September 18, 2009
Lenox Advisors, a New York-based asset manager has launched a program that aims to teach fiscal responsibility to the children of wealthy families in an attempt to keep money in the family longer. The goal is to instill values at an early age, to prevent children from squandering their fortunes once they reach their majority, according to managing director Bob Hartnett, who says prudent budgeting can and should be taught to kids as young as five years old. “Professional athletes and movie stars have extremely high levels of bankruptcies, because they’re never taught how to manage money,” Hartnett explains, adding that fiscal educational programs by the NBA and NFL are ineffective because adults are usually too set in their ways to learn new tricks.
The firm doesn’t directly interact with the children, but counsels parents and furnishes them with primers on how to install guidelines. One strategy involves teaching kids to segment their allowances into three piles: one for spending now, one for later, and if the family is philanthropically minded, one for charitable intent. The firm also encourages parents to rigidly maintain allowances, so children get used to a routine. Withholding allowance as a punishment or sporadically handing out extra cash is not recommended.
Parents should also procure library cards for their children as a way to prepare them for future responsible credit card use.
“It’s pretty much a cliché that the second generation wastes their fortune, because they don’t know what it took to make that fortune. So it’s important that high-net-worth children think properly about money,” said Michael Mihalik, author of the book Debt is Slavery and 9 Other Things I Wish My Dad Had Taught Me About Money. Of course, if kids successfully hang onto their loot, this could provide the firm with future business. Harnett cautions, however, that keeping the current assets healthy is key. “This could set us with future business, but if we don’t provide a good level of money management and asset protection in the interim, we’re fired.”