No Inheritance for Your Kids

They say the first generation makes the wealth, the second generation enjoys it, and the third generation squanders it. It has been a recurring theme in well-to-do families for ages, and it’s one reason parents and grandparents today are feeling less and less inclined to leave inheritances.

A new survey by retirement-income industry group Insured Retirement Institute shows that only 46% of baby boomers (now in their 50’s and 60’s) believe it’s important to leave an inheritance to the next generation, down from over 60% just a few years ago.

In another survey by investment firm U.S. Trust, only 49% of millionaire boomers feel leaving an inheritance is important. “We were like, ‘Wow!’,” president Keith Banks expressed his firm’s surprise at the drop from previous years.

Leaving an inheritance is increasingly being viewed as more harmful than beneficial. Why? There is quite a lot of human psychology behind the trend. Looking at three psychological traits in particular is rather eye-opening, and may even prompt us to rethink our own views on inheritance.

A Sign of the Times

Money is valued the same as any commodity: the more there is of something and the easier it is to acquire, the more it is squandered. The less there is of something and the harder it is to acquire, the more hoarded it is.

Inheritance is no different.

The drop in people’s desire to pass their money along is very much a sign of the times. During these last several years of financial crisis – actually two crises since the start of the millennium – financial security during retirement has become less and less assured, as the IRI survey shows:

• “The number of Boomers who are confident in their efforts to prepare financially for retirement has dropped nine percentage points, from 44% in 2011 to 35% in 2014.”

• “The percentage of Boomers who are confident they will have enough money to live comfortably throughout their retirement years has dropped from 37% in 2011 to 33% in 2014.”

• During the past 12 months, 20% of Boomers reported experiencing difficulties with paying the rent or mortgage; 21% indicated they stopped contributing to their retirement plans; and 10% said they prematurely withdrew assets from a retirement plan.”

• “During the past year, a quarter of not-yet-retired Boomers postponed their plans to retire – the highest percentage since this research series began in 2011.”

It’s understandable that retirees would be thinking less about leaving an inheritance when they can barely get by themselves.

As I said before, when the supply of something important becomes uncertain, it is hoarded. It is an instinct hardwired into the primitive part of our brain to ensure self-preservation. During hard times, few are concerned over leaving anything behind.

The Way Wealth was Acquired

But even when people have amassed an amount of wealth, they can still be reluctant to pass it along as an inheritance because of another psychological trait… the sense of justice.

If someone worked hard to acquire their wealth, they learn to associate reward with hard work, perseverance and sacrifice. Simply giving away such rewards to someone who has done nothing for it goes against that ingrained sense of justice.

It explains why people chose which beggars they’d give their alms, and which they’d pass. If they sense there is nothing deserving of a handout, then none is offered – even to their own kinfolk. It’s not so much heartlessness as it is instinct, that sense of justice.

These ones struggled, developed a powerful work ethic, and a strong sense of responsibility. They are a determined people, highly focussed, staunchly dedicated, and rather disinterested in the frivolities of recreation or diversion.

They lose patience quickly when their children or grandchildren display a more carefree attitude. The younger generation that grows up with wealth has the freedom to divert their time and attention to non-financial interests, such as the arts, philosophy, and sports. While the younger generation calls it broadening one’s horizons, the older generation simply calls it being lazy and irresponsible.

Responsibility and ambition are highly valued because they are linked to a third instinctive trait… the need to make things grow.

The Growth Instinct

All animals bear the basest instinct to procreate, which has at its root the need to ensure growth – the growth of the species. But because the human brain has developed the capacity for abstract thought, we have expanded on that basest drive to make things grow, and have applied it to so much more than procreation.

This is why humans love to plant gardens when our survival does not require it. It is why employees would rather start a company of their own instead of remaining at a perfectly well paying job. It is why businesspeople will continue with their companies long into their 70s when they could have retired long before. And it is why children and teens will spend countless hours in front of their computers tending to digital farms, building virtual towns, and expanding computer generated civilizations into empires.

At the root of all these pursuits and ambitions is the basic human desire to build, to make something grow.

The generation that has fought hard to cultivate its wealth has had plenty of opportunity to develop this instinct into a finely honed skill, to fan that burning desire for growth into a raging fire. But in their children and grandchildren who have not known struggle or hardship, the fire of ambition seems doused.

A certain grit is missing: that sharply focused eye, that solidly planted stance, that fighting spirit to strive for something, that vice-like grip to clamp and seize opportunity – all qualities that are inextricably linked to wealth. It should not surprise us at all, therefore, when we hear of millionaires who refuse to leave very much to their children and grandchildren, often referring to them as “unfit” to inherit wealth.

Yet it is not that their children or grandchildren lack a sense of responsibility or ambition to cultivate and care for something. The desire to make something grow is a basic instinct hardwired in our brains. We all have it; it’s just that in many people it is dormant for having rarely been used.

What’s needed is a spark that turns that mechanism on. Parents who have not found their children’s starter button will resort to “tough love” in an attempt to “kickstart” their children’s engines. But they are going about it the wrong way.

Sparking the Fire

We all understand that making life too easy for children will only end up making life harder for them as adults. So many will mistakenly resort to making life more difficult for them to instil the discipline required for success.

But this can make the situation worse if we’re not careful.

Children have just as strong a sense of justice as their parents do; remember, it’s an instinct. Children can understand at an early age when things are deliberately being made difficult for them. What children can’t understand at an early age is “why” things are being made more difficult.

Not explaining our reasons can leave the impression that we simply do not love them, that we do not care what happens to them. This foments a feeling of abandonment, damaging a child’s sense of esteem, and creating enormous chasms between parent and child which can linger for decades well into adulthood.

Instead of being subjected to difficulties, our children would be better served by challenges. There is a huge difference between the two, and the results they produce are worlds apart.

“Difficult” is defined as: “not easily or readily done, requiring much labor, hard to understand or solve, hard to deal with, hard to please or satisfy”. Notice the overall sentiment here? It provokes a sense of futility. “What’s the point?”, we hear them express their frustration.

Whereas the definitions of “challenging” are far more constructive: “offering a challenge, testing one’s ability or endurance, stimulating, interesting, thought-provoking, provocative, intriguing”. Notice the difference? Now we hear them express their interest, “Let me try that.”

Simply put, something challenging draws people to the task, while something difficult repels them. This, incidentally, is applicable not only to parents, but also to employers.

Yet to challenge our children in ways that draw their interest requires knowing what interests them in the first place. This is where personality comes into play. Business may be your passion, but it may not be your child’s. And no amount of pushing or pulling is going to light their zeal for it.

Read your child well before leading them in a certain direction. And just like a book, the only way to read your child is to get them to open up. Ask questions that help them locate their interests, things they are truly passionate about. Passion is the log that fuels the fire of ambition.

A Better Inheritance than Money

Whether we have wealth to leave behind or not, there is an inheritance greater than money… motivating our children to apply themselves to objectives and ambitions that stimulate growth in themselves and others.

This sparking of ambition, this waking of the innate desire to cultivate something and make it grow is the ultimate legacy anyone could ever leave behind. It is the only inheritance that cannot be stolen, lost or squandered.

Joseph Cafariello