Are Your Heirs Ill-Prepared for Success? What Can You Do About It?

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In my last post, we talked about Will Your Children Succeed Running Your Franchises?

Not surprisingly, affluent families are concerned with the effectiveness of both their estate plans and the steps that they've taken to prepare their heirs for the challenges of wealth.

A recent nationwide survey by U.S. Trust Company indicated that the greatest concern of 83 percent of affluent Americans is that their children will have a tougher time financially.

Additionally, 55 percent of those surveyed felt that their children were naïve about the value of money and placed too much emphasis on material things and 34 percent were concerned that their children would find a spouse who was only interested in their affluence.

Affluent parents' concern about the preparation of their children is justified because the evidence is strong that wealth is often built by an entrepreneurial first generation and then dissipated by the second and third generations.

In their best-selling classic The Millionaire Next Door, Thomas Stanley, PhD and William Danko, PhD offer the following insights on building and preserving affluence based on numerous studies of affluent families between 1973 and 1996,while both were serving as professors at The State University of New York (SUNY, Albany):

      1. 67 percent of U.S. millionaires were self employed entrepreneurs who saved over 20 percent of their annual income

      2. 80 percent of millionaires were first generation [i.e. not inheritors]

      3. While millionaires lived well below their means, inheritors exhibited the exact opposite behavior by not saving any money and spending more than they earned

      4. 80 percent of millionaires have college degrees and 40 percent have graduate degrees

Stanley and Danko found that there was an inverse relationship between cash gifts to children and both the net worth and wealth that those children were able to accumulate.

They termed these cash gifts "Economic Outpatient Care" (EOC) because the gifts created a dependency on handouts from Mom and Dad.

For example, CPAs and attorneys who received cash gifts from their affluent parents had 57 percent and 62 percent of the net worth and 78 percent and 77 percent of the income respectively of their peers who do not receive cash gifts.

This inverse relationship between cash gifts and financial success applies over all occupational groups except for professors and teachers who save and invest the cash gifts given to them.

Predictably, the ultra successful kids of the affluent who become corporate executives and physicians became even more financially successful because they were not given cash gifts; whereas, their less successful siblings became increasingly dependent on their parents and never developed sound financial habits. 

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About this Entry

This page contains a single entry by Philip Toffel published on September 24, 2014 8:51 PM.

Is Your Franchisor "All Hat and No Cattle"? was the previous entry in this blog.

Is Your Staff Making One of these Five Killer Mistakes? is the next entry in this blog.

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