How parents can prepare children to handle wealth after inheritance
Posted by: Uma Shashikant on Jul 24, 2017, 06.30 AM IST
We walked out of the theatre after watching The Lion King. My son wondered aloud if Simba was a hero after all. Wasn't he an entitled bloke, who ran away from his responsibilities and spent time dancing with tramps in the woods?
How could he simply come back and claim a kingdom with no credentials except for being the crown prince? The disapproval of the inheritor is quite widespread and intense than most of us care to acknowledge.
We live through times when so many of us ordinary people will leave behind wealth for our children. In the present age of obsessive parenting, where so many of us began life from scratch, but have earned and saved with such earnestness, our children will soon belong to that group of inheritors. And that is not easy on them.
Barbara Boulin runs the Inheritance Project and has published extensive interviews with inheritors that provide a stunning insight into the minds of heirs. While the world expects the inheritors to feel entitled and brag about their fortune, the real stories are filled with shame, guilt, reticence and confusion.
While we prepare to leave our children with a better start in life compared to ours, we also have to take the time to prepare them mentally and emotionally, and enable a smooth transition.
The inheritors face intense jealousy and envy. They are seen as undeserving of the wealth they have, and are easily painted as dumb, incompetent and below average. The easiest way to deal with envy is to undermine the other. If the unlucky poor and underprivileged evoke sympathy, the lucky rich and privileged invoke hatred.
It can be argued that both groups found themselves there by sheer stroke of luck and had little to do with their situation. However, if given a free hand, mobs would tear down the wealth of the inheritor to distribute it all to charity and force the lucky heir to begin from scratch. The luck of the inheritors becomes their albatross and it is not easy to deal with evident and strong resentment.
Young people crave acceptance, to belong and be approved in their social circles. If standing on your feet and earning your living is seen by their peers as a matter of pride, the inheritors begin on the wrong foot.
This is one of the primary reasons why the inheritors are reticent and move within groups of their kind, unwilling to mix and mingle. What can we do to help the next generation of inheritors that so many of us have unwittingly cultivated?
First, begin the conversation early and let them know what is in store. Understand their priorities, and help them figure out how they would like to best use the wealth they will inherit. It does not make sense to lock up the money in a restrictive trust fund that does not tie up with their objectives. If your child wants to share his wealth with others in society, or donate for a cause, you should willingly enable that.
Research shows that inheritors tend to use their wealth differently for material comforts, investment capital, social causes, or inert hoarding, depending on their orientation. Each one is a significant choice that impacts their life. Help your child make it, by holding intense and meaningful conversations about wealth.
Second, identify key goals for your inheritor. Help him list and prioritise these goals. There is little merit in keeping the wealth locked in the two-bedroom flat in a city, when your child dreams of running a school in a remote village. A portion of the wealth could be used today to give them a better education that helps them begin their life on a better footing, instead of convincing them that hoarded wealth will secure an unknown future. Help your child make a 'bliss-list' or the choices he can make because of his inheritance, that would enhance the quality of his life.
Third, ensure that they are financially literate. There are online schools for inheritors. There is enough material, publications, courses, classes and certifications that help one understand the basics of financial decision making, the working of financial markets and instruments, the implications of cost, fees and taxes, and the essentials of legal and compliance frameworks in managing wealth. While your inheritors can engage experts to deal with technicalities, they will need sound financial literacy to make the right choices about their inheritance.
Fourth, enable them to develop frameworks for dealing with situations that they will encounter by being wealthier than their peers. Chief among them is the somewhat constant demand for loans. Sadly, these tend to be mostly interest-free and commonly never returned, as the borrower thinks that the inheritor had it free anyway.
Teach your children to lend sensibly and be willing to write off small amounts. Inheritors are easily surrounded by flatterers, low quality relationships and scheming 'friends'. The wealthiest end up being in a club of their own, unable to trust outsiders. Help your children cultivate meaningful relationships that balance generosity and quality of relationships.
Fifth, do not impose the traditional view that inherited wealth should be protected at all costs, that the principal should not be touched, and that only dividends and incomes should be consumed. Create a financial plan that aligns with your child's goals and needs.
They can build more wealth than you did in your lifetime. They can choose to disinherit and give it all away to charity. They can choose to share the wealth for causes that are close to their heart. Allow them the freedom to make their choices.
Sixth, educate them against affluenza-the disease that spends all money on material possessions, only for effect and the need to belong to an elite club.
That expensive car will lose value rapidly; that heated swimming pool will need a fortune to maintain; and that obscene mansion will keep the real friends out. Let them know the downside of mindless acquisition of objects.
Your inheritors can turn out to be those who use the firm footing they have, to make a difference, taking on risks others find difficult, and making career decisions that need the best minds that do not care for market salaries. Maybe it was Nala, not Simba who deserved to be crowned, said my son.
(The author is Chairperson, Centre for Investment Education and Learning.)
Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com. This article appeared in Economic Times dated Jul 24, 2017, 06.30 AM IST