Pre-K entrance exams and high school honor rolls, college commencements and postdoctorates: Most parents strive to give their children a solid education. They offer encouragement and advice (lots of advice). They provide funding (lots of funding).
Yet among some wealthy families, one area of schooling could use a little more parental TLC. You might call it Financial Education 101. It won't lead to a diploma or show up on anyone's curriculum vitae. Yet without a solid understanding of their family's wealth, some members of the next generation may be ill-equipped for it.
Christine Courtnage, a Chicago-based wealth strategies advisor for U.S. Trust, explains what is at stake. "Children with access to a trust fund at an early age may have a poor understanding of the longterm impact of uncontrolled distributions on their own lives and on the life of the trust," she says. "Adult children may be expected to become stewards of the family fortune or manage a philanthropic foundation yet have little knowledge of either." Not only might these children face difficulties, she adds, "but the family's interests may suffer too."
A recent U.S. Trust survey1 revealed that a sizable portion of wealthy Americans appear to be of two minds about fiscal tutoring. Most respondents believed it to be important; however, while all could surely have provided wealth-related schooling, not many seemed to have done so, as just one in four felt that their kids had received enough.
Anthony Fittizzi — like Courtnage, a U.S. Trust wealth strategies advisor — thinks this ambivalence often reflects time constraints. "Most clients are wellintentioned and sincerely wish that they did a better job of educating their children about their finances," he says. "Most of these folks are very busy with the daily activities that allow them to build or maintain their wealth, and they choose to spend the limited time they get with their children in recreational activities."
For a number of clients, the story may be slightly more complex. "Individuals sometimes worry how their children will react when they learn the family is very wealthy," says Lori Jackson, a principal in the U.S. Trust Family Office. "Will they quit college or abandon a career?" Then there's the constant concern about "friends" who may ask for money to fund shady investments or other inappropriate activities.
Clearly, avoiding discussions of wealth can have serious repercussions for younger family members. But consider the consequences when the children themselves are the ones to speak up. "We've heard of teens using Google and learning for themselves about their family's wealth," notes Jackson. It can lead to mixed emotions, as in, "Mom, Dad, we're rich. When were you going to tell me?" The confusion and frustration may only deepen, she says, when a significant legacy isn't revealed until the decedent's will is read. On a more positive
note, Jackson says, "talking about wealth and education enables children to develop the art of agreement and good decision-making, whether it's for investment opportunities or family expenses or something larger, such as the family's philanthropic mission."
Indeed, a shift toward more openness may be under way, owing in no small part to contrasting economic conditions. First, Courtnage says, "media coverage of the global downturn has prompted children to ask more questions about money." Then there's the tremendous prosperity of the past decade, which has brought with it a rising demand for instant gratification. Says Fittizzi: "The youngsters want their own cell phones and iPods and computers. All this has created a sense of isolation within families — and now parents are responding to it." These days, he says, "they appear to be more willing to educate their children and set the right example."
In other words, where great wealth and poor communication intersect, we may have reached a tipping point.
FIRST (OR NEXT) STEPS
After many years of assisting clients with wealth-related issues, says U.S. Trust's Courtnage, "we've come to recognize the major issues families have regarding their children and wealth." Following are some of them.
Talking about money. Families often want to wait until their children are older before discussing a family business, trusts, philanthropic efforts and the like. But whether they're just out of diapers or approaching middle age, "it's important to address issues relevant to your children's stage of life," explains Courtnage. So enlighten your four-year-old about piggy banks — but save the trust discussions for the older children. Of course, sharing your goals and family values around money "is just as important as sharing the details," she notes.
A sense of entitlement. "A lot of parents are concerned that their children will demand a new car because the family is rich," Jackson says. "Obviously you want to educate them to be responsible. So talk about money, saving, investing and giving, even at an early age. And stress responsibility. If your children want something, have them use a portion of their allowance or earnings to pay for it. When they take ownership on a financial level, over the long term they appreciate what they've attained."
Trusts. "If your children are beneficiaries of a trust, you should educate them as to the purpose and goals of the trust," Courtnage says. "This will help them have appropriate expectations and assist them in making long-term financial plans. But have these conversations well in advance of any trust distributions." Meetings with trust advisors can also be important.
The family business. In an ideal world, children should learn about a business "from the ground up," Fittizzi says.
"If that's not possible, at least include them in your business conversations from an early age and encourage them to ask questions. As they get older, introduce them to more of the operational aspects of the business." Remember, of course, that some children will find their talents lie not in the business but elsewhere. "Nevertheless," Courtnage adds, "they should still be included in meetings to talk about the company and how it affects everyone in the family."
A LITTLE HELP, PLEASE
Some families decide to give their children a financial education by having professionals work with them to provide it. That's where U.S. Trust can lend support.
U.S. Trust has numerous programs available, including a new one aimed at young adults called Financial Empowerment. Depending on the program, the firm's advisors are able to cover a broad range of topics, "from how to read a credit report to what to expect from a trust," says Courtnage. Children can acquaint themselves with their parents' advisors and their roles. Plus, says Jackson, "we often coach the next generation on how to ask the advisors questions."
Educational sessions are age appropriate and can take a variety of formats: online, one-on-one, small group presentations or retreats. Jackson sometimes talks to several families at one time. "Clients often appreciate the opportunity to have some joint education sessions and share experiences," she explains. The get-togethers can also provide good networking opportunities, she adds. "Some families even Facebook each other subsequent to the meetings."
The role of the U.S. Trust wealth advisor can be rather fluid. "We certainly aren't family psychologists," says Jackson, "but we often know family members so well that it helps us educate them and work with them through critical financial decisions. Perhaps you could call us financial psychologists."
If you are looking for the core strength of an institution such as U.S. Trust, this is surely it: client relationships that span many generations, and a capacity to help each of those generations grasp the implications of wealth. That's Financial Education 101 — and then some.
Download a PDF of this Article
1 U.S. Trust's 2007 Survey of Affluent Americans
Reprinted from Capital Acumen, Issue 13, Fall 2009
Opinions expressed in this article are those of the featured participants and may differ from those of U.S. Trust and/or Bank of America Corporation and its affiliates. Consult your advisor to determine if the ideas in this article are relevant to your personal financial circumstances.