Rich people have enough money to solve almost all their problems but one: children who grow up to be entitled, materialistic and unhappy slackers.
Wealth advisers to the rich see this all the time, says Coventry Edwards-Pitt, who helps clients manage their affairs at Ballentine Partners, a wealth advisory firm outside Boston. Often, children of rich parents can't seem to strike out on their own, she says. They start doomed businesses and give up on one job after another, all while draining Mom and Dad's bank account (or their own trust fund) into their 30s and beyond. It's a phenomenon many parents and tax advisers do a lot to enable, albeit unintentionally, Edwards-Pitt argues in a new book, "Raised Healthy, Wealthy and Wise."
Most parents want their kids to become successful, self-sufficient adults. But smart tax planning can sabotage good parenting. To avoid the estate tax, the wealthy are told they can and should give their children $14,000, or $28,000 per couple, each year, which they're allowed to do tax-free. That's hardly enough to retire on, but it's a cushion most people don't have. Young wealthy adults may go from job to job as they seek their "passion" without putting in the hard work to actually get anywhere.
It's Edwards-Pitt's job as an adviser to warn clients when they're spoiling their kids. Parents need to say "no" more often, she says. The goal isn't to protect their own fortunes but to encourage children to develop independence. "Parents think that by not handing over money, they're depriving their kid," she says. "It's actually just the opposite." As Warren Buffett put it in an oft-quoted 1986 Fortune interview, giving heirs “a lifetime supply of food stamps just because they came out of the right womb” can be a “harmful” and “antisocial act.”
Opening checkbooks every time their kids face adversity undermines children's sense of accomplishment, says Edwards-Pitt. If Dad funds all of his daughter's business start-up costs, she'll inevitably feel it's more his project than hers and won't learn how to court investors or stick to a strict budget.
For her book, Edwards-Pitt interviewed two dozen rich kids who found ways to become successful in their own right. Their parents helped, but there were usually limits. When a videographer started his business, his parents and grandfather limited their contribution to 25 percent of the capital. An art gallery owner in his late 30s spent 10 years receiving a small monthly check from his parents to cover living expenses, but the amount never increased.
The result of too much coddling can be a mix of guilt and resentment. Edwards-Pitt's advice: For at least a while, kids have to get far enough away, emotionally and physically, from their parents.
To do that, one successful entrepreneur who was born rich emigrated from India to the U.S. A TV producer from a well-known New York family took a year off from Yale University to travel to Australia and work on a cattle ranch, and then a Pacific trawler. “For the first time ever, he met people who had never heard of Yale or of his family’s name,” Edwards-Pitt says. Moves like that let children build an identity outside a moneyed cocoon, an achievement that's priceless.
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