Should You Make Your Kids Rich? Wisdom, Wit, and Snark from Buffett, Housel, and Munger
September 2024
Introduction
Ah, the age-old question: Should you make your kids rich? As affluent business owners nearing retirement, you’re likely pondering whether handing over the golden goose is the best legacy. Before you make a decision, let’s dive into some strategic advice, philosophical musings from Warren Buffett, Morgan Housel, and Charlie Munger, and sprinkle in a touch of wit and wisdom. Spoiler: It’s not all sunshine and rainbows.
The Strategic Case for Making Your Kids Rich
Let’s start with the practical side of things. If you’ve built a thriving business or amassed substantial wealth, it might seem like a no-brainer to share the fruits of your labor with your offspring. After all, isn’t that what good parents do? But hold on – there’s more to it than writing a check.
Teach Financial Literacy First
Buffett’s Take: Warren Buffett, the legendary investor known as the “Oracle of Omaha,” famously said, “Give them enough so they can do anything, but not so much that they can do nothing.” Before doling out the cash, ensure your kids understand the basics of managing wealth. You don’t want your hard-earned money squandered on bad decisions or fleeting whims.
Establish Trusts and Estates
Setting up trusts can protect your wealth and provide for your kids in a controlled manner. It’s like giving them a fishing rod instead of a fish, but with a sturdy lock on the bait box. Consult with estate planners to create structures that align with your long-term goals.
Encourage Entrepreneurship
Housel’s Insight: Morgan Housel, a financial journalist and author known for his wisdom on wealth and behavior, notes, “The ability to save and invest is a lifelong skill that cannot be overstated.” Encouraging your children to start their own ventures teaches them responsibility and gives them the satisfaction of building something from the ground up. It’s character-building with a side of financial savvy.
The Emotional and Philosophical Implications
Beyond the numbers, there’s a more profound question: What kind of life do you want for your children? And more importantly, what kind of adults do you want them to become?
The Curse of Easy Money
Lavish inheritances can sometimes lead to a lack of motivation. If everything is handed to them on a silver platter, where’s the drive to achieve? Buffett warns, “The more you give your kids, the more you take away from them.”
Building Resilience
Housel’s Perspective: Housel suggests that wealth can shield individuals from life’s hardships, but overcoming challenges is essential for growth. “It’s not wealth that makes people happy; it’s control over their lives,” he says. Shielding your kids too much might leave them ill-prepared for the real world.
Munger’s Wisdom: Charlie Munger, Buffett’s right-hand man and a sage in his own right, often emphasizes the importance of rational thinking and hard work. He argues, “The best thing a human being can do is to help another human being know more.” By guiding your kids with knowledge and wisdom rather than just money, you set them up for long-term success.
The Practical Steps and Snarky Wisdom
So, should you make your kids rich? Here’s a blend of actionable steps with a touch of humor and wisdom.
Give with Strings Attached
Set conditions for your financial gifts. Whether it’s graduating college, starting a business, or doing something meaningful, don’t just hand out cash. Make them earn it. As Buffett puts it, “If they don’t have to work, will they?”
Start Small and Monitor
Provide smaller amounts initially and see how they handle it. Think of it as a financial test drive. If they crash the car, maybe they aren’t ready for the keys to the kingdom.
Invest in Their Education
Education is the best gift you can give. It’s the classic “teach a man to fish” scenario. Plus, it ensures that even if they blow through their inheritance, they have the skills to earn more.
Be Transparent
Have open conversations about money, wealth, and expectations. It’s not just about the how, but the why. Let them understand your philosophy and values.
Conclusion
In the end, making your kids rich is a nuanced decision that requires balancing financial strategy with emotional intelligence. As you plan for your retirement, think deeply about the legacy you want to leave. Remember, wealth can be a double-edged sword. As Warren Buffett wisely notes, “You can’t buy love, but you can buy a lot of things that create love, like a sense of purpose and responsibility.” So, before you hand over the keys to the vault, make sure your kids are ready – and deserving – of the responsibility that comes with it.
As you consider these insights, remember to seek professional financial planning advice. This can help you navigate the complexities of wealth transfer while ensuring your children are equipped to handle their inheritance wisely. By planting these seeds now, you’re not just securing your legacy but also fostering a generation of financially savvy, responsible, and resilient individuals.
Contact The DiCiacco Team today, and let’s embark on this journey together.
We invite you to take the first step towards understanding and transforming your financial future by scheduling a consultation with us. This exploratory conversation will offer us both the opportunity to see if we’re a good fit, ensuring that your financial goals and our expertise align perfectly. Together, let’s unlock your full potential of your investments and pave the way for a prosperous financial future.
Leah Thomson Snell, CFP®
Partner & Managing Director
(626)521-9804 lsnell@snowdenlane.com
John DiCiaccio
Partner & Managing Director
(626)521-9801 jdiciaccio@snowdenlane.com
https://snowdenlane.com/advisors/diciaccio-team/