Rich Kid Poor Kid

Dear Clients,

I have a favor to ask.  If you have a minute and the inspiration strikes, would you please reach out to me with any anecdotes or observations about how money has affected your family, for better or worse?

I’m particularly interested in relationships between parents and kids, something from your own childhood or something you encountered while raising your kids.  Don’t feel constrained though because relationships with siblings or extended family are complex and interesting too.  Anything goes.  You can anonymize your feedback as much as you like, although I’d point out that we never share our clients’ personal information anyway.

It doesn’t even need to be personal.  I’d love to hear stories about friends, friends-of-friends, or distant relatives.  It doesn’t need to be a story either; it could be a book that influenced you or a poignant quotation that stuck with you through the years.  It could be a Bible verse.  I want to know what comes to your mind when “money” and “family” cross paths.

As investment managers, we have our own little windows into about 300 different families’ financial lives, but we only see a sliver of the complete picture.  Does your family have any financial best practices you’d recommend?  Have you made mistakes you would warn against?  What are your simmering problems that have lingered for years without resolution?

If anything comes to mind, please email me at milesp@investprovident.com or call me at the office: 1 (248) 380-1700.

One reason I’m interested is that there don’t seem to be any good books on the problems and pitfalls of raising children in the presence of money.  The ones that exist typically peddle the same lessons about hard work and sacrifice that, while important, don’t impart any novel or surprising knowledge.

There are also plenty of books out there on financial basics like saving money and avoiding debt.  These are essential lessons for everybody who aspires to financial security, but that’s exactly the problem—they are lessons for everybody.  I’m not aware of books that tackle the biggest concerns millionaires struggle with.  Maybe with your help I can have a go at writing that book?  If I get a good volume of reader feedback, then I may interpret it as a signal that I’m onto a provocative subject.

Let’s call the hypothetical working title Rich Kid Poor Kid, a riff on Robert Kiyosaki’s bestseller Rich Dad Poor Dad.  I’m not necessarily trying to come up with the next big financial bestseller here.  On the contrary, I want to speak to an audience whose problems come from the tail end of the wealth distribution.  There aren’t nearly as many millionaires out there as aspiring millionaires.  My book would be the one you need after all the Rich Dad Poor Dad and The Millionaire Next Door lessons pay off.

I won’t pretend to be an expert.  My own kids are only three and five.  I’ll find out in twenty or thirty years what I’ve done right and wrong.  Who can legitimately claim to be an expert in this subject though?  Like I said, we have about 300 families as clients, and each one is a little different.  That’s why I’m reaching out to you for ideas.

Let me provide an example of what I’m interested in.  Wealthy parents often struggle with the question of what to tell their kids and what to keep secret about their money.  My coworker James tells a story about a friend who had an awkward interaction with his wealth manager.  The manager believed in sharing as much information as possible with your kids.  Unwilling to hear an opposing viewpoint, he hammered on this advice throughout an entire dinner.  The clients wanted to keep their money a secret as best as possible.  The evening became increasingly uncomfortable as neither side backed down or compromised.  But who was right?  Is there a correct middle ground?  Grappling with that question could fill up an entire book.

Here is another example that has come up in conversations around the office: rich parents always worry about how to support their kids without ruining their motivation.  Even parents who don’t expect to give their children significant financial support or leave large inheritances worry they might mistakenly give the impression that plenty of money will always be there.  Again, balancing motivation and support could probably be its own book entirely.  If you have examples or advice to share, I’d love to hear from you.

Here’s one last example.  This is more of an opinion than anything—please let me know if you disagree—but I think rich kids are unfairly maligned in our culture.  They have a bad brand so to speak, with ambassadors like Paris Hilton, that Texas affluenza kid (Google it), and all those mockable Instagram “influencers.”  But I’ve met a lot of reasonable, down-to-earth children of rich parents who follow in the same footsteps of hard work and saving that made their parents wealthy.  American attitudes toward rich people are generally favorable.  Kids typically take after their parents.  Shouldn’t the stereotypes of their children be favorable as well?

Lo and behold, the February 18th edition of Barron’s offers a current example of my theme that we worship the rich while crucifying their kids.  In “The Worst Kind of Client,” James Grant records another investment manager complaining how hard it is to manage money for heirs because they are cowardly.  Unlike their worthy parents, they didn’t take the risk to earn money and increase it, so they are uncomfortable with the kind of volatility that investing demands.  James Grant is a spectacular storyteller.  The encounter sounds really fiery in his telling of it, but generalizations like this are too broad to be universally accurate or fair.

Certain cases notwithstanding, I think it’s wrong that people who inherit money are generally too fainthearted to invest it reasonably.  Provident’s philosophy emphasizes riding the short term ups and downs of the stock market for long run success.  We can’t really hang on to cowardly clients like the ones proposed in the James Grant article.  Some of our clients inherited their money, however.

A “dog bites man” story is one that fails to surprise, and maybe “child of responsible parents acts responsibly too” fits that description, but the cliché about rich kids being spoiled and useless seems awfully tired and more wrong than right.  That’s just an opinion, but it’s the kind of issue I’m interested in.

To conclude, I sincerely do want to hear from you.  Assuming I do get some responses, I promise to circle back around in a future Viewpoint and summarize the feedback I receive.  Again, you can email me at milesp@investprovident.com, and our phone number is 1 (248) 380-1700.  I’m counting on getting some feedback.  Thanks!

Miles Putnam, CFA