July, 2011
By Gary Pittsford, CFP®
President and CEO, Castle Wealth Advisors, LLC

In Part 1 we talked about the problem in most countries of families holding on to their net worth for more than three generations. In Part 2 we talked about the need for communication within the family pertaining to how assets were accumulated in the past, and financial decisions that went right and wrong. It is normally hard for the older generation to discuss their business affairs with their children but if the family expects to hold on to their assets, communication about managing assets and long term business planning is crucial.

Part of the communication process deals with education, which is what we address in this article - Part 3 (and final) in this series. Educating the second and third generation to help manage family assets is something that must succeed or the assets will never last. Education is the third leg of this stool and in this article we will try to cover a few ideas that parents and grandparents should consider.

Over 50% of families who have accumulated a higher than normal net worth are concerned about their children being lazy, feeling entitled or stop achieving in high school or college. Many parents try to shelter their children from the good fortune that they have achieved and do not talk with the younger generation about generic financial and tax decisions. It is well documented that children need to learn simple financial management when they are very young and continue to learn new financial ideas each year as they go through grade school, high school, college, and that very important first job. As a starting point, outlined below are some basic financial ideas for different age brackets:

Ages 4 to 7

  • Learn to count coins and paper money.
  • Learn to fill up a piggy bank.

Ages 8 to 12

  • Learn to shop in different stores and compare quality and pricing.
  • Structure that initial allowance for doing basic household chores.
  • Provide jobs for pay either at your office or at your company.
  • Graduate from a piggy bank to a savings account at a bank.

Ages 13 to 19

  • Encourage the child to get a summer job which pays an income.
  • Help the child develop a budget which includes some savings and some charity.
  • Discuss the pros and cons of credit cards, and especially how credit card debt can really hurt.
  • Set up an investment account at a discount broker and fund it with one or two thousand dollars. Help the child purchase stock in three companies that they like. When their three investments go up or down explain to them why.

Ages 20 and up

  • In college help your child develop a monthly spending budget.
  • Encourage the child to have a summer internship that pays an income in an industry that they seem interested in or at the family business.
  • Set up meetings for your child with your family financial advisor, your family attorney, and your family CPA. Learning what these individuals do for the family and more about their profession is excellent training for the future.
  • Send them off to work for a different company for several years before they join the family business.

If you own a closely held family business, it can be an excellent tool for teaching your children financial and business ideas, people management, and tax and budgeting skills. Most of us try to shelter our young children from all of the hard work involved in any chosen profession, but in reality children should be exposed to and understand the benefits of hard work. Many teenagers develop the attitude that they are not going to go into their parents’ chosen profession because they work too hard and they are never home. It has been my experience over the years that just the opposite is true.

At our firm we work with lots of very successful families and every single one of them accumulated their net worth through long hours and hard work. There is no such thing as the best surgeon or the best lawyer or the best business owner in the world that only works 40 hours a week. When your children are in college and working at those summer internships they need to be coached so that they understand that long hours and hard work is going to be part of any career that they throw themselves into.

When the family gets together for dinner there is nothing wrong with spending some time explaining a few brief comments about what happened at the company today, what went right and what went wrong. It is good for children to understand what happens in the real world. When they are young take them to the office and let them watch you work and maybe give them something to do. When they get older take them on trips with you to visit a factory, or a good client, or perhaps take them to a convention so that they can meet lots of other families, vendors, and suppliers in your industry.

Estate tax attorneys, wealth management firms like ours, and other professionals help clients set up complicated estate documents and provide generation skipping trusts in those documents. All of these professionals show clients how to leave millions of dollars to grandchildren and bypass the children to save estate taxes. Somebody needs to provide training and education to those grandchildren about managing all of those family assets.

If you are lucky enough to have one or more of your children follow your footsteps into the family business, the pressure increases on you substantially to become their coach and teach them how to maintain this family business for one or two more generations, and instill in them the financial and business management skills that it takes to run a successful closely held family business. Teaching the second, third, or fourth generation entrepreneurial skills is foreign to almost every business owner. Leon Danco, one of the deans of family business consulting, once said “the entrepreneur is like a bush pilot flying by their wits and instinct, but later generations must learn to fly the company business using professional gages and instruments.”

Educating the next generation and providing them with the training and tools necessary to manage the family assets or family business is a never ending process starting at age 4 or 5. Keep communicating with your children and keep providing them with education so that they have the skills necessary to take what you have accumulated and keep growing it for the future.

Gary Pittsford, CFP®, is President and CEO of Castle Wealth Advisors, LLC. Castle specializes in helping families and closely held business owners with valuations, succession planning, estate and income tax analysis and retirement income security. Castle’s senior partners work with clients throughout the country in making logical decisions that help them fulfill their personal and business financial goals. For more information visit, call 1-888-849-9559 or e-mail Gary directly at .