It’s a topic that consumes Vern Gowdie, our Family Wealth expert. The easy part, according to Vern, is the retaining of wealth. If you have enough now, he reckons, you don’t need to do anything stupid. You simply wait for the bear market (which he says is inevitable) to bring prices back down to reasonable levels before putting your capital to work again. (See Vern’s essay below, ‘Take Care to Never Follow the Herd’)
But the hard part is passing your money on in a way that is productive and beneficial for your children. In a discussion panel at the World War D conference, Vern was joined by Will Bonner, son of Bill Bonner, founder of The Daily Reckoning and Agora Financial. Bill has amassed significant wealth as his business has grown, and is very determined to pass not only his wealth on to his children, but to pass on the lessons of wealth creation too.
Will nominated two challenges for those building and managing ‘family wealth’. The first one is actually recognising it as a necessary project, rather than thinking it will just take care of itself. As Will said (we’re paraphrasing):
‘Wealth creators tend to be Alpha personalities. This personality type is at odds with diverting time from chasing profits to educating kids and building sound family wealth. In addition, it’s vital to show your kids that you are capable of mistakes — and that you are capable of learning from those mistakes…’
The biggest challenge though is instilling the drive in your children to make it on their own, despite the generational wealth that they know is on the way. Says Will:
‘You should structure your estate to make the next generation work for their wealth even if they do have certain financial benefits. You don’t want a Paris Hilton-type child who grows up with no respect for money. Studies show that people who inherit $150,000 or more tend to do worse in education, career, etc. In the back of their mind they think they don’t need to battle to achieve.’
There are very few successful family dynasties in history, which points to the difficulty of maintaining financial discipline through more than a couple of generations. The Rothschilds come to mind, but not many others.
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