kids are young today, I hope that they are just that way when they're older – AND I hope to give them that inheritance as well. It would be my very strong desire to be able to do so.
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Makes perfect sense to me. The inheritance is just gravy so to speak. The real prize is that the "kids" become productive adults that contribute to society at large.
My recent post Do Competent Kids Need an Inheritance
Hey Khaleef,
There is no doubt about it that this is a particularly challenging time to raise kids well with the myriad of distractions and dangers. I think there are going to be a lot of different approaches and opinions for this one. Like you said though, the focus needs to be giving the kids the spiritual, ethical, and career tools necessary for them to be successful (whatever that may mean for them).
Thanks for the comment!
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Totally agree with you about a week ago, wrote about ETOGES in his blog !
I believe I would personally consider it a failure if my kids turned out as entitled monsters. In truth, time will tell. Thanks mate and keep it up.
I believe that children are entitled for inheritance as a constitutional right if chosen by the parents' will. Equal distribution will stop conflict from arising.
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