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Nicole Garrison-Sprenger
Staff reporter
Wednesday, April 21, 2004
The Business Journal (Minneapolis/St. Paul)
When Charles Parten tells his clients that their family fortune
can be destroyed in one generation if their children are not taught
to be financially responsible, he speaks from experience.
The son of an affluent Minneapolis couple, Parten
grew up believing money really did grow on trees. He was never
taught how to save, how to share and that there are limits. By
the age of 40, Parten's voracious spending had caused him to lose
his home, possessions and his inheritance.
Parten's story is not unique.
Wealth-management and family-business consultants
in the Twin Cities have found that many children from families
of means are not prepared to manage their inheritance or a family-owned
business. Such families run the risk of losing what might have
taken them decades to build. Worse yet, these children, who had
such wonderful opportunities, often fall into insurmountable debt.
"I came across a 31-year-old young man in
Washington, D.C., who said, 'I'm still paying off my credit card
debt from college, I don't have a house yet and a lot of my friends
are in the same boat as I am," said Nathan Dungan, president
and founder of Share Save Spend in Minneapolis. "What you're
finding is more and more families looking at their children and
saying, 'Oh my gosh, I don't think they have a realistic grasp
of finances.' "
Teaching wealth management
This cycle can be broken.
Parten believes if children are taught how to manage
money early in their lives, they will be able to carry on their
family's legacy and wealth. He uses his own experience to help
senior family members effectively pass their wealth on to a generation
whose values and interests may be in direct conflict with their
own.
"A lot of executives get so involved in their
business they aren't focusing on what's happening at home,"
Parten said. "I work with businesspeople to help them do
that."
The best time to begin to teach children financial
responsibility is as soon as they learn to say, 'I want,' advisers
said.
"Families that have done well in passing along
their inheritance are those that have been very intentional in
teaching financials and budgeting skills and giving their kids
the opportunity to use money," Dungan said. "You can't
assume that when children are the recipients of X hundreds of
thousands of dollars that the good decisions you made will carry
on."
The most effective way to teach a child about money
is to give them a bit of their own.
"I say by age 5 you should consider starting
an allowance," Dungan said, since exposure to advertising
and peer pressure begins at this age.
Children who don't have an allowance rely on their
parents for cash.
"Parents can't say they don't have money because
the child can see that they do," said Janel Goff, who runs
The Goff Investment Group within Piper Jaffray Inc.
Giving children money when they ask for it sets
a dangerous precedent, Goff said.
"Pretty soon you'll have a child always coming
to you because they don't have rent money or money to fix their
car," she said. "It's hard to break that cycle."
A child with an allowance, however, learns to balance
their wants with their needs, especially if you require them to
divide their allowance into thirds -- one for spending, another
for saving, and the last for giving.
"You need to get your children to make financial
decisions," Dungan said. "You need to get them used
to making financial choices so they get used to the fact that
sometimes they can't have everything they want."
Children also are more likely to make good financial
decisions if they work for a portion of their money. That's why
when the child is a bit older, say, 12 or 13, parents should think
about encouraging them to earn their own money by baby-sitting
or mowing lawns.
"Mom and Dad might have started the business
by working 80 to 90 hours a week, but when the second generation
rolls around, they don't have to do any of that," said Cary
Tutelman, owner of consulting firm CJT Co. in Edina. "A lot
of children become careless with money because they don't understand
the value of hard work."
Breaking children into the family business
Passing along the family-owned business to the next generation
is another challenge for well-to-do families.
"A lot of children feel entitled to run a
company without earning the right to," Tutelman said. "Usually
there really isn't a lot of discussion about performance and learning
the business and working hard."
Consultants suggest getting children involved with
the business at a young age to make passing the torch a bit easier.
"Younger generations should have some training
and development and experience with the business before they assume
leadership," said Susan Lazar, president of Susan Lazar Consulting
Inc. in St. Louis Park.
Families also must communicate about what parents
hope to perpetuate in their business.
"I think it's important to identify the values
of the family, or the business or foundation," Lazar said.
"Parents need to be sure to communicate those values in both
their actions and words."
Often it is difficult for families to communicate
in this manner. That's when a third party might be useful.
"With 2 to 11 trillion dollars moving from
the baby boomer generation to the next, we say it's critical that
the affluent are coached to understand family values ... ,"
Parten said. "Otherwise, the family legacy and money may
one day be destroyed after 100 years of building."
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