We have been talking a bit about the elements of preparing heirs for wealth. As it turns out, Karen Blumenthal of the Wall Street Journal fortuitously wrote an article about helping her daughter invest in a retirement plan. The article begins with the author stating, “I set out to teach my college-age daughter a little bit about long-term investing by helping her open her first retirement account.” It seems to be a minor experiment in parenthood that went sideways and left mom feeling both disappointed and puzzled by what to make of the results. Ms. Blumenthal tells us of her enthusiasm for this project, how she chose to set up a Roth IRA and how she very carefully picked the investment for the account. Her daughter expressed skepticism in the beginning, but played along. People who have been following this blog would immediately spot where this little experiment went off the rails. First and foremost, mom made all the decisions while her daughter looked on as a mere observer. Mom chose the form of the account, did the research to pick investments, calculated investment expenses and, because of the general market decline, lost 40% of the portfolio value. The daughter never had “skin in the game” and did none of the work. It is anybody’s guess what the daughter learned by observing her mom do this for her, but it is pretty clear that she did not have a felt experience of some of the difficulties associated with managing assets. What this mother did his classic and I see it repeated over and over in the lives of many of my clients.
1. Do you have clients who do everything for their children?
2. What is the value of allowing children the possibility of failure?