Review – Silver Spoon Kids

Silver Spoon Kids: How Successful Parents Raise Responsible Children

by Eileen Gallo, Jon Gallo, published 2002

Growing up, I’ve personally witnessed conflicted family dynamics surrounding money. My parents are “successful” as the term connotes in this book, and their goal for their children (myself and siblings) was to create plans and structure for sharing their success with them while trying to avoid the risk of ruining our motivation, realism and personal attitudes. To summarize it in a pithy way, it is the quest to find a way for family wealth to “Have an impact, without an impact.” Somehow, we were to all benefit from family wealth while living as if it didn’t exist.

I’d say it’s been hit or miss, so far. All of their kids turned out morally in such a way that the average friend, neighbor or community member would think to refer to them as “good people” (if I may be so bold as a member of the sect!) But struggles or lack thereof with personal identity, sense of purpose, motivation, etc. vary from person to person and area to area. And at present, a minority of the children are in any position to know what to do with their parents’ wealth in the event of their demise. We might just chalk this up to genes and the randomness of life, but Silver Spoon Kids offers some child development background and family socialization dynamics that provide evidence these outcomes are anything but purely random.

While the authors (a husband and wife duo in the fields of estate planning and family therapy, definitely toll collectors on the highway of family misery built by poor planning) offer a summary of 4 major family money practices they consider essential for parents to master to inculcate responsibility in the second generation, I’d summarize my biggest takeaway from the book in a single sentence as follows:

When it comes to transmitting family values to children, especially concerning money, there is no substitute for parents investing their own time and attention in the relationship and modeling the values themselves for their children.

Most of the cringeworthy examples of “what not to do with kids and money” cited in the book are a result of some kind of avoidance of this elementary wisdom. Either the parents think they can get away with not being there for their kids, or they think the kids won’t notice when they say one thing and do another. It seems that good parenting on the topic of money is identical to good parenting on any other topic. That stands to good reason because child development is not rooted in “things” but in human evolutionary social biology!

So that’s my one-sentence elevator pitch on what this book is about. But here is the 4 point summary of essential practices the authors share at the end of the book:

  1. Understand the theoretical underpinnings; learn about normal stages and behaviors in child development and let this awareness inform your approach to discussing money with your children
  2. Live your values; to live your values, you must first know them, so take time to articulate what is important to you about money and why and make sure it doesn’t remain a secret to your offspring
  3. Teach your child about money through word and deed; don’t be a hypocrite, don’t be silent and don’t expect your kids to just magically arrive at the same conclusions and habits about money (if you think they’re good!) that you have without actively engaging them in the topic in age-appropriate ways
  4. Raise a giver rather than a getter; help your children understand that money comes and goes and there are important aspects to where it goes beyond just where it comes from; emphasize the ways in which money can make all people better off and give your children opportunities to find meaning in being a resource for others

Is this book of interest even if you don’t expect to be wealthy? Yes, because you can still spoil your kids without affluence. Again, the reason is because child development and human social dynamics are a constant of human nature rooted in evolutionary biology, rather than dependent upon material “things” coloring each person’s individual circumstances. Here’s an instructive quote I underlined in the book that describes what’s going on:

Can your children develop a secure attachment if you are with them for only limited periods of time? Interestingly, this same problem is faced by many low-income families, especially those with a single parent.

Yes, interesting indeed. Most of the symptomatic ills of the lower-classes are connected to the notion of parents who are over-taxed versus their available resources (time, money, health, etc.) But affluent families can create the same symptoms in their children by behaving the same way struggling lower class families behave– spending more time at work than at home, expecting children to raise themselves, neglecting to share values (or healthy values) with their kids and so on.

One helpful exercise in the book for getting a grip on family culture surrounding wealth is the development of a “Money Narrative”. It involves creating a short story about one’s early and personal family experiences surrounding money after reflecting on questions such as:

  • What is your earliest money memory (ie, the first important purchase you made)?
  • What did you learn from your father/mother about money?
  • What are some of your family stories about money (ie, the time grandpa was really cheap, or your aunt made a ridiculous purchase)?
  • What kind of financial education did you receive growing up?
  • What were the big emotional issues around money in your family?

The Wolf and I have been discussing this and we’re going to share our Money Narratives in a separate, follow-up post.

An interesting theme from the book is the way in which money is not special or unique in offering parenting challenges, but is simply another vector for making poor parenting choices in general. For example, the authors talk about the importance for children in experiencing struggle in the process of mastery, both because it is inherent in learning experiences and necessary for an individual to learn that they can not achieve mastery without a period of struggle as an amateur, but also because children who do not struggle do not achieve mastery, they are simply rescued by the adults around them. You can rescue someone by doing their homework for them or you can rescue them by paying off their credit card bill. It isn’t money that is “spoiling”, it is the rescuing.

Another item the authors placed emphasis on was the need for including philanthropy in the family culture surrounding wealth and money. I am a skeptic on the mainstream practice of charity. I was pleased to see the authors discount “charity” specifically in favor of “philanthropy” as a broader term encompassing any activity aimed at making the world a better place for mankind to live in. I also appreciated that they disclaimed simply writing checks or disbursing financial resources to organizations and instead talked about the importance of physically serving, in person and with one’s time and skills, and of making this a family activity. The discussion overall was thought-provoking and has given myself and the Wolf some homework to do in thinking about how we want to more closely integrate philanthropy in the core of our family values.

There’s more of value in this book, even if it is, to me anyway, mostly just Good Parenting Common Sense at this point. I’ll organize my remaining notes in a separate follow-up post for easier perusal by those interested in going deep.

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Review – The Millionaire Next Door (#books, #review, #wealth, #millionaires)

[amazon text=The Millionaire Next Door&asin=1589795474]

by Thomas Stanley, PhD and William Danko, PhD, published 1996, 2010

One out of ten Americans has a net worth of $1,000,000 or more, but how did they get that way (and more puzzling, what is going on with the one in ten Americans who have a negative net worth)? According to Stanley and Danko, accumulating a million dollar net worth has less to do with luck and inheritance and more to do with simple behavioral habits. The wealthy tend to be good at generating income, sure, but they’re even better at saving it, that is, spending far less than what they take in over any given period of time. As they put it, it’s no use having a good financial offense if you don’t know how to play defense and thus give up too many financial goals.

The authors recommend running your household like a small business– creating budgets, tracking expenses, reviewing your actual versus expected financial results, etc. They focus on the spending habits of the affluent decile to illustrate the surprising (for some) fact that those who have accumulated a million dollars or more in net worth typically don’t spend as if they have done so, highlighting tastes in clothing and automobiles (“purchasing vehicles by the pound”) amongst a few others. I expected the book to highlight more domestic life decisions, such as millionaire households doing home cooking versus eating out, and I was also expecting to see a lengthier investigation into housing accommodations and finance given that 97% of millionaires own their own homes or carry a mortgage rather than rent, an impactful statistic.

Thankfully, the authors spent a significant amount of time discussing the intergenerational wealth dynamic amongst the affluent which is a particular interest of mine. Highly affluent individuals tend to be less-educated than their children and are typically self-employed business owners, whereas their children tend to be more-educated (masters and even doctoral degrees) and employed as professionals (doctors, lawyers, engineers, accountants, etc.) It seems affluent people attribute a lot of their success to non-repeatable luck, and/or believe it’s possible to insulate their children from the volatility and vicissitudes of a more competitive life by encouraging them to obtain more education to enter cartelized industries with licensing or other legal obstacles to entry. The expectation (in terms of probability) is that these people will obtain less total wealth than their parents, but also experience greater security in their incomes and more stability in their long-term earnings path. As they say,

the relationship between education and wealth accumulation is negative…┬áthe longer one stays in school, the longer one postpones producing an income and building wealth

It would seem that regardless of the level of education our professional status of an affluent person’s children, the most important thing they need to learn is the same expense-control habits as their parents. Can that be taught in higher education? What happens if you become a stable doctor with a local practice and a strong propensity to consume all you earn? This isn’t exactly a profound point, but I was a bit astonished to see how little emphasis appears to be given amongst affluent families to instructing their children about how to manage accumulated wealth. One noted habit of the affluent is to avoid talking about receiving money that hasn’t been individually earned with their young children, the goal appears to be to avoid a sense of entitlement and get them to think about establishing their own financial position. But if they’re eventually due an inheritance (or manage to accumulate their own stack), why reinvent the wealth management wheel intergenerationally? Why aren’t more affluent people or families talking about how to responsibly manage, ie, grow, a starting base of capital accumulated in prior generations?

The book doesn’t explore the differences in behaviors between the merely wealthy ($1M+ net worth) and the significantly wealthy (say, $10M+) or the incredibly wealthy ($100M+), and while there are undoubtedly exceptions to the rule, my hunch is that any family that manages to sustain a fortune over subsequent generations ($100M+>$100M+) or grow it ($100M+>$200M+) is spending a lot of time talking with their children about how to handle this responsibility. The decision to have these conversations or avoid them is likely the tipping point between clearly defined social classes. Some people can’t imagine being anything but comfortably upper middle-class and glory in such identity, while others can’t imagine being anything but the cream of the crop.

Here are some other interesting ideas from the book:

  • Self-employment is a major positive correlate of wealth
  • “Employment-postponing” via higher levels of education has a meaningful impact on lifetime wealth accumulation
  • Is your spouse more frugal than you are? Millionaire households would answer “yes”
  • Most wealthy people feel that you get what you pay for in the realm of financial advice
  • Millionaires know how to play both sides of the wonder of interest– small expenses become big expenses over time; small amounts invested become big investments over time
  • The higher one’s net worth, the better off they are at minimizing realized income
  • Begin earning and investing early in your adult life; the longer your runway, the higher chance you have of becoming a millionaire
  • Under-Accumulators of Wealth (UAWs) usually think they have more wealth than their neighbors
  • The more dollars adult children receive, the fewer they accumulate
  • Good gifts for affluent parents to give their children:
    • subsidizing education
    • earmarking gifts so they can start or enhance a business
    • prefer to give their offspring private stock
    • Ask permission when contemplating giving significant gifts to your children
    • cash gifts are the single most significant factor for explaining the lack of productivity of adult children of the affluent
  • A typical behavioral mistake of affluent parents is to “strengthen the strong child, weaken the weak child”
  • Discipline and initiative can’t be purchased like automobiles or clothing off the rack
  • Courage can be developed, but it can not be nurtured in an environment that eliminates all risks, all difficulty, all dangers.
  • The sales profession is good exposure for the children of affluent; retail sales jobs provide children with objective third parties to evaluate their behavior
  • One of the proven ways that domineering parents control their children is by living close to them
  • Most spouses feel that charity begins at home
  • At least one outsider should be co-executor of an estate

4/5

[amazon asin=1589795474&template=iframe image2]