By Linda Davis Taylor, Author of The Business of Family: How to Stay Rich for Generations
Mistake #1: Be silent about money. Billionaires like the Rockefellers set up family offices to do nothing but handle their affairs. The ultra-rich know their family and their money aren’t mutually exclusive. Though they may pay someone to do the spending reports for them, they educate their entire family about money. This same principle will work for any family, even if their version of a C-suite is the computer in the family room. Today’s technology allows every family to have a hub for its operations. The phrase “home office” will have more meaning when every member of the family can access it, provide input, and unite around shared goals. In whatever form, a family office helps a family focus on its future. Families with an established practice of regular meetings have a head start on fostering leadership for the future. Whether what is needed is a gentle suggestion or time for a serious change in direction, the family should be a source of sound advice. Honest feedback is essential for us to be the best we can be. An assessment of what is going well and what can be improved upon avoids frustration and costly mistakes. We all need a safe place to talk about what matters to us.
Mistake #2: Not including all family members in financial matters. Embrace the family’s diversity to expand its opportunities. All family members offer a range of skills and talents that can contribute to the family’s success. Being open to different perspectives enriches discussions and contributes to better decisions. Everyone has something unique to contribute, so include everyone on family financial discussions.
Mistake #3: Indulging kids with too much money. Indulging kids with too much money not only hurts the finances of the current generation, it creates a sense of entitlement in the next generation. Even wealthy families have to make tough choices today to take care of tomorrow. That can be challenging yet necessary. At home and in business, it takes courage to plan for the future. Many of today’s wealthy elite now say that they are giving more to charity and less to their children. Whether this strategy works depends not only on telling the kids they have to stand on their own two feet, but on having a plan that gets them ready to do that.
Mistake #4: Not giving back. Charity begins at home. Most young people say they learned about the importance of being generous from their grandparents or parents. Growing up in an environment where giving back is the norm makes a difference in the next generation’s habits. The best companies appreciate that giving back to their communities goes beyond the tax write-off. Families that give and make it about more than cutting a check earn extra dividends too, keeping everybody grateful and grounded. Working together for a common cause teaches financial skills and foments a sense of purpose. Families built on values rather than fortunes are destined to endure.
Mistake #5: Mismanaging money due to a lack of focus on the future. Manage spending for today and build new wealth for tomorrow. Financial health is a must. This requires sound fiscal habits to be adopted by current generations and new sources of revenue for future generations. A healthy enterprise is defined by its values — guiding standards that provide a compass for how people behave. This is true for employees in a business or members of a family. Make the standards clear and your family will not only weather any storm, it will grow stronger.
Although most of us don’t have a strategy in mind when we start our families, it’s precisely what we need to avoid common financial mistakes and create a family that prospers beyond one generation.
© 2015 Linda Davis Taylor, author of The Business of Family: How to Stay Rich for Generations
You can buy her book now on Amazon.
Linda Davis Taylor, author of The Business of Family: How to Stay Rich for Generations, is the CEO and Chairman of Clifford Swan Investment Counsel in Pasadena, California. A participant in a fourth generation family business, Linda is a frequent speaker on wealth transition, family governance, and philanthropy. In addition to her investment counsel career, she has had over twenty-five years experience in senior leadership positions at Emory University, Claremont McKenna College, Amherst College, and Scripps College. Linda has served as a trustee for numerous educational and non-profit organizations and is a co-founder of a private foundation. She and her husband are the parents of two adult daughters. For more information please visit lindadavistaylor.com