In my last post, we looked at the four generations of the Family Wealth Cycle.  I explained why understanding the cycle is key to building wealth that not only lasts, but also leads to happiness.  

But knowledge alone is not enough.  Each generation comes with its own challenges and responsibilities that must be addressed.  In this post, let’s break down exactly what those are.

The Generation of Creation

If you are part of the generation of creation, your first challenge is obviously to build something big out of something small. Your job is to invest wisely, always with long-term wealth in mind rather than just meeting today’s needs and tomorrow’s wants.

Obviously, there is no one-size-fits-all approach to investing, which is why at Hudock Capital, we take pride in helping our clients find the right investment strategy for them. But whatever your investment strategy is, your job is to save and invest as early and as often as possible. To be the founder of your family’s wealth.

But this involves more than just navigating the ups and downs of the stock market.  Another major challenge you will have is to communicate your values to the next generation. Now, not everyone needs to have a frugal mindset like my neighbor did.  But whatever habits helped you build even a modest nest egg must be passed on to your children.  Why? Because they must have that mindset, too, if they are to preserve and grow your money instead of blowing through it after you’re gone.

Your third challenge is to instill the need in your children to pass those same values on to their children as well. In other words, those values, those habits…they must not end with you. They must become a family tradition.  Because a family’s wealth will last only as long as its values do. 

One way I found that can help with this is to create a family mission statement.

A family mission statement is a written declaration that cements the agreed-upon purpose for your family’s wealth.  It affirms what that wealth should be used for, how it should be protected, and how it should grow over time.  In many ways, it also asserts the common code of values that everyone in your family should hold when it comes to enriching their lives and the lives of those around them.

In my experience, having a family mission statement gets everyone on the same page regarding finances.  It enables the entire family to work together, using the same means and methods, towards the same goals.  It also adds purpose, coherence, and long-term stability.  Not just to your finances, but to your relationships. 

It helps siblings, children, grandchildren, and others understand that your family name means something.  That you are all part of something bigger than yourselves.  That wealth can add tremendous joy and meaning to your lives when used, saved, and expanded wisely. 

Here is a great example of a family mission statement:

“We are committed to the growth and preservation of our family wealth, and to the promotion of financial wisdom. We understand the immense responsibility that comes with the stewardship of our family wealth and will work to add, not withdraw, from this balance.  We will use this wealth to aid our community, provide for family experiences, and increase financial education for generations to come, ensuring our family will be taken care of and be seen as a perpetual force for good.”

Here is another example.  It’s shorter, but equally meaningful to the family that wrote it:

“We are committed to family bonding, community outreach, and fun.  We will consistently seek to grow our family’s assets, provide for our family’s education, and ensure financial security for every family member.” 

A family mission statement is designed to be a living document.  Your loved ones may amend and add to it as your family’s goals and needs change over time.  By creating this, you will be able to instill a new sense of confidence and togetherness in your entire family.  More practically, you will also be able to reduce the risk of family conflicts in the future…and better preserve your own wealth in the present. 

And that is what the Generation of Creation is all about. 

The Generation of Observation

If you are part of this generation, your first responsibility is to truly understand your family’s mission and apply it to your own life.  It must be a code that you live by.  Nearly as important as your family name and, hopefully, equally long-lasting.

Of course, if you are a part of this generation, it’s possible that your parents did not create a family mission statement.  That’s okay – it means you get to do it!  Take the principles you learned from them, the skills they taught you and the habits they instilled, and use them to craft your own family mission statement. 

Your next responsibility is to instill the same values in your children that your parents instilled in you.  Learn to say “no” to your kids.  Teach them that some things must be earned and not given.  Remember, we are trying to prevent them from becoming the Generation of Gratification.  When you give a loved one everything they want, every time they want it, as soon as they want it, it’s a recipe for disaster. 

Finally, a major challenge that the Observation Generation has is to understand the relationship between risk and return.  Because Observers often inherit wealth, they tend to be overly cautious with their investments.  They want to preserve rather than grow.  That’s certainly better than spending with reckless abandon, but it does mean your family’s wealth will have a finite lifespan.  The famous writer, William S. Burroughs, once said, “If you’re not growing, you’re dying,” and that’s certainly true when it comes to money. 

Being a good steward of wealth is about more than simply preserving it.  It’s about understanding exactly how much risk you can afford to take, and should take, so that your wealth will continue to be of use to future generations without subjecting it to catastrophic loss. 

This is why the Generation of Observation must be more than passive repeaters of their parents’ actions.   They must be active guardians and empowered planners, prudently expanding the family garden rather than simply maintaining it. 

The Generation of Gratification

If you believe you or your children are a member of this generation, don’t worry — there are still things you can do to get your family’s wealth cycle back on track! 

Warren Buffett once said, “I want to leave my kids with enough for them to do anything, but not so much they can do nothing.”  The Gratification Generation must first learn to have their own sources of income outside the family’s wealth.  There’s something magical about earning a simple paycheck, no matter how modest.  It teaches you the true value of money.  That wealth is something you work for.  Something you take pride in.  That money should represent something beyond the mere ability to spend.  That it represents your skills, your sweat, and your character. 

The Gratification Generation must also have a clear idea of what both their earnings and their inheritance should be used for.  When you are spending money on groceries, a new iPhone, or even a summer trip to Cabo, draw it from those independent sources of income. 

Save the family wealth for family-based investments.  You get to define what this means.  It could be an investment in time together through family experiences or trips together.  It could also be more tangible like land for a family cabin or investing in a family vacation property.  It may also be for continuing education.  If you view the withdrawal as an investment into future generations, it likely fits nicely into the family mission statement.

By doing this, the Generation of Gratification will learn that true fulfilment comes from what you earn, not what you spend.  And when you learn that, you will cease to become the Generation of Gratification, and become part of a new Generation of Creation instead. 

Generation of Lamentation

The challenge for the Generation of Lamentation is simple: Become the next Generation of Creation. 

Make no mistake: If you are a part of this generation, you are in a tough spot.  But many, many creators began this way.  The very fact they were left with nothing is often what motivated them to go out and get it for themselves. 

So, if you are a member of the Lamentation Generation, save as much as you can.  Set a budget.  Spend only within your means.  Do not take on debt unless there’s no other option.  This is an opportunity to reset the cycle.  A chance to improve not only your own lot, but the next generation’s as well. 

A chance to be remembered as the one who founded the family’s wealth in the first place. 

Conclusion

In Part One, I told you about a neighbor of mine who passed away, leaving his wealth to be squandered by his beneficiary.  Now, let me end with another story.  A story with a much happier ending. 

One of my clients is a doctor.  Let’s call him Jim.  Because Jim is getting on in years, he has begun the process of handing over the keys to his wealth.  His kids take care of his finances, manage his money, ensure his bills are paid, and safeguard his savings so that he has everything he needs, and then some. 

Jim can trust his kids to do a sterling job with this.  Why?  Because throughout his life, he has strived to teach them to build their own wealth.  Today, each has their own source of income, their own level of responsibility, and thus, their own financial freedom.  They have seen their dad create a legacy and are carrying it on.  In time, I expect they will create a similar legacy for their own children. 

As part of the Generation of Creation, Jim didn’t just become wealthy.  He became proud.  Proud of his children and what they have accomplished.  Proud of everything he has built and will leave behind.  Jim’s children are equally proud.  Proud of the man who raised them and the example he set.  Proud of their own accomplishments.  Proud of the values they are passing on to their kids. 

And, because of all this, their family’s wealth will last, and last, and last…and always lead to real happiness. 

That’s what you want, too.  Isn’t it? 

— Michael Hudock

P.S. If we here at Hudock Capital can ever help you with your family wealth cycle, or create a “happily ever after” story like Jim’s, please let us know.  Our door is always open to serve you in any way we can.