Inheritance and Entitlement: Helping Children Prosper

Inheritance and Entitlement: Helping Children Prosper

Every parent’s fear is that their child will never quite grow up. This could look like an adult child that remains reliant on parents and never becomes self-sufficient. Add assets to the mix and it can be a recipe for a trust fund baby. Even for parents who intend to leave extremely modest sums to heirs, inheritance entitlement can be real.

If you are earning, saving and investing to build wealth and you wish to leave something to heirs, do not ignore potential pitfalls. Passing on wealth successfully and productively to future generations can have itschallenges.

To be clear, GIVING wealth with the right tools and vehicles (wills, trusts, life insurance, etc.) is easy! It is the adult child’s ability to KEEP the wealth that is the challenge. Hence the expression:

“Shirtsleeves to shirtsleeves in three generations.”

This is a familiar phrase to most families of wealth. The proverb describes a phenomenon of wealth that is gained—then later lost—in a family. And as we explore in our forthcoming book, Perpetual Wealth, generational wealth is often more the exception than the rule!

The saying reflects a common observation. The first generation (in humble shirtsleeves) earns the wealth with hard work. The second generation goes to work (in suits, presumably) and attempts to maintain it. The third generation spends whatever is left. And so, regardless of prior family fortunes, the descendants find themselves working humble jobs in the clothing of commoners.

“Shirtsleeves to shirtsleeves” reflects a phenomenon so universal and pervasive it spans cultures, continents, and centuries. In Japan, the saying is “Rice paddies to rice paddies in three generations.” In England, “Clogs to clogs in three generations.” In China, “Wealth never survives three generations.” Economist John Maynard Keynes wrote, “A man of energy and imagination creates the business, the son coasts along, and grandson goes bankrupt.” 

We all want the best for our kids. If you struggled, no doubt you hope that life is easier for your children. You want to give them the support and the “leg up” you never had. And this is all fine and well—as long as you proceed wisely.

In the next couple of months, we’ll publish a book on the strategies, mindsets and traditions that can create true Perpetual Wealth (also the title of the book). It describes in detail a “family financing” concept that nips entitlement in the bud and helps family members become savers and wealth-builders.

Below, we share five simple ideas from the book that can help children become successful and prosperous stewards of wealth!

#1: Raise Children to be Responsible

Raise Children to be Responsible

Raising responsible children is not something that happens overnight, and it’s never too early to start! In our family, pitching in on chores is a must. We have accomplished many tasks around the farm (and beyond) with teamwork and sweat equity.

As a child, a dairy cow helped me learn the value of work—and the value of milk! Farm work, 4-H, Etsy shops and other entrepreneurial pursuits are highly recommended. Children can also learn responsibility through sports, scouting, side-jobs, and being a volunteer at a soup kitchen or other service project.

As the “children” in our family (all adults now) know, work is expected and saving is essential. And while we have helped with college expenses and offered other kinds of assistance when appropriate, they have pulled their weight!

As blessed as our family is, no one was born with a silver spoon in their mouth. We have hired our own children on occasion when money is needed/wanted, or when we desire the services they can provide. We also treat them to family vacations—which is a joy for us!

We are thrilled that we have raised children who ARE responsible—financially and otherwise. I always encourage other parents to start early and find age-appropriate ways to address finances. For more ideas, see this article adapted from Perpetual Wealth: “How to Raise Financially Responsible Children.” Another good resource is the book, The Opposite of Spoiled, by Ron Lieber.

#2: Resist the Temptation to Do Too Much!

Resist the Temptation to Do Too Much!

One of the gifts of money—besides what it can buy—is the way that it can help a person grow up!

Do you want to buy something? Great—figure out how you can earn or otherwise afford it.

Want to earn more? Awesome—figure out what that will require. You may need new skills, more education, a mentor or the ability to network or negotiate more effectively.

Want to start a business or invest in rental homes? No problem—as long as you’re up for a real-world education with some serious learning curves.

Unfortunately, some parents can’t resist doing for their adult children what they could learn to do for themselves! The authors of The Millionaire Next Door called it “economic outpatient care.” Whatever you call it, it can cripple adult children economically, keeping them dependent and entitled.

The truth is, the more you do for your adult children, the less they tend to do for themselves. Not because they are lazy or bad, but because necessity actually IS the mother of invention! Financial realities encourage a person to leave their comfort zones and become creative and productive.

It’s one thing to help a child buy their first home, start a business, or navigate a crisis. But when you are still paying their rent or other regular expenses past the point where they could be independent, you’re part of the problem.

What’s the solution? Ideally, don’t let an unhealthy dependence begin in the first place! And whether or not it has, there is always an opportunity to set boundaries and allow teens and adult children to develop their independence. You may find this article helpful: “Financial Maturity: 7 Stages of ‘Adulting’ with Money.”

#3: Realize the True Wealth of your Family

Realize the True Wealth of your Family

Usually when people talk about generational wealth, they mean financial wealth. However, truly wealthy families have an expanded understanding of wealth. Families that grow and keep wealth successfully know that the true capital of the family is NOT held in bank accounts or portfolios.

The greatest treasure of any family is found in its members—the people that comprise it. This can also be referred to as a family’s human capital. Wise families invest in education, training, networking and mentorship to support and enhance the human capital of its members. Financial capital is deployed in service of human capital. It is not used to subsidize consumer-based lifestyles of family members in the process of becoming independent.

#4: Communicate!


In one survey, the majority of affluent parents revealed they were not even discussing matters of money and inheritance with their adult children. Not one word.

Now, do you think this makes the next generation MORE prepared—or less prepared? The answer is obvious. The more blindsided your beneficiaries are, the less prepared they will be!

Unfortunately, most families wait until a death or dire health emergency occurs before any sort of beneficiary education occurs. And when people are grieving, they don’t retain information well—if at all.

That’s one reason communication is so essential in the wealth transfer process. Another reason has to do with a profound mismatch of expectations. A USA Today article noted a survey showing that 40% of people aged 13 to 22 expect to receive an inheritance, while only 16% of the parents plan on providing one.

And there is one more surprising reason to focus on communication. When the Williams Group (a family consultancy) surveyed 2,000 affluent families over 20 years about why wealth was lost when passed to future generations, the results were shocking.

The problem wasn’t bad investment advice or tax advice. (This was the culprit in only 3% of cases.) The problems rarely involved issues with the drafting of the will, conflicts of interest, or other things you might expect.

According to the study, the #1 reason why family wealth was lost (in 60% of the incidents), the biggest problem was a breakdown of trust and communication in the family. The demise of countless family fortunes has been caused by sibling rivalries and resentments, the inability to communicate on matters of substance, and the failure of heirs to be able to agree on anything.

If you can’t agree on the schedule for the family vacation home, you might as well sell the property and divide the proceeds. (And once you do that, the money isn’t likely to last, as many inheritances are spent within a year.)

Sadly, many families wait until here an emergency to discuss their finances. But the time to communicate is now, while you are alive and well. Talk about your future plans, your wishes and any potential inheritance now—while you’re around the have the conversation!

#5: Leave an Inheritance of More than Money

Leave an Inheritance of More than Money

Pay attention to the memories, the connections, and the unconditional love you wish to one day leave your family. Make it a practice to share wisdom, values, support, mentorship, and your valuable network of relationships. Your wealth also includes the stories, dreams, heritage and traditions of your family. It may also encompass specialized knowledge and experience in business or in other fields.

Your family’s wealth likely includes physical and financial assets as well. Properly understood, these are the result of the productive human capital of the family, not the source of your family’s wealth. Financial capital can enhance the human capital. But people represent its primary worth.

Warren Buffett, one of the world’s wealthiest individuals, understands this well. “There is no power on earth like unconditional love,” he says. Buffett counts the unconditional love he received from his parents one of his most valuable gifts.

Be conscious of what you will one day leave your heirs. Use all of your assets—financial and otherwise—to support your loved ones in developing their potential and value! This is true prosperity and perpetual wealth.

Do you need help with your finances? Contact Partners for Prosperity today. We do things a little differently and would love to help you build a legacy that lasts! We specialize in life insurance, self-directed IRAs and Prosperity Economics thinking and strategies.

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