The following is a guest post by Bryan, a personal finance blogger and freelance writer at Gajizmo.com. Bryan graduated from a top-ranked university with a finance degree and has worked in M&A and private equity for 3 years.
As a member of Generation Y, I don’t find money a taboo subject. I discuss my financial plans, investments, long-term goals, and the current status of my business with my parents and siblings on a regular basis. My parents, on the other hand, don’t openly discuss their income or assets, but at least don’t hide every financial statement from us either. Maybe it’s an issue of superstition (that talking about a good financial year will bring a downturn of luck), privacy, or that it is just not something they want to discuss with us. This seems to be the norm in American families, with most leaning closer towards secrecy and discretion. Of more than 100 individuals and families with a net worth of more than $20 million, only about a third of wealthy parents discuss money with their children before the age of 21, according to a study by SEI Private Wealth Management. At this level, wealth is harder to hide, so offspring may be tacitly aware of their family’s financial means, but for others with more modest millionaire status, children may be kept completely in the dark. And I can understand why.
Parents are worried about destroying their children’s motivation, independence, and self-reliance. My father has regularly explained to me that the greatest thing he has ever tried to teach me is survival. When you experience unexpected hardships, monetary or otherwise, the ability to innovate, be resourceful and keep providing for your family and avoid financial failure is an essential life skill. How will a child ever stand on his own two feet if there is a cushion to fall back on? Eventually, the child will realize that every time he falls, someone will be there to save him, so what’s the point of actually trying to do it on his own? If you have children like this, and parents can always recognize the signs, I don’t blame you for not sharing your finances with them. Your kid will likely take up a low-stress job that requires no hard work or mental stimulation, wait for you to pass and then collect their inheritance. Afterwards, they will likely squander your wealth and destroy your legacy, all the while blaming you for ruining their lives. Like King Solomon warned, “An inheritance quickly gained at the beginning will not be blessed at the end.”
Like my parents, I want to be self-made. I don’t want an inheritance and I don’t want a single penny of theirs left behind. In fact, I insist that they spend every cent enjoying the rest of their lives; after all, they’ve worked so hard for it all. The entire concept of working like crazy till you’re 65 and then retiring to enjoy what remains of your life has always baffled me, but that’s a discussion for another time. While I may not want their money, I can’t say I want nothing from them. In fact, I constantly solicit and request their counsel – the wisdom, experiences, and business strategies that have made them successful.
One quote that comes to mind is by Jim Rohn, which he states: “Time is more valuable than money. You can get more money, but you cannot get more time.” Young adults and entrepreneurs can take a bet, make a mistake, learn from it, and make another bet in the future after they've rebuilt their portfolio and savings. Simply put, I can always make more money, but what I can't recover is the lost time that the mistake cost me - time that could have been applied to a more productive task had I been mentored. This is one of the many reasons early stage venture capitalists are so crucial to the success of start-ups.
To overcome this deficit and pave the way for open communication, for my birthday last year, I asked for only one thing – my dad to discuss his investments with me. When he buys a stock, tell me about it and explain the reasoning behind his purchase (though he made a killing on some of my recommendations during the year, he just never told me he actually took my advice until 18 months later). When evaluating a potential business acquisition, what are the financial metrics he focuses on for insight into the company’s future performance.
Unfortunately, as close as we are, he doesn't ever approach me to fulfill my birthday wish. I grew up learning math and science from him, all of which made me excel in school, but for some reason, when it comes to this topic about investments and business decisions, it is like pulling teeth to get him to explain his thoughts. Maybe it has nothing to do with me or how he feels about money. Maybe it’s just the fact that he works hard all day, wants to come home to relax and not think about business.
In the end, I urge anyone who is a parent: the greatest gift you can bestow upon your kids is tangible wisdom applicable to the real world. Whether it is requested or not, just give it. Most of the time, your kids are listening, and even if they don’t immediately respond to or implement it, trust me, it’s on their mind. And lastly, after your kids graduate from college or leave the home, it shouldn’t be an “every man for himself” mentality. If your kids join the work force, talk about office politics, how to maximize their 401K and IRA contributions to minimize tax liabilities, or what kinds of projects to take on to ensure advancement within the company. If they want to buy a home, discuss the importance of calculating property taxes, home insurance, and maintenance. If they plan on investing in the stock market or themselves by starting a business, guide them on the types of research they should undertake before making the leap, the advantages and disadvantages of mutual funds, ETFs, bonds, commodities, and options investing, or choosing Fidelity vs. Vanguard for their index fund needs. More important than helping them with their jump shot or algebra homework in 7th grade, guide them as adults, when the stakes are much higher and the mistakes much costlier.
How do you discuss financial, business, or life issues with your adult children?
Our parents really do not discuss their finances or investments with us and I think it's a real shame. There is wisdom to be learned from, but I think it may come down to a generational aspect of wanting to be secretive about money issues.
Posted by: John S @ Frugal Rules | April 17, 2013 at 08:39 AM
Good article.
Posted by: SR | April 17, 2013 at 09:24 AM
Money was a giant secret when I was growing up. My parents told me nothing. I did not even know that there was such a thing as property tax. My property tax bill is stuck to my fridge and the utility bills and pay stubs are scattered on the kitchen table and my sons read them when they are eating breakfast.
When they were younger they sat in bank appointments with me while I moved money in to registered retirement accounts. When I was much younger my mother made me sit in the chairs at the bank so that I could not see what was happening at the teller window.
Posted by: Jane Savers @ The Money Puzzle | April 17, 2013 at 09:31 AM
I think the majority of kids do learn how to handle money from their parents, unfortunately. This article (both the ability to give good advice and the ability to provide motivation-crushing support/inheritance) seems to speak to a tiny population, but maybe that's just what I see around me. But given that population is probably visiting this site, good advice to those.
Posted by: Steve | April 17, 2013 at 11:03 AM
My experience - knowledge, wisdom and guidance often fell on deaf ears. But the kids did tell me I got a lot smarter after they moved out.
Posted by: Lurker Carl | April 17, 2013 at 11:05 AM
After I retired I offered to manage my three children's money for them and it worked out well because during the wonderful dot.com bubble ride we had from 1993 to March 2000 we were all in the same investments and did very well, increasing our portfolios tenfold. I continued in the stock market until late 2007 when I shifted 100% us all into bonds and CDs (yielding on average 5% tax deferred or tax exempt.
Consequently the two oldest girls are multi-millionaires, and the youngest boy is approaching $1M.
The only downside to our children's lives have been that unlike our experience growing up in England during the WWII years and in a far different society than we find today in the USA they have led very different lives. Unlike my wife and I who will have been married 57 years this July, our children have each had divorces. The eldest has had 2, the next one has had 1, and the youngest has his first divorce becoming final today.
In my opinion there has been a huge breakdown in societal values in recent years. We now live in a very different society where the introduction of smart phones and social media products, along with their many benefits have also contributed to an increase in criminal acts of all kinds. It seems that hardly a day goes by without another horrific act somewhere in the country and my wife and I feel fortunate that at 78 and 80 we stay close to home these days. The latest sordid crime near us took place in a very affluent area. The parents were away and their 16 year old daughter invited her friends from one of the very best high schools in Silicon Valley over for a party. There was lots of alcohol in the house and it ended with their daughter getting completely stoned on alcohol & gatorade and passing out, then taken into a room by some boys and brutally raped, with crude remarks written on her naked body. Pictures of her went viral on the social media causing such anguish and shame to the victim that she later hung herself. The attempted hanging sent her into a coma and 9 days later she was taken off life support. So much for progress, I'll take the social standards of my youth where pre-marital sex was taboo over what goes on under the name of having fun today.
Posted by: Old Limey | April 17, 2013 at 11:10 AM
@Old Limey,
Increasing your portfolio tenfold in 7 years is a 39% annualized rate of return. And then you perfectly timed the 2008 crash by exiting the market just before it? Wow, you should go manage a hedge fund and rake in billions with that kind of track record.
Too bad you didn't plow your bonds back into stocks in 2008 and perfectly time the upswing as well.
Posted by: Tom | April 17, 2013 at 12:22 PM
I try to pass my wisdom onto my children. A lot of times, I feel it goes unheard because I rarely see the application of said wisdom. Oftentimes, it greatly saddens me. I believe eventually they will come to value it. My children are still young enough--21, 18 & 15.
Posted by: Elizabeth | April 17, 2013 at 12:40 PM
I agree with many of the readers who observe that their advice falls on deaf ears. Sometimes it takes awhile for young adults to admit that their parents are still right most of the time, while other times, they are putting up a front of independence but still carry your wisdom in their back pocket. At the end of the day, I have crafted a balance between my views and my parent's wisdom, so they don't always agree with the decisions I make, but they are usually the rights one for me. Worst comes to worst, as parents, you will always know you were there for your children. Whether they take your advice and put it to good use, that's up to them as adults.
@Old Limey - seriously, despite my finance degree and working in the industry, will you manage my money? haha, unfortunately I was a kid during the dot-com bubble, but with results like that, I will happily campaign to get you assets to manage! =) Then again, that would go against my philosophy of being "self-made".
Posted by: Bryan@Gajizmo | April 17, 2013 at 02:43 PM
Tom & Bryan
It's important with one's investments that you know when you have reached the appropriate time in your life, the state of your finances, and your ability to handle stress, to move into the slow lane and invest much more conservatively.
When the dot.com bubble burst I got completely out in 4 trading days but my portfolio still dropped from $3,369,058 to $3,021,835 between 3/9/2000 and 3/15/2000. The funds I owned followed the Nasdaq 100 closely. This index peaked at 4,704 on 3/27/2000 and as of yesterday was at 2,938 a long, long way from its all time high. My portfolio however is 216% higher than its peak on 3/9/2000 and by moving into low volatility investments and timing junk bond funds for a few years after getting out when I did has paid of financially as well as eliminating most of the stress involved in managing a large amount of money. Today my stress level is close to zero which is much more important to me than trying to time the stockmarket in an attempt to increase my returns It is also important to me that I have not had a losing year since I retired in September 1992, something that few investors are able to say.
Posted by: Old Limey | April 17, 2013 at 08:54 PM
"Like my parents, I want to be self-made."
If your parents gave you the cultural capital to get into a top university (and supported you financially through it?), you're not self-made. There's absolutely nothing wrong with being lucky enough to have parents who could support you, but it's important to be clear about the advantages you've already enjoyed in life.
Posted by: Sarah | April 18, 2013 at 01:49 AM
Sarah, then by virtue, no one can be self-made. If someone (parents, foster parents, an orphanage) fed or sheltered you, or sent you to kindergarten, you aren't self-made.
There are children who are blessed with everything in the world and still make nothing of themselves. I do appreciate the advantages I've had, but my goal is not to live up to expectations, but to exceed them. By a lot!
There are varying degrees of "self-made", but how I make money and the business I am in has nothing to do with my parents. I did not inherit any money and was not loaned any to start. I have had no mentors or corporate sponsors show me the way. And lastly, through all the failures and setbacks (and there have been many), despite the constant chatter that I should just get back into finance, I've never given up on my dreams.
Maybe I won't be self-made in your eyes or by anyone's definition, but it's as self-made as I can get in my shoes.
Posted by: Bryan@Gajizmo | April 18, 2013 at 02:09 AM
@Old Limey,
There were other dips in years prior to 2000 (a quick google finance search shows Jul 98, Sept 98, Jul 99, Jan 2000) that looked like the dip in March 2000 where you pulled 100% of your money out. How did you know at the time that the other dips were temporary but the March 2000 dip was the beginning of a crash?
I worry that other people reading these posts will think what you did is easy. It is absolutely not, and most people will lose money by market timing. Even Warren Buffet does not average a 39% annualized return.
Posted by: Tom | April 18, 2013 at 12:32 PM
Tom:
It wasn't until October 1998 that the Nasdaq 100 started to really take off and that was when I started to load up on the best performing, actively managed, aggressive growth funds. From then on the dips that I experienced weren't anywhere near serious enough to get me to start moving out. It wasn't until the chart of my total investments surged 506% just between 10/29/1999 and 3/9/2000 that I had my finger on the trigger ready to bail out and that's just what I did on the first really bad day by selling my largest holding. Then on each of the next 3 trading days I sold more and more until I was completely out.
This was a time when the technical charts go out the window and the fear of losing more and more money overrides everything else.
As Alan Greenspan later said, "The market was experiencing irrational exuberance" and there was a rush to get on board and then a rush for the exits as soon as it started down. I was probably in the first group to jump ship.
There hasn't been such a climactic spike in the Nasdaq 100 or other indexes since then. I have lectured on the technical analysis of the market and this brief period defied normal technical analysis because pure greed took over first soon to be followed by pure panic. One fund I owned for a while you may be interested to read about was Garret Van Wagoner's Emerging Growth fund. It was one of the best performers during that brief period returning 291% in 1999 but then rolled down into oblivion before it collapsed and went out of business.
Posted by: Old Limey | April 18, 2013 at 01:25 PM