The lessons learned through bootstrapping are important not only to entrepreneurs and their workforces, but to their children as well. Whether your kids will one day run the family business or you simply wish to pass on the values and work ethics that helped you succeed in starting and owning a business, devoting time to coaching your children can feel like its own challenge. Steve Lopez, Wealth Management Advisor at Merrill Lynch, shares how a business owner’s values can be passed on to the next generation.
We’ve heard about high-profile millionaires and billionaires announcing they will not be leaving their fortunes to their children. Is it a matter of time before this becomes a mainstream trend?
It’s unclear how this trend will play out but we know with confidence that parents want their children to be better off—and they don’t define “better off” in purely financial terms. According to a recent Merrill Lynch survey, the no. 1 answer to the question, “What’s most important to pass on to the next generation?” for people over 45 was “values and life lessons.” The answer “financial assets or real estate” came in last. In between were “instructions and wishes to be fulfilled” and “personal possessions of emotional value.”
My experiences with my own clients—particularly those who own businesses—confirm this finding. If faced with the choice of being able to hand down either their money or their values, I have found that they’d choose the latter. You might be able to attribute this choice to hard lessons learned in running a business to earn a living, but, in the end, it bodes well for the next generation. More and more parents today recognize that inherited wealth can easily be mismanaged or squandered if decoupled from values, a purpose or a credo.
How can parents go about cultivating values in their children—specifically ones that are important to the entire family?
Children learn a lot about values through allowances, specifically an allowance that emphasizes spending, saving and sharing (i.e., charitable giving). Asking your child to allocate his or her allowance to these three priorities on a consistent basis reinforces important messages to children at an early age.
Moreover, at the appropriate age—around 7 or 8—parents should consider holding a family meeting to ask their children directly what’s important to them. Not only can parents bridge the family’s values with beliefs or goals important to their children, but children develop greater buy-in for a family’s values because they had input.
I’ve also found that the act of writing something down on paper is helpful. Once values are written down after they’ve been articulated, they become easier to recall, teach and practice. Parents can then look for creative ways to remind their family of their values on a consistent basis. For example, displaying the values in a picture frame; giving gifts that reinforce the values, etc.
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What can we do to reinforce values early with kids?
One of the most important things parents can do is lead by example and make sure children see them practicing the values. For example, if you emphasize charitable giving with your family, you might pool monies together in a Donor Advised Fund not only to support a charitable cause important to the family, but also be able to recommend grants. Similarly, parents should bring their children with them to their favorite nonprofits while they are at an early age to show them the importance of volunteering personal time to a cause.
Here again, allowances have a role to play to transmit values. Not only do children form positive memories when they contribute voluntarily to a charitable cause, but in doing so, they feel like adults.
What can be done as part of estate planning to prepare the next generation for inheriting wealth?
One of the most simple, effective and cost-free actions is creating an ethical will. The values that shaped a family or fueled the growth of, say, a family business can become the basis for an ethical will. Often no more than one or two pages, an ethical will allows you to share your vision for your family for generations to come. It can also go a long way toward instilling the values you expect inheritors to live by while encouraging them to consider how they should contribute to their community and the world.
Any additional advice you wish to share about family businesses?
Many parents have difficulty talking about their own mortality with their children—business owners included. This might be because the rigors of the business cycle have created hard opinions in a business-owner about how his or her estate should be divided among children, especially if the business is multi-generational.
In these cases, family meetings can reveal solutions. It is not uncommon nowadays for estate planning attorneys and wealth advisors to bring in a professional facilitator to manage and guide family meetings. In some of my client experiences, I’ve found that a neutral third party helped families by getting them to examine issues from multiple angles so they can make better decisions.
I also believe the entrepreneurial ethic itself can play a crucial role in passing on values. Showing unconditional love and letting children learn hard lessons on their own are two of the most important things entrepreneurial parents—any parents, in fact—can do. This means being supportive of and sacrificing for children, but also setting clear boundaries, letting them make mistakes and not bailing them out if they run into financial troubles.