Chodos & Associates, LLC


Wealth Education

Wealth is created from a wide range of activities, and transferring that wealth to others is relatively easy.  However, transferring the skills to manage, maintain, and grow family wealth is dramatically more difficult, as demonstrated by the historical trend in which the vast majority of wealth is dissipated by the fourth generation.  Ultimately, affluent families aim to empower the family to succeed and carry the legacy forward, yet few consciously equip the next generation to be able to achieve that goal.  Wealth education is proactively teaching the younger generations core financial skills so they may be self-sufficient and capable stewards of family legacy.

Discussing wealth issues is not easy for either the wealth creators or the children.  Often the senior generation desires privacy and does not delve into any great detail to avoid the younger generations from knowing too much, too soon.  Similarly, some have concerns that if too much information is provided children may develop a sense of entitlement, may lose motivation, or may be overwhelmed.  One of the most common complaints from wealth creators is the children seem to lack the drive and passion to achieve at the same level, despite the fact that they have the enormous benefit of more formal education, family experience and resources. 

From the younger generation’s perspective, there is a burden of expectations, whether real or perceived, to be as good and as independently successful as the parents.  If they succeed there will always be some who claim it was only due to the family name and connections.  Others dare not try for fear of being compared to their successful family members and not feeling as if they measure up.  A simple example; the sons of Arnold Schwarzenegger or Sylvester Stallone are expected to be muscular despite the fact that they may have very different interests and motivations. 

Few people are ready for a leadership role when it is thrust upon them without any preparation.  Few expect their child to read when they are first handed a book.  Similarly, it is not reasonable to expect a child, even a bright adult, to be able to manage significant assets, a business, a team of advisors, employees, etc. without advance preparation, yet this is all too common. 

The very financial skills that were applied to create the wealth need to be developed by the children to preserve it.  Simplistic, and effective, is early and clear communication to provide perspective and tools to succeed.  Understanding the family’s place, where success originated, currently stands, and could go, allows junior family members to join the process rather than feeling as if they are an add-on. 

Wealth education is less of a mini-MBA and more of a broad overview.  Primary goals are understanding what comprises the family wealth, where it came from, family ideals and goals, and developing a working understanding of core financial concepts.  Core financial concepts often include (a) limits of family resources, development and management of income and growth, (b) consequences of financial decisions, budgeting and spending, © use of reserves and contingencies in planning next steps and how those steps impact other plans and family members, (d) borrowing, (e) investing and asset allocation, (f) risk profiling and mitigation. 

Wealth education, like all other education, is a continuing process and works best when designed to fit the individual participants.  A variety of tools are available to assist, such as assisting a family in developing a family mission statement and then designing plans to complement, coordinating family meetings, practical lessons from hands on management roles, and individual coaching.  Business and entrepreneurship can be a excellent platform to teach children business lessons, as it is learning by doing - designing a business plan, raising capital, preparing financial projections, demonstrating leadership, sharing a vision, the role and value of human capital, and marketing and selling the concept.

Some believe that trusts are the tool of choice for guiding a family.  Trusts are a common and one of the best tools in the planning repertoire; though trusts do not replace wealth education. Trusts can encourage desirable behaviors (e.g., college degree, participation with charitable endeavor) but cannot guarantee a result.  Behavior alone doesn’t necessarily mean the values have been instilled or information learned, merely funds have been used as a carrot to elicit a behavior. 

Parents are required to balance – it is inherent in rearing children.  Wealth education is also a balancing act, to encourage wealth creators and holders to consciously prepare the next generation for their eventual role as contributors to the family legacy and create active, eager participants.

Adam Chodos, Esq., CPA, is a private client attorney specializing in asset protection, wealth preservation, business succession, and advanced estate planning.  

Please note that the information contained in this article is for informational purposes only and should not be construed as legal advice on any subject matter and does not create an attorney-client relationship. No reader should act, or refrain from acting, on the basis of any content without seeking appropriate legal or other professional advice based on their particular circumstances. As laws and rules change frequently, this article contains general information and may not reflect the most current legal developments. The author expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this article.

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Adam Chodos