It goes without saying that people in the top echelons of society—you know, members of the 1%—have a lot of advantages when it comes to getting ahead in life.
They have all kinds of people helping them grow their money, manage their (many) homes—and figure out the best ways to keep their cash and other assets in the family for generations to come.
But just because you don't have a cadre of helpers doesn’t mean you can’t take a cue or two from the super-rich and successful—or the folks who help them stay that way.
Take, for example, people like Linda Davis Taylor, C.E.O. and chairman of Clifford Swan Investment Counsel in Pasadena, Calif., the nation’s oldest investment advisory firm.
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Even though she caters to the wealthy, Taylor firmly believes that anyone can use some of the business strategies employed by the 1% to come up with a blueprint for maintaining family wealth—regardless of how much money is at stake.
She even has a new book out on the topic: “The Business of Family: How to Stay Rich for Generations."
As she points out, billionaires as far back as the Rockefellers have crafted family business plans to keep the wealth going, and so can you.
So we talked to Taylor to find out how anyone can become the C.E.O. of their family and build a family business plan that can help set up their children—and their children's children's children—for future success.
LearnVest: You note that over 70% of wealth doesn't last beyond three generations. How do so many families let their money slip away?
Linda Davis Taylor: I like to use the analogy of a company. If a business doesn't have any profits, ultimately it can't stay afloat. The same is true with families.
No matter how much money one generation makes, if future generations spend more than they earn—and don't have a way to stay productive financially through their jobs or successful investing—that money is going to decline over time.
This seems obvious, but it comes up over and over again.
Things can happen. Inflation occurs. There are surprises in life. And if the next generation isn't taught money skills, they might look at a lump-sum inheritance and think: This is enough forever. I can spend what I want. I can live how I want. I'm set.
That money may last for a little while, but if it isn't replenished, it'll eventually run out. Plus, if people don't have that sense of how good it feels to be productive, they're not going to be happy and they won’t thrive—despite how much money they have.
You advocate taking the reins as the family's C.E.O., and mentoring younger family members like employees. How do you do this?
Mentoring is what we can do best for the next generation.
Whether I'm leading a company or a family, I'm not going to have the job forever, so part of my responsibility is to make sure those who follow me have the skills and talents to be successful—so they're prepared to take the reins later.
This training doesn't happen by chance. Employees of a business don't have all the skills they need when they first show up on the job. Neither do our family members. We have to find the time and make the effort to teach them.
And it’s important to start as early as you can. If the kids are young, talk about allowances and spending versus saving. As they get older discuss what it takes to run a household: How do you create a budget? How much is the electric bill? What does a gallon of gas cost? What does a car cost?
Eventually, get into how credit cards work, how to apply for an internship or job, the cost of college, what rent costs in different areas of the country, how to save for retirement and more.
The sustainability or wealth of a family is defined by much more than money. Wealth isn't just about assets. What most of us want to pass on are our values, because those principles are what keep people going through thick and thin.
You also believe families should create a mission statement. How does this work?
Ask yourselves: Fundamentally, what does the family stand for? What is our purpose? What are the nonnegotiables?
Your mission statement is a little bit of a slogan. When times are tough, it's what your family will fall back on.
You can even look to companies for ideas. For example, Disney's mission is to make people happy. For the nonprofit TED, it's to spread ideas.
"Family is really another business that we're running. And we can't just create the family, go to work, and assume everything is going to turn out fine unless we focus on teaching strategies."
One family I know wanted to express the belief that everyone is expected to make the family a priority. The phrase they came up with? "No empty chairs." For them, it means: "We are loyal to each other. We support each other. When someone in the family needs help, we show up."
Just be sure to keep your mission statement to a phrase or a sentence, because we can't all remember long, drawn-out ones. Your family decisions—including your financial ones—will flow from that.
What's the best way to keep money from coming between family members?
It all starts with talking.
Families sometimes avoid difficult conversations because they're afraid that having them will cause problems. But not having the conversations causes more problems.
For example, talk about your will and inheritance. And don't just discuss money but also tangible objects, like jewelry, clothing, musical instruments, photos and art.
Also, if a family member has a physical or mental disability and is struggling more than others and needs extra resources, discuss that.
Ultimately, what is the family philosophy? Whatever it is, it's better to know in advance so there's no confusion, frustration or resentment down the line.
And remember: This doesn't mean having one conversation and then you're done. Revisit these conversations over time—especially after any big financial change.
Why are you so passionate about using business tactics when it comes to family estate planning?
Family is really another business that we're running. And we can't just create the family, go to work, and assume everything is going to turn out fine unless we focus on teaching strategies.
Financial education falls squarely on the shoulders of family members, because there's really no other formal way in our society that those skills are taught. Schools aren't equipped to do it.
And it's kind of tough to go back and teach those things when your children are already out in the world.