Given the fact that we’re living during the early phase of the greatest wealth transfer phenomenon ever, preparing the next generation for their eventual inheritance is important not only to families, but also to legal and financial institutions. The latter institutions, especially the wealth management firms, want to ensure that the assets that are transferred to the next generation are kept with the respective advisor team that was serving the original wealth holders – aka, the parents.
Although well intentioned, the fundamental flaw that I see with most advisors and financial institutions is their errant belief that the way to prepare the next generation for their inheritance is by increasing their financial IQ through education; for example, personal finance and investment acumen. Teaching Tom how to live within a budget or educating Mary how to read a company’s balance sheet may be helpful, but this alone will never prepare them for their inheritances. Like the relationship between money and happiness, it alone doesn’t ensure next-generation readiness. There other factors that I’ve found to be much more relevant to whether or not members of the next generation live flourishing lives, especially in the context of wealth. These other factors are wrapped up in what I refer to as “Life IQ.”
Eighty-four percent of respondents to the PNC Wealth Management “Wealth and Values Survey,”1 reported in January 2013, said that raising successful, hard-working children is their most important goal. On a similar note, a 2012 survey of high-net-worth Americans, “U.S. Trust Insights on Wealth and Worth,”2 found that the number one reason parents didn’t disclose their wealth to their children was concern that “it will negatively affect their work ethic.” Based on these findings, advisors and financial institutions should host conferences that focus on: “How to foster a strong work ethic in the next generation?” or “Helping your clients define success and hard-work for their families?”
Until advisors and institutions begin to provide best practices to meet the primary goals of many parents, for instance addressing the fear of raising children with affluenza, they won’t be fully contributing to next-generation preparation. An important element of our legacy to our children is contributing to their readiness and their dreams. My preference is to frame this in terms of life maturity, or life IQ, if you will, rather than purely in terms of financial literacy or financial IQ. Life IQ is about having the knowledge, skills and experience to flourish in any context. It’s about understanding both the opportunities and responsibilities that come with wealth.
The process of increasing the next generation’s life IQ begins with the parents and transitions to the next generation as they move into young adulthood. In my book, Legacy: The Hidden Keys to Optimizing Your Family Wealth Decisions, I provide in greater detail the following 10 principles for parents to use as their guide to raise their children’s life IQs (note: I also list 10 principles for the next generation to use as their guide to increase their life IQs):
Principle 1: Maximize your happiness.
Principle 2: Follow the platinum rule, it’s not about you.
Principle 3: Distinguish between needs and wants.
Principle 4: Be the parent.
Principle 5: Be a coach.
Principle 6: Be a storyteller.
Principle 7: Be a giver.
Principle 8: Knowing a little psychology helps.
Principle 9: Be a perspective keeper.
Principle 10: Life IQ is about productivity, passion and purpose.
Only when advisors and institutions focus on increasing the life IQ of the next generation will they truly help prepare them for their inheritances and mitigate the fears the many parents have about the possible negative impact of wealth on their children.
1. PNC Wealth Management, “Wealth and Values Survey: Millionaires and Legacy” (January 2013).
2. U.S. Trust Insights on Wealth and Worth 2012. www.ustrust.com/ust/pages/Insights-on-Wealth-and-Worth.aspx.
Richard Orlando, Ph.D., is an advisor and coach to executives, entrepreneurs, professional athletes and entertainers, as well as high net worth families, family offices and financial advisors. He is the founder and CEO of Legacy Capitals LLC.