Parents all over the world are trying to figure out exactly how to transfer their wealth, businesses and knowledge to the next generation, but the results are clear.
It just isn’t happening.
These distraught parents are responsible people who have worked hard to achieve a comfortable standard of living. They are stable members of their communities and they hope their children will become responsible and achieve success as they did. But they are distressed because they don’t see any sign of initiative, appreciation, creativity, or work ethic, and they don’t know why.
Welcome to a very big club.
Here is the typical scenario: The grandfather was a typically an entrepreneur, usually with limited education, who started the business to generate income for him and his family. He then grew the business by putting in long hours and hard work. At that point, he was fighting for basic survival. His business deals were based on handshakes in a time when this meant something. His lack of a formal education lead him to entrepreneurship and forced him to think “outside of the box” to create unique solutions, create his own living and lead others. He had his legacy in mind when turning over the business to his children.
His sons or daughters, as a result, were afforded a good formal education and have seen the world. Their parents pushed them to get high grades because education was not to be taken for granted. These potential “A” students were being groomed to take over the business, which they may not have even wanted. Unfortunately for these kids, the school system produces workers and not business owners. These kids have ideas of their own and if they do take over the business, they make changes to grow the business based on theory they learned in school. These siblings typically have no real world experience.
Only 16 percent of these family businesses survive to the third generation.
The grandkids live in a rapidly-changing world full of possibility and entitlement. They have no real appreciation for the position they are in. They are not interested in the business and want to do something completely different. Higher education is taken for granted. Cell phones, laptops, PlayStations, designer clothes, $125 sneakers, the latest smart phone, games and so forth are part of daily school life in their world. This sense of entitlement is risky because these kids do not learn the basic aspects of responsibility. If they do decide to run the business, they just don’t appreciate what they have and the opportunity associated with it.
It isn’t uncommon for their parents to hand ownership or employment to them on a silver platter. Perhaps the grandkids pay nothing for this privilege and are immediately placed into senior management. They are put into a position to manage people, relationships and money with no practical experience.
Over the years, the primary focus for wealth transfer has been on wealth managers or financial planners. These professional advisers focus on the technical components of succession like tax minimization, estate freezes, family trusts, buy-sell agreements, wealth management and other matters. Tax planning is certainly important, but it doesn’t solve the problem of the kids blowing it.
Most inheritors do not understand the blood, sweat and tears invested in accumulating the wealth they now enjoy. Nor do heirs with money have much motivation to develop a bias toward diligence, delayed gratification, thrift, and other values needed to maintain healthy relationships with people who contribute to their wealth accumulation.
When heirs receive money without prior mentoring on the purpose of money, they will seldom take the time to understand the values that helped accumulate their inheritance. They also often lack the purposeful pursuits needed to cultivate self-esteem, self-worth, motivation, self-confidence and personal identity. Moreover, the lack of a healthy purpose leads to negative character qualities, such as the inability to delay gratification, unwillingness to tolerate frustration, feelings of failure, and a false sense of entitlement.
The education system and most parents have proven that they have not prepared these kids as leaders or for managing and growing small businesses. The school system primarily produces workers for big business. What we need are leaders, and leaders are made rather than born.
In schools today, kids are programmed to learn to memorize facts instead of becoming independent thinkers. Students should know why they are in school — and it is not only to achieve good grades. Children are taught in school to go with the flow and follow the rules. The typical education system today teaches our top students to be risk averse yet the business world is the exact opposite.
This is not to say that education is not an important step in the development process, but the system isn’t going to change anytime soon. So we better embrace that fact and prepare our kids. I strongly believe that the issue of developing children into leaders lies with the parents, not the education system. In 1970, the United States had the world’s highest rate of high school and college graduation. Today, only 7 of 10 ninth graders will get high school diplomas. This equates to 1.3 million students dropping out of high school each year. This is the price of keeping up with the Joneses.
The author Orlando Battista once said, “The very best inheritance a parent can give his children is a few minutes of his time each day.” Spending time with your children will help prepare them to be leaders at an early age, and it will result in more income, opportunities, and self-confidence in their lives. Ultimately, they will make better choices when selecting their friends, personal relationships and business partners.
The world is built on small business. This fact will not change.
Give your children the opportunity to earn their own money through chores, their own small business and helping you in your business. Teach them about paying themselves first and then giving back. Educate them about investing and how their money could be used to create more money in the future. Help them set up a bank account and learn about how to budget their income.
It’s the parents’ issue that by the end of the third generation, nearly all of these families have little or nothing left of money received from grandparents. These entitled kids are entitled because we made them that way.
I believe that all these children need is a little practical experience, which will give them some wisdom and leadership skills. The primary difference between knowledge and leadership is that knowledge is information acquired through education, whereas leadership is the understanding of how to apply it.
In the end, it is not your words but your example that matters.