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.
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.
Creating Phenomenal Wealth Over Time
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.