Don’t Spread Affluenza to Your Heirs

Many people who have accumulated some wealth are torn over the issue of how much to give or leave to their heirs. They prefer to leave a meaningful legacy and help their heirs be financially secure. But they also are afraid the wealth will hurt the recipients.

The debilitating effects of wealth are real and even have a name – affluenza – coined by an heir to the fortune of railroad baron Charles Crocker. The theory is that the expectation of a substantial inheritance or receipt of significant wealth throughout one’s life can cause several problems. These problems include delayed maturity, inability to manage money, an emphasis on short-term gratification, and a lack of self-esteem and ambition.

No doubt you don’t want your heirs, whether they are children or grandchildren, to develop these qualities. Fortunately, it doesn’t have to happen. But withholding wealth or giving it all to charity are not the ways to avoid these problems. Money itself isn’t good or bad. There is no magic amount of wealth that causes affluenza while lower amounts of wealth do not.

The keys are what you teach the heirs before they receive the money, and how you give it to them.

The lessons should start early. Money and things are not substitutes for your mental and emotional presence, for teaching and forming the youngsters.

A child, for example, should receive an allowance similar to that earned by schoolmates and peers. That should help the child learn how to manage money, understand the value of things, and realize that choices have to be made. The child should know that some types of items must be purchased from the allowance. If the allowance is spent, the parents and grandparents won’t buy those items when the youngster wants them. Household chores should be required, but for being part of the family. Chores should not be in return for the allowance.

You also can take steps to teach a youngster about money and investing. Some steps were covered in the September 2000 issue.

When the youngster reaches the teens, jobs should be required. Money is only part of the reason for requiring work. Employment outside the family lets the individual learn that he or she can achieve and accomplish things. It builds self-esteem and also can help develop ambition. Working also shows the youngster how the different parts of the world fit together. Another important lesson from work outside the family is making mistakes, recovering from them, and learning from them.

There’s nothing wrong with giving gifts, even large ones, especially if you are taking the other actions. But you should limit the gifts and use them to teach. Don’t give gifts or spend money to get the kids’ approval. For example, if the youngster wants or needs a car, offer to pay for half if the child earns the other half. This way, the child will get needed help but also will learn about limits, choices, and work.

Suppose the child is older and still hasn’t learned the lessons or has developed one or more symptoms of affluenza. In most cases, it usually isn’t right to raise a child in wealth then decide at a point in time to cut him loose. If you plan to limit an inheritance or attach strings to it, you should tell the child so from an early age, not after the child is dependent on the family wealth.

But you don’t have to turn a lot of wealth over to someone who cannot manage it or spend responsibly. You can leave the wealth in a trust with limits and other provisions. The trustee can decide when it is appropriate to distribute income, for example, or you can provide that the wealth is distributed over time instead of at once. I have covered types of restrictions in past issues, and they are located in the archive section of the web site.

Wealth cannot buy self-confidence and self-esteem or provide motivation. Those things are acquired over time. You can help a youngster acquire those qualities, and then be secure that leaving the youngster your wealth won’t cause problems.