Lewis Schiff
Lewis Schiff
Unprepared Children of High-Net-Worth Clients
How financial education can not only help the children but also support the work of advisors.

March 17, 2011
by Lewis Schiff

In last month’s column, we explored potential damages to families and individuals when children of wealthy families grow up unprepared for responsibilities they’ll inherit. While the stories of rich kids in trouble may fill tabloid pages, it represents a true failure for the families and a missed opportunity for key advisors to have steered everyone to a better outcome. For advanced planning teams working with a family in which money maturity is in low supply, adding a family “money counselor” may not only help the parents and children but also strengthen the foundation on which any financial plan is based and therefore increase its chances for success. Adding this professional dimension to the team also enhances the team’s credentials for being comprehensive in its approach and differentiates it from other practitioners.

Financial literacy for the children of affluence starts early, just as models of nonproductive behavior do. Advisors to affluent families have observed the extraordinary pressures that many wealthy families put on the young, teen and young adult children in the family to excel. Average performance in school, sports, social life and career is not acceptable.

While the pressures to surpass the ordinary are part of the family culture, the necessary skills are not necessarily present, creating children with emotional challenges if not depression. Very successful parents sometimes forget that they became successful because they had a lot of skills or they developed those skills in business or creativity or other factors that led to their success, according to Dr. James Grubman, a therapist who works with wealthy families and advisors. “You have to teach kids skills from a very young age,” he notes. “The prime age for learning good money skills and financial literacy is between ages of 6 and 14, which is much younger than most people realize.”

Beyond Good Intentions

While parents may have good intentions for raising money-mature kids, they often fail to succeed because they don’t move from soft intentions to a realized program of financial education tailored to the age and interests of the children. “The kids who do well have parents who’ve gone from good intentions to being intentional,” observes Joline Godfrey, a consultant to affluent families on financial education and the head of Santa Barbara, CA-based Independent Means. Every parent has a good intention for their kids to grow up financially intelligent. But, few of them really act on it. Those thought leader families who are committed and intentional and actually provide good financial education are the ones that have a different outcome. For example, look at what Warren Buffett has done [leaving his children some money but more assets going to their foundations for them to manage the charitable work]. He’s very clear what he expects from his kids.”

Families Gone Wild

When family wealth counselors start their work they may quickly identify the children’s lack of financial understanding, but they must first focus on the parents. Their spending habits origins of wealth for both and their attitudes toward affluence are all influential models for the children to observe long before any expert arrives.

A single approach for all children in a family won’t necessarily work since their relationships to money are completely different. Often, the older children — the first or second born — may have had experiences growing and remember more of the middle class life than younger siblings. The youngest ones of the HNW and ultra-HNW families, though, may have grown up only when the family was affluent. They have different experiences than older brothers and sisters, who may only be five or six years older. What is sometimes attributed to personality for differences in good money-management skills among siblings may have more to do with birth order and the distinct family experiences they had during childhood.

Godfrey, for example, insists that she work with all generations of the family. Those parents who hope a financial education specialist can take their kids and tutor them may have good intentions, but they’re not taking necessary actions to address the challenge. Parents and children must be involved.

Use Kids’ Passions

Children who will inherit significant wealth and the responsibilities that go with it require world-class preparation. Balancing a checkbook and understanding compound interest is one thing, but managing assets is another. Mom may have built up a very successful regional chain of restaurants, but her 12-year-old son and 10-year-old daughter may someday need to sit on the board and also approve the management of investments that support an extended family.

One way to engage children is to play off their passions, otherwise financial education will feel like classroom instruction. Family-wealth counselors work with the families to identify something the children already have an interest in and are willing to spend time pursuing, such as a favorite sport or activity and develop a learning program around it as a theme.

Another approach to spark kids’ interest in financial matters is using special-group events. This month, for example, Godfrey is running a mother-daughter weekend called Fashion and Finance in New York. The idea is to get young women to engage in their own financial development. One of the sessions will examine the connections between Women’s Wear Daily and The Wall Street Journal.

The end goal is to help each family member of the next generation to have an individual economic vision statement and the skills to realize it. While many families want their children to understand basic concepts and terms, the children need to go beyond the introductory level to incorporate family values, such as those related to charitable giving or volunteering and their particular interests in participating. The statement itself evolves as the children mature and become more focused in their interests.

Strengthening the Financial Plan

When a family wealth counselor works with the next generation of an affluent family, it helps ensure the orderly transition of financial planning from the parents to the children and it enriches the ongoing relationships with the advanced planning team. Godfrey counseled a family that has a group of adult children and another set of younger children. The family had never done anything about financial education, but the parents understood they needed to get started immediately and worked with her to develop a program. Following a two-year plan, the adult children (including spouses) now meet each quarter for a weekend of master classes in such issues as philanthropy, investing, beneficiary development, stewardship and careers. Between each quarter, Godfrey meets individually with the couples or individuals. In a parallel program, the adult children are also learning to be mentors to the younger children.


“It’s learning decision-making about spending that’s important,” observes Grubman, “understanding how to have initiative and how to take risk, including how to learn from the mistakes. There are some basic financial literacy skills of life — how to be generous and charitable — and the job of parents is to manage their kids’ apprenticeship around learning about money.”

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Lewis Schiff is a senior managing principal of Advanced Planning Group, a family office network for advisors.