Recently a client handed me a JP Morgan white paper¹ reporting that only 11% of Forbes 400 families sustained wealth past 23 years. “How,” he asked, “can I increase the odds that our family will be in that 11%?”

Of course, there is of no silver bullet to guarantee inclusion in the 11%, but research bears out the fact that education of the next generation is a critical variable. This isn’t rocket science, it’s just common sense. You may have good intentions to take your family past the “shirtsleeves to shirtsleeves” phenomenon, but unless you’re intentional and actually do something  about sustaining wealth past a third generation, winding up in the 89%  is a likely outcome. As we launch another Great Families Training Program today, I’m seeing families who choose to invest time and money to become part of the 11%.

Sustaining wealth is not the work of family magicians. Hiring the smartest advisers in the world helps, but isn’t enough—even if you’re lucky enough to identify them. And there’s the rub. If you haven’t had some education, practice, and experience, how can you even recognize good advice or advisers when they appear? Or as challenging, when presented with abundant good (or bad)  advice, how do you discern the best course of action?

As author/sage Jay Hughes points out in the classic book, Family Wealth: Keeping it in the Family, you can have the best advisers in the world, but if you don’t understand what they are telling you, or do not have the knowledge/wisdom to take advantage of their advice, it’s of little value. Financial education of the next generation is like an intellectual insurance policy—without it, the next generation is vulnerable to charlatans and snake oil salesmen and the countdown clock on family legacy starts ticking.

I was reminded of this this while reading Bill Vlasic’s new book Once Upon a Car. The book is a page turner, chronicling the demise and rise of the big three car companies. Whether you followed the debacle of auto executives appearing clueless before Congress or not, you will be captivated by the drama of the story. And the book is also, not incidentally, a riveting tale of how the Ford family managed to sustain it’s legacy and wealth in the face of extraordinary financial challenge and temptation. According to Vlasic’s account, the Ford family could have sold controlling interest in the company at considerable personal gain, but instead, at great risk, chose to hold on to their position. As reported on the CBS Sunday Morning News recently, taking that risk paid off. But this was not luck, this is a family that invests in human capital.  And Bill Ford IV, a lifelong learner, is a role model for how next gen members use personal values, appreciation for family history, and hard won knowledge to  successfully steward family assets—human and financial—keeping their family in the 11%.

¹ JP Morgan Private Bank. “Beating the Odds: Improving the 15% probability of staying wealthy.” Challenges of Wealth (2004)

My old school friend Don Snyder is caddying for his son Jack this winter. Jack is on a quest to make the PGA tour and his dad is chronicling their journey in a series of private emails to friends, which will morph into a very compelling book (and maybe a movie) at some point.

The excerpt I’m sharing here includes a perspective on failure I like a lot and thought you might enjoy, whether you’re a golfer or not. If you want to follow the full odyssey, send Don an email and ask him to add you to the list (hancockpt@aol.com).

January 13, Houston, TX

5m. Cold again this morning but the wind has fallen off. It will be much warmer by the time we tee off at ten. We finished yesterday at seven strokes behind the leader heading into round two. If Jack plays well today he can move up and maybe win some money for the first time. I know that matters to him, but honestly, some things happened yesterday that mean a great deal more to me. I saw that Jack is winning back some belief in himself here. By fighting hard in difficult conditions to make the cut and to finish high on the leader board, he earned back some of that belief. I could see it in the way he was carrying himself out on the course yesterday. Of course I could ask for more. God, yes, it would be terrific to see him gain the consistency in his play that would take him onto another tour so I could caddy for him until the day when I can no longer walk. Let this run on for fifteen more years so I can die with my boots on! Let them come and drag me off the course when I’m so senile I’m trying to persuade the beverage cart girl to marry me. Or worse. I would love that as any father would. But just to see Jack believing in himself again yesterday, is worth more than gold to me. And there was something else. Before we left the course Jack spoke with one of the players he has come to know here, a young man who has fought bravely to overcome drug addiction. He had not played well and he had missed the cut by one stroke. Jack was really sad about this. Then late last night on the Adams website he discovered that because of the brutal weather conditions, the cut line had moved and the young man had made it to today’s round. I heard the excitement in Jack’s voice when he told me and I could tell that he wouldn’t have been happier if it had happened to him. To be sure, this kind of generosity of heart is not what made Tiger Woods such a winner in this game. But I think it has made Jack a good fellow. And I’ll take a good fellow for a son over a winner any day.

I had a friend write to me yesterday and ask how come the players on the tour were not all shooting par or better. I wrote him back: “The reason you are asking me how come these guys don’t all go out and shoot par is because all you know about golf is what you have seen on TV, and TV is never real.  TV won’t show you the guys out there who make triple bogeys and fail to make the cut.  Each week on the PGA Tour, there is a lot of failure you never see because it doesn’t look pretty on TV.  I walked almost two thousand miles as a caddy in Scotland and most of what I saw each day was failure. Watching all that failure taught me something about the game. It taught me that today Jack may lose some of what he earned yesterday, and then he’ll have to fight to earn it back the next time out. As Charlie Woodworth says, ‘Golf is almost never a straight line’  But as for Jack’s generosity of heart, he got that from his mother, and it runs deep in him, and I think it will stick.”

An allowance is a good idea—it’s as useful a practice tool for first trust distributions to twentysomethings as for allocations to ‘tweens. But I know that if it feels too complicated and labor intensive to administer it may be abandoned before any effective learning takes place.

In Raising Financially Fit Kids, I shared principles meant to make the process accessible for parents and kids alike. For example:

• The allowance is a practice tool, not a salary or an entitlement.
• You don’t pay for contributing to the well being of the family by sharing chores (setting the table, feeding the dog, cleaning their own room, etc.). It’s a means of practicing “how to manage income” not just a mechanism for spending money.
• An allowance should not be so generous there is no incentive or interest in earning more. If you would pay a third party to do that chore (wash the dog, polish the silver—or your shoes, organize those old CDs, etc), offer them up as entrepreneurial opportunities to add to the child’s weekly income.
• Windfalls are income—not just “free money.” That gift from grandma, income from a tax return or the distribution check needs to be factored into the budget, not treated as a green light for simply spending.

Nevertheless, many families still struggle with making the process work.

Recently we drafted Tuck, a loving chocolate lab as another allowance coach. In some of our newest material, this exuberant dog introduces basic financial concepts using his bones as currency and his jobs—as rescue dog, newspaper carrier, guard dog, etc. as examples of how to manage his resources well. Tuck’s values (he protects his family and shares with other dogs), his love of food and play, and his sense of responsibility to others (he gives regularly to the Lab Rescue Ranch) have turned him into my new favorite allowance trainer.

So, if you’re ready to start—or “reboot’” a new allowance process, look forward to more of Tuck in the new year.

A version of this article appeared in the October/November 2011 edition of our client publication.

I’ll be giving a talk at the Hawaii Tax Institute on Dec. 6 and another on Dec. 5 on Legacy Planning for families at the Punahou School. If you’re free, I’d love for you to join me.

I hate to play favorites, but the Punahou School is one of those places that makes me long for a do-over every time I visit. It’s not just that the school has such palpable connections with its noble past, but that it bridges those connections with a bold, welcoming embrace of the future that seems both human (no sterile stainless steel boxes here) and highly innovative in a modern, warm, and playful way. The middle school, built with a generous gift from AOL founder Steve Case, makes me want to sit down in the next class and never leave!

Asking me to talk about how to support the transition of family legacy, one generation to the next is in keeping with the Punahou respect for past, present and future. If you happen to be on the island when I’m there and would like to be my guest at Punahou, let me know.

The lights were off at my house on Halloween. I was the Grinch of the holiday. Refusing to deck the steps with pumpkins and scary effigies and withholding all those candy corns was one of the saner decisions I’ve made in awhile. It was Fourth of July just a few minutes ago—and then, seemingly a nano-second later, Halloween was on my doorstep.

Time has gotten out of hand. It’s  not reality TV, it’s Reality Life: Full, over scheduled, with too little time to reflect and breathe. I see it in my friends. And the schedule we keep at IMI inflicts it on my colleagues. The families I work with  lead wonderfully interesting, but densely packed lives and children are scheduled within an inch of every 24 hour cycle. I had to cancel Halloween to gain a little space to think about Thanksgiving!

This brainstorm only came to me on Oct. 31. But in 2012, I’m taking my strategy further. There will be no Valentine’s Day cards from me; president’s birthdays will go by unmarked (I do respect them, I just don’t need to light candles for them); and once again I will let Halloween pass me by. The only days I’ll celebrate with vigor are the Fourth of July (who can resist fireworks and food outdoors?), Thanksgiving (the least commercial, best community building holiday), and Christmas (childhood fantasies die hard).

As the holidays approach and you’re feeling your own sense of time compression, you might remember my strategy and see what you can let go of.  Claiming time could be one of the best movements started in a while.

A few weeks ago, I provided a link to Steve Jobs’ Stanford commencement speech. If you haven’t read it already, the eulogy his sister, Mona Simpson, published in the New York Times on Oct. 30 is a worthy follow-up. Read to the very end and ponder: what did he see?

Shortly after Steve Jobs’ untimely death, I was part of a family meeting that opened with an excerpt from the commencement speech he gave at Stanford. It was wholly appropriate and moving. The speech was downloaded 8 million times in one day, so the odds are that you already have read or heard it. But, if not, watch the video below or read his speech. It is a wonderful gift for next gen members or family members of any age.

This weekend, Michelle Slatella’s article in Barron’s, “Goodbye Family Fortune” caught my attention. As I’ve said before, I’m not a big fan of how-dysfunctional-families-lose-their money articles. They’re titillating as only dirty laundry about the rich can be. But I’m struck with how rarely the families we work with at Independent Means show up in such pieces. We’re just not very helpful to families who persist in spending more money on litigation than education.

But Slatella is a terrific writer, so  I read it. She writes:

“The hysteria among the super-rich is palpable. They’re worried their kids and grandchildren will fritter away the money it took forebears lifetimes to earn. They’re asking: How do you prevent a child from growing up to be a ne’er do well? Should you leave a spendthrift  heir nothing? Or money with lots of strings attached? And what if the family squabble escalates into an expensive lawsuit? “

Slatella goes on to share juicy stories of family dysfunction. There were at least half a dozen screenplays waiting to be written in the article, but the line that really caught my attention was this:

“Increasingly bankers and advisors are offering to talk to the kids on behalf of their parents.”

Can we talk about how many parts of that sentence are wrong?

With all due respect to my friends in finance, this is like saying my dentist has been cleared to discuss my heart problems. It should seem too obvious to say, but: bankers and advisors are experts in finances, not education. And then, having the banker talk to kids on “behalf of the parents”? Abdicating parental roles—and family leadership—to one’s banker is the real risk to the family fortune.

Fortunes are made—and sustained—by people who are ready and and prepared to handle the responsibilities of wealth as well as the privileges. That doesn’t happen by accident. I recently spent a few days with a family  who began training their kids for the responsibilities of wealth when the children were very young (the youngest was just turning five at the time, the oldest 13). This is a fun family to work with. As the dad describes it, “The process is organic, part of what the kids see as ‘normal.’”  What the dad was saying is that the education process we put in place is integrated into the family values, the expectations of the children, the very core of who they are as a family. I was reminded of how this family works at it—steadily—when, as we got out of the car to attend a function celebrating the opening of a museum they helped establish, the dad turned to his kids and asked, “Are you ready? Do we have our manners on?”

He was reminding his kids, clearly but kindly, of who they were and what was expected from them. This dad will not be asking his banker to talk to his kids on his behalf. He doesn’t ask me to talk to them on his behalf. He talks to his kids.  They understand that they have great privilege. They know that responsibility accompanies that privilege because their parents have an ongoing conversation with them about this.

SEPT. 26, 2008.

The markets had been tanking all week. I was giving a talk on Raising Financially Fit Kids at the Harvard Business School Alumni Reunion. People poured into Morgan Hall that day. These masters of the universe were filled with anxiety—about their assets—and their kids.  There were roughly 300 people in the room and I began by asking, “How many of you have talked about what’s going on with your kids?”

THREE people raised their hands. Out of 300. ‘What did you say?’ everyone wanted to know. One guy told us he’d given his 10-year-old daughter a lesson on what “sub-prime” means. ‘She really understands now!’ he laughed. Another man said he’d been on the phone with his son for over an hour and a half. The son called to see if he had to cancel his winter ski trip, “But,” he told us, “I haven’t talked to my son for so long since he was a kid.” I forgot what the third person shared, but it doesn’t matter. What matters is the talking and how few parents are willing to just have a conversation with their kids. What you say doesn’t matter as much as the talking.

If more parents would talk with their kids, instead of asking bankers to relate balance sheets or lawyers to lay down the law, we’d have less litigation and fewer juicy stories of frittering. Jamie Johnson famously made his documentary, “Born Rich,” as a way to get his dad to talk with him (you see how uncomfortable his dad is to be in conversation when you watch the documentary). Routinely, I ask my clients: do you want to surprise your kids when you’re dead with information they’ve not been properly prepared for? Or do you want to share now, when they can actually have access to your wisdom, experience, knowledge, values, and the benefit of your own mistakes and discovery? Guidance from the grave, through “beneficiary rescue instruments,” trust directives, and proxy parents (those advisors and lawyers) is way less effective than real time conversation now.

The Slatella article suggests that raising thoughtful stewards of family assets is the exception, rather than the rule. She cites the seven-generation Laird Norton family as a model for doing it right—and they are. In large part this is because they are intentional. They invest time, money, and heart in developing their human capital with as much care as they invest in their financial capital. They are a thought leader family.

The families we work with are like the Norton Laird family. It’s not easy. They do not do things right all the time. Their kids screw up. They fumble important conversations.  But every morning they get up and go at it again. Great families do not think of financial education in terms of a four-day seminar, a meeting with an advisor, or an afternoon with a bank psychologist. Those things are valuable, but families intent on sustaining and building the family fortune create a culture of learning, not an event.

The Slatella article was a good read, and, because I’m out here on the Left coast, I did think fleetingly about turning one of the nuttier tales (I particularly relished the story of the woman in the St. John suit who resisted the settlement of her lawsuit) into my own movie pitch. But then the phone rang and I was in conversation with another family. If you missed the article you an catch up here.

For years, I’ve heard pretty much the same statement coming from some of my most creative and intellectually challenging friends and clients. It goes something like:

“I spent years ignoring financial statements that came in the mail and avoiding big conversations about money in my family, but I’m ready to learn and am excited about the journey. How do I begin?”

To date, the options have not been great. The problem is two-fold: smart, creative financial novices lacked the confidence to demand that programs respond to their needs; and financial educators teach as though the topic is all about money.

But for family outliers, leaders, and creatives, financial education is a vehicle for empowerment, building great families, and exploring ways to make a difference. For creatives, money is a tool, a vehicle, something they want to understand and master, not an end in itself. In other words, there has been little financial education designed for the adult novice who is ready and eager to lead and be a force in the adventure of building wealth and sustaining family assets—financial and human.

So recently, when I heard a wish expressed, yet again, for a program relevant to the motivated novice, I knew it was time to act.

So, for those of you who are…

• creative, but unfamiliar with navigating a balance sheet;
• smart, but uncomfortable with financial jargon;
• ready to rock the boat, but desirous of being taken seriously in all things financial;
• curious, but not sure what it means to be financially fluent;
• entrepreneurial, but not practiced in how to write or critique a business plan;
• ready to build your philanthropic muscle, but aware that giving wisely is challenging work;
• fearless, but uneasy in conversations about assets and liabilities;

…Independent Means’ Learning Labs for the Financial Novice are designed for you.

We’ll meet once per quarter for 1 1/2 days in Santa Barbara (in February you’ll be happy about this!). No group will be larger than eight and at each meeting we’ll cover  topics related to both financial and human capital management. One quarter we’ll go deep into investing; another we’ll look at how to talk about wealth transfer with the next generation. Some labs will focus on reading important financial documents; others will explore how to handle sensitive conversations with family, friends, colleagues, and strangers. This isn’t a drop in. You sign up for a series of four Labs (in a small group your presence will matter). Our goal is to help each participant in the Lab acquire a level of financial fluency and confidence that facilitates family leadership and growth—and to have at least as much fun as a day on the slopes or an afternoon at a spa. Really.

Our first Lab starts in February. If you would like more information, email me or call 805-965-0475.

Though most of our work these days is with private families, every now and then we are invited to participate in an open program. Our latest is Clifford Swan Investment Counsel’s Young Stewards Program—an introduction to managing one’s financial and human capital for teens and their parents.

The program is set for Sunday, September 11, at the Huntington Library in San Marino, CA. Take a look at the invitation and if you are interested, give us a call!