When I was growing up, one family in the neighborhood lived differently from all the others. In their garage was a Rolls-Royce, and when each of their sons turned sixteen, a new BMW showed up in the driveway. Because it was so out of the ordinary, it caught my attention. It caught everyone’s attention.
Looking back, this is what I find interesting: This kind of privileged upbringing looked like a guaranteed recipe for de-motivating their children. But that’s not what happened. Both sons today are productive and successful. One holds a Ph.D. The other founded a real estate firm.
Maybe they’re the exception, or maybe this tells you that there’s more to successful parenting than meets the eye. It is, of course, hard to generalize. But there is research on this topic. And in my work, I have observed a number of common themes in raising motivated, productive children. Here are five that seem most important:
Warren Buffett has said he wanted to give his kids “enough money so that they would feel they could do anything, but not so much that they could do nothing.” To be sure, Buffett is in a different category from most people, but this illustrates an important principle: The best place to start is by making your priorities explicit.
The default assumption in the world of estate planning is that everyone wants to leave as much as they can to their children and to minimize the bite of the estate tax. For many families—maybe most—that’s the objective. But before you adopt this default mindset—and before you walk into an estate planner’s office—it’s important to think this through. Is it your goal to leave your children every dollar you can, or do you want to help them only with specific goals, such as buying a home? Do you have philanthropic goals? How complicated are you willing to make your financial life in order to minimize estate taxes? And do you want to encumber your children with trust structures after you’re gone?
There are no right or wrong answers to these questions. What’s most important is to think through the questions for yourself so you can put a plan in place that serves your objectives.
In her book Raised Healthy, Wealthy & Wise, wealth planner Coventry Edwards-Pitt stresses this point: Even in families where children don’t need to work for a living, people are happiest when they do have direction in their career. This might seem like an obvious point, but it is often harder for wealthy families than it is for others. Wealthy parents need to be more intentional in guiding their children and in letting them know their expectations.
Setting expectations early, in fact, is a key pillar. Don’t wait until college—or later—to let children know that they can’t rely on the “Bank of Mom and Dad” to support them.
To be clear, this doesn’t mean that you can’t ever help your children. What’s critical, though, is that they get on a defined path—and then stick with it long enough to achieve traction. As Edwards-Pitt points out, the concept of happiness is misunderstood. What matters most is direction and purpose. According to the research, a sense of purpose leads to “overall well-being and life satisfaction, improves mental and physical health, increases resiliency and self-esteem and decreases the likelihood of suffering depression.”
In Boston, where I live, there is the stereotype of the wealthy family that drives old cars, intentionally wears tattered clothing and turns the heat down to 65 in the winter. Sometimes, I think, they take this conspicuous frugality routine too far. But as a parenting technique, some amount of intentional frugality can be useful. That’s because children won’t always do as their parents say, but they will do as they see their parents do. So modeling some thrifty behavior helps communicate values to your children in a way that they might not accept if you simply lectured at them.
Does this mean you have to live like a church mouse to communicate values to your children? Not at all. It just means that in at least a few ways that are obvious you make choices that children notice. That way, even if you don’t say it, they will absorb important values.
Some things can be modeled, but parents need to go out of their way to teach certain financial concepts. Unfortunately, money is a taboo subject for many people. But if you are comfortable doing so, I see value in helping children understand the basics of a budget. Let them know what it takes to run a household.
Even if you aren’t willing to share the specifics of your own finances, I recommend getting involved in your children’s finances. When they start to earn money for themselves—even if it’s just from babysitting—help them think about allocating the proceeds. Teach them about the major categories: spending, giving and saving—and of course taxes. And help them open their first investment account—ideally, a Roth IRA. But don’t do it for them; teach them how to do it.
One of the challenges for children in wealthy families is that they are often in the dark. Consider, for example, a middle-aged child who has been receiving cash gifts annually from her elderly parents. One logical conclusion might be that her parents are very wealthy, and that she stands to receive a significant inheritance. But another, equally logical conclusion might be that her parents used to be wealthy, but because of their generous gifts over the years, there won’t be much left at the end. Both are reasonable conclusions, and I have seen both scenarios unfold.
As a parent, you might not feel any obligation to communicate to your children the details of what they should expect down the road. But if you are the child on the other end of this, it can be detrimental both financially and emotionally to have no idea. For better or worse, wealth does create some unique obligations, and I believe this is one of them. Clear communication helps everyone plan accordingly.
Ultimately, parenting requires a delicate threading of the needle. Push too hard, and kids will rebel. But push too little, and as Buffett feared, they might end up directionless. Taken together, though, I believe these five principles can help improve the odds for both parents and children.