4 Cornerstones of Generational Wealth – Episode 414

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[00:02] Hello and welcome to another episode of the Prosperity Podcast. Today is quite a bit different because we have a different person on the other microphone. So I want to welcome Kate Phillips. Hello, hello. I’m standing in for Kim Butler today. Yes. Now, you know, what’s going to be kind of insightful and funny is that we’re going to see by listening to this episode you is that you may hear a lot of the language that Kim uses. And the reason why is Kate is the writer behind a lot of the books, blog posts and things that get us to say, wow, she’s a wonderful writer. And she’s been with the Partners for Prosperity team for years and years. And the subject we’re going to be talking about is perpetual wealth. But specifically, we’re going to be talking about the

[00:59] four cornerstones of generational wealth. So Kate, can you bring us in just a little bit about perpetual wealth, what you’ve learned? And then we’re going to dive into some amazing questions. Absolutely. Oh, Sam, it’s great to see you, by the way, Spencer. I guess if you’re listening on the podcast, you’re not seeing either one of us, but we’re here on we’re here on Zoom. So the four cornerstones of generational wealth and we’ll we’ll get to what each of those are. They really came out of writing the book Perpetual Wealth that Kim and I did together. It was years of research and and we really I really wanted to get down to like, what is the difference between families that keep that build and keep wealth and the families that don’t build it or that lose it,

[01:54] you know, maybe they build it, but then it’s gone by the second generation or the third generation. And so that’s what that’s where the cornerstones came out of. There was a piece of research that really intrigued me. I don’t remember who did the study, but it was done with two thousand affluent families. And the researchers wanted to know, you know, these were families that had great wealth, but they had lost some significant wealth. And the families were asked like, what went wrong? Why did you lose this wealth? And the number one answer was communication. And the second answer was that the beneficiaries were not prepared. You had heirs that were not ready to inherit. And then way down the list, you know, number three was the actual financial strategies.

[02:51] You know, we have bad tax advice or bad investment advice. So it really, you know, we actually went about rewriting big chunks of the book at that point, because we realized that if we wanted to get to the core of how you build wealth and keep it, you’ve got to address these things. How do you prepare your beneficiaries? How does the family communicate about money? And so that’s where these came out of as and these also embrace the the financial aspects as well. But the the number one cornerstone is the is the financial foundation, we call it. So that’s the family fund. And that’s building up your savings and protection. It’s also building the positive money habits, because as we train those beneficiaries, you’ve got to train them to

[03:45] save. So in the family banking, the family financing world, that became a big part of it. How do you get how do you get the whole family on board? And we used our fictional family, you know, John and Carol, the Johnsons, we use them to to help teach some of these lessons. You know, it’s pretty amazing. You mentioned that you had to rewrite a bunch of it because you focused on the psychology. You mentioned that savings and the the sad part, I think, is for people that haven’t taken the time to really understand the fundamentals, they are always looking for the shortcut. And you’ll hear this in language often where people say, hey, give me the tips or the secrets to this. And everyone that’s put in the hard work realizes

[04:33] there’s no tips or secrets. It’s the hard work. And you say that it’s the savings because it builds the habits. So let’s let’s unpack those four cornerstones. And first, let’s go and talk of the psychology. Why is it so important that people bake in those good habits? Oh, gosh, you know, this really goes to the core of, you know, you’ve heard the saying, I’m sure a shirt sleeve, just shirt sleeves to shirt sleeves and three generations. And one of the things I found in my research is that in every culture, in every time you can go to different languages, different cultures. And this is a thing, you know, that the families don’t keep it. And that’s because one of the things that Kim and I really focused on was the

[05:24] human capital, how important the human capital is. And when we kind of when you get detached from the first generation, you know, they’re working hard, they’re growing it, they’re building it, they’re saving, they’re starting businesses. Then we tend to think of the wealth of the family as living in the bank accounts, living in, you know, the the portfolios, when really the wealth of the family, it exists in the human beings, it exists in their ability and their knowledge, their skills, their habits, their connections with each other, the social capital, the intellectual capital. So we had to get back, you know, we we really wanted to emphasize that because the secret to generational wealth, it’s not, oh, you just need

[06:19] to pass more and more bigger and bigger sums of money. We can look at the Vanderbilts and see that that doesn’t really work. The Carnegie’s, you know, passing larger and larger sums of money isn’t the key. It’s getting the whole family on board. It’s it’s passing the skills and the habits and recognizing that that is what builds wealth, that you can never have a big enough portfolio to overcome the bad habits and poor mindset of a generation that is spoiled or that, you know, that doesn’t understand wealth building. Yeah, so I’ve seen this happen in real life and unfold. And so the insightful question or the insight that I’d love to get is this. So I know people that have come from huge amounts

[07:13] of money and their parents earned it. And it seems that maybe the kids hang on to a little bit and then the grandkids, it’s gone. I’ve seen that happen a lot. But I’ve also seen it where maybe it was a harder working family. I see this happen a lot with immigrants, where they’re harder working. They may not have amassed a lot of wealth, but they taught their kids the principles. And then the kids, because they have those principles, have that wealth and create it. The problem that I see going on and on and that I actually don’t have the full answer for is we as parents want to make our kids lives better, better than what we had. But many times I think that’s a disservice because the hard things that

[08:04] we had to do to amass our wealth really is handicapping our children. Have you seen the same from your study and writing? Absolutely, absolutely. And we’ll get to that with the cornerstones. It’s really addressed in the third and fourth cornerstone, but let’s move on to cornerstone number two. And I’ll include as much as I can of the answer there. Cornerstone number two is family lending. And we talk about the difference. Why do you want your kids to borrow money? And of course, we’re using whole life insurance as this tool that can be a fabulous tool. And of course, it’s very easy to borrow against. And what’s the difference between giving kids money or having them borrow it? And when they borrow it

[08:58] and cornerstone number three, we’re going to talk about the family council comes into play there. So the kids have to learn these skills and they have to learn, you know, how do we like they’re not just being handed money on a silver platter. They’re having to argue like this is what I’m going to do with it. They’ve got to get approval. They’ve got to jump through the hoops if they fall on their faces. And we all know that making mistakes is is a wonderful, important part of learning anything in life, money included. Then they’ve got this network around them that is there to support them. And there’s going to be consequences. I know there’s a quote somewhere in the book from Patrick Donahoe about,

[09:47] you know, that his kids that if they make a mistake with money and they’re not paying something back, then then there’s going to be consequences. So family lending, that is that’s why lending can be such a great tool with kids rather than just giving them money. So lending is about borrowing and replenishing. It’s funding for opportunities and it’s always using money and support of the human capital. And it’s having, again, these these mentors around you, which leads to the third cornerstone of generational wealth, which is leadership. And so by teaching your kids, you know, obviously the first generation, whether they are labeling themselves as leaders or not, they are leading in the family. Maybe they’re

[10:37] starting and running businesses or if they’re immigrants, they might be, you know, running a couple of businesses or working two or three jobs. But they’re they’re building, they are the leaders of the family. And so we talk about a family council and, you know, which may be more formal than some people want to go. But I think even just, you know, the learning around it can be important. We want the the heirs and the family to learn and grow. Leadership is about serving and nurturing. And it was fun getting into those stories where even the older generations are maybe learning to lead in a new way, because they have to start to think about what’s the legacy I’m leaving, not just in terms of dollars,

[11:26] but what’s what are the skills, what are the habits, what are the values that I’m leaving to the next generation, which if you don’t mind, I’m hopping right into the fourth cornerstone, which is legacy. And this is passing on money plus knowledge, money plus skills. It’s passing on the family mission and the values. And we’ve got a big chunk of a chapter about writing a family mission statement. It’s passing on traditions and memories. And it’s also passing on, you know, the the the construct of the it’s passing on leadership and mentoring, you know, new leaders in the family. So here’s the question. And I think we’ve we’ve seen this happen time over time, if a family passes on wealth or they pass on the principles and what the kids have learned

[12:29] from family council, what’s what’s going to happen if we fast forward 20 years from there from the research that you’ve seen? Yeah. Well, you know, the whole idea with perpetual wealth is that you’re passing on a system. And and so you you’re not just training tomorrow’s leaders, but you’re setting up a system. You know, the family council can be part of it. The the way you do investing and having a multi generational wealth strategy. So you’re you’re training your future leaders to train other future leaders. And even in the legacy, I know we’ve got a little bit in the book about, you know, family philanthropy. And this is a great project for grandparents and grandchildren. And to get the grandchildren involved with like choosing, you know, who and what

[13:26] organizations or the family giving to and and it, you know, that gets people’s brains thinking in a completely different way. It’s not what’s the next toy I’m going to buy. It’s what’s the difference that our family together can make with this wealth that is here to serve not only us, but but serve beyond our family as well. Yeah, absolutely. So so what I have seen from first, you know, first hand observation is that there’s a misconception with some of the wealthy people in it again with the people that earned the wealth, the most common trap is wanting to make the lives of their kids and grandkids better. That’s a serious trap. Now, the second is that I’ve noticed is that you can pass along wealth and you can and the misconception is that you can say, hey,

[14:26] I’ve put good people in place like, hey, here’s a great, you know, set of professionals, accountants, attorneys, advisors, whatever that may be, and think that the kids are going to follow that advice and they may they may follow it for a short period of time. But what always happens is that they have their own interests. And on top of their own interests, they start to get this warped perception of reality. And then they’ll leave those financial advisors and then the wealth is squandered. Whereas if a family, regardless of your wealth status, focuses on the principles and focuses on the communication, as you mentioned, the legacy, it’s as if regardless of the amount of wealth, it’s going to

[15:15] accumulate. It’s like an interest bearing account with the highest interest ever. So you mentioned in pre conversation before we recorded about a gentleman, Mr. Peabody. So can you share what you learned from him, how all of the statements I made and what you’ve made apply to this conversation? Absolutely. And I want to also revisit what you what you’ve asked about the parents wanting to leave, you know, have their kids have a better life. And so I think we can look at it as an upward spiral. And and yes, if if you want your kids to not have to, you know, have any challenges in life, then they’re going to have some really big challenges in life. But but you can leave your kids a better life, you know, maybe the first generation,

[16:11] you know, maybe they didn’t have the benefit of education beyond the 12th grade or maybe even beyond, you know, the eighth or the 10th grade. Whereas your kids, like they get to go to college, they can have advantages, they can have capital that can help them start a business, you know, they don’t have to work three jobs and save up money over, you know, 10 years to do it. So it does allow them, you know, to kind of hack and get to that level of success faster. You mentioned I fell in love with George Peabody when we were when we were researching, you know, some of the lessons from the affluent, you know, the very affluent. And we’ve got, you know, lessons that we can pick up from from a number

[17:01] of billionaires. And George Peabody is somebody that’s never talked about really, but he is seen actually as the father of philanthropy. He was he was an English American gentleman. I believe he went it might have gone back to England for his retirement later in life. He did not have any children of his own, but he had a large family. He was an amazing man and talk about hardship. His parents lost their home. I can’t remember why if it was a fire. There was some disaster and his parents lost their home when he was a child, just a teenager and he worked as a teenager to he worked in businesses and he worked like in the the selling and the shipping business. I can’t think of what they what they called it at that

[17:56] point in time, you know, having a store he bought. He earned enough money so his family could buy the family home back when he was a teenager. And then he went on to become very, very successful. At one point he was partnering with I want to say it was maybe the father of James P. Morgan, you know, so banking and shipping and all of these businesses, but he had this large family and they would come to him for money. And this was back in a time when there was no, you know, there was no health insurance. There was no life insurance. People had short short lifespans and and so there were a lot of needs and he would help out his family members, but there were always strings attached strings attached is not

[18:53] necessarily a bad thing. So he would want to know what are you going to do with this money? And then whoever he gave the money to, they would have to provide an accounting every single penny. What did we spend this on? And so and he would write there’s records of letters that he wrote with his nieces and his sisters because he was training them to care for that money and to use it for good. And he had a brother that, you know, were to spend thrift, you know, his brother would run up gambling debts and, you know, get drunk and kind of, you know, cause havoc and figure out my brother’s going to bail me out of jail. And because because George Peabody didn’t want a family member in jail, that was that was bad for

[19:43] the family reputation. He would bail his brother out of jail and then he would cut his brother out of the will next. But but his brother’s son, you know, he’s like, hey, I just gave your portion to your son, who’s a good kid, and I’m going to help. So he, you know, anybody in his family who wanted to be industrious, who wanted to be generous. And and I believe it was one of his sisters who became a great philanthropist herself. And he those were in the days in London where the the poor working class, I mean, they had come to London for jobs and they were literally like living in the gutters. It was very, very poor living conditions. And so he was building apartment buildings and giving people dignity. But again, there were strings

[20:38] attached back when he was alive. You know, you had to be in by a certain there were curfews, you know, you couldn’t you couldn’t come in at two in the morning drunk on your butt. And you’re going to live in the Peabody house. So so again, you know, and you could say he’s using money as the stick and the carrot. And you may have, you know, positive or negative feelings about that. But but he did incentivize people to have behavior that benefited them in the end. Yeah, you know, when you talk of it that way, especially, you know, when when you’re explaining Peabody and his brother, it makes me realize that, you know, there there are different people that are wired. And, you know, there are people that are wired for

[21:27] short term insight and short term gain. And then there’s a long term. And I think too often you see people in this world that are that are trying to create shortcuts, meaning they may hear of a new scheme or a business opportunity or, you know, the insider tip and they gamble their money away. And it almost always not always, but almost always leaves them destitute. And if it doesn’t leave them destitute, and I’ve seen this happen, and you as a listener may know this as well, where you’ve seen someone take a shortcut and it worked for them. And maybe at that time, you think, well, wow, that’s like, you know, just shouldn’t happen, but it did. But then we fast forward one, five, 10, 20 years, and almost always,

[22:25] you see the result. And so it just, I’ve never not seen it, unless that person wakes up and says, wow, OK, I took a shortcut. I got lucky. Now I need to build in the principles. This whole book is about those principles. It is. And as you’re talking, I’m thinking about, you know, the GameStop millionaires. Yes. The Wall Street Vets. Yes. Put it all on GameStop. Put it all on Dogecoin. You know, I mean, I had I had a friend that maybe you’re lucky, you know, maybe you make some money. But I was listening to this interview. I can’t even remember the guy’s name, but he’s a very savvy investor. He interviews other savvy investors. And they were talking about the importance of diversification. And the guy said, he said, my friends, they’re like,

[23:18] they’re like texting me and emailing me. They want to know the hot stock tip. And he’s like, I just ignore those people now. It’s like, no, like, if that’s where your brain is going, like you just think you need the one that you just need to say, buy GameStop. If you’re looking for that one hot tip that’s going to change everything for you, then, you know, ultimately you’re going to lose whatever you gain because you’re not like, no, that’s not like the people that earn and keep the fortunes. They are diversified. They are, you know, they’re not rolling the dice on Dogecoin. And you make such a great point because, you know, it’s it’s difficult in the moment because the people that that do well on the Dogecoin or the GameStop or whatever it is,

[24:18] they didn’t learn the lesson. So they now take the small amount of capital. They put it into this speculation. They got a large amount of capital. They don’t have the principle. Now they’re going to go and risk it on the next thing. And that happens time and time again. So I really, I’m so grateful for this book that’s coming out and the hard work that you put forth and the collaboration with Kim to, you know, make this a principled based book instead of something that is only going to work this year or something that, you know, we have to update in six months because the market changed. No, this is the principles for creating legacy. And so regardless of your financial status, meaning if you’re already a wealthy family and you’re looking to add to the infrastructure,

[25:12] this is the book. If you feel like you just haven’t made it or maybe you’re just starting in the game, there’s no better time than now to get the principles, to read it, to establish that so that when you look forward five, 10, 15, 20, 50 years from now, you’ve built the foundation that’s needed. How would you like to wrap this up? Absolutely. And you’re right, you know, the exact financial strategies may change over time. And I can even think, I won’t say an example, but I can even think of an example of something in the book where, you know, it’s an investment that I don’t think is available right now. So, you know, then you’re finding a substitute, you know, so yeah, the exact investment strategies will change over time. But if we built the firm, you know, the firm foundation,

[26:07] if we are raising, communicating with our family and teaching sound principles to our children, teaching them how to grow wealth for themselves with the awareness that the value isn’t over there in that account, it’s in yourself. And so it’s about, you know, your own mindset and your habits and building that social and intellectual and personal capital. We’re going to end up in a good place. And then, you know, you can take that little 1%, put it on Dogecoin, go ahead, have some fun. But make sure you’ve got your foundation built. Exactly. You know, I have a friend, you know, to rep, he put about $1,500 into Dogecoin and he made like 300 grand, but he has a lot of wealth. And it was a small portion, right? Exactly.

[27:10] Tiny percentage. And he knew what it was. It wasn’t speculating, you know, it was speculating, but it wasn’t like gambling his life away. You just put a perfect stamp to this episode and this insight. I think what would be really helpful would be for our listeners to realize that this was a long, challenging process to write this book. This wasn’t something that was done in a matter of weeks or months. This is years in the making. It was, it was years in the making and it was, and it started out, it was going to be this quick short project. That’s how it started. But then we adapted the long term view and, you know, had many discussions of, you know, what do we really want this book to be? And

[28:01] do we want it to be, yeah, we can write a book about some financial strategies or we can go deeper and take the longer, bigger view of what, what will really serve, you know, partners for prosperity, Kim’s clients, what will really serve people to understand how to build and keep generational wealth. And we, we took that longer road to produce something that I think, I hope you’re right, that will be useful for generations. And to help preserve the book, this is the first hard cover that Kim has done. It’s also going to be available as, you know, audiobook and Kindle, and, and I’m sure it’ll come out in paperback maybe within the next year. But it’s a, it’s a big, beautiful book. And, and there’s stories in it. It’s, it’s fun. There’s a fictional couple that,

[29:00] you know, maybe, I don’t know, maybe a third of the book is the story that, that helps drive home the lesson. So it’s a fun read, but it’s also hopefully a read that you can pass on to your children and grandchildren. Oh, I love it. Well, thank you, Kate, for sharing Kim’s work and your work and the work of so many other people that put this together. One thing that I would ask our listeners to do is once you pick up a copy, let Kate and Kim know what you think of it. Send an email to hello at partners for prosperity. That way we get to have an insight on how it’s affecting your life and your family’s life. This isn’t, you know, one of these books that, you know, you’re going to read through in 30

[29:44] minutes. It’ll take some time, but you know, principles building legacy takes time. And so invest in those principles and you’ll see the proper return. So Kate, thank you so much for sharing your insights with us today. Thank you, Spencer. It’s been a pleasure. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.