Money won’t buy your kids a future

Megan McArdle

Having grown up in New York City and attended an expensive college, I invariably came into contact with quite a few people who had sizable inheritances or trust funds coming to them. Over the years, I’ve grown quite sincerely glad that I wasn’t one of them. I can’t claim to have any scientific data, of course, but in my experience, too many of those people were always about to do something but never got to the point of actually having done it. They got jobs but left them when the job proved to be tiresome, or when they had a major setback such as a terrible performance review. They didn’t need to make a career in order to put food on the table, and that kept them from doing the often painful and unpleasant work of getting really good at their jobs. And ultimately, they weren’t happy about that. Their money protected them from the very real miseries of being broke. But it also protected them from the sweet smell of success.

So I’m glad to see that some ultra wealthy people are planning their estates to protect their children from all that protection: leaving their kids token amounts, or creating small trusts that may help their kids get educated, buy a house or start a business but will not insulate them from the need to work (or, perhaps, to partner with a working spouse to raise children).

Of course, as a Johnson & Johnson heir points out, that doesn’t mean their kids are just regular folks:

“When vastly wealthy people say, ‘I’m not leaving my kids any money,’ it’s typically not true,” Johnson said. Even when children don’t have immediate access to cash, they get the best schooling, housing, contacts and opportunities. “All of these are things that only rich families can do. These are all different ways of transferring wealth and influence,” he said.

And yet, no matter how valuable these things are, they’re not the same as a big pile of money, because things like education and contacts are only valuable if you do something with them. You still have to put quite a lot in to get something out. That’s the right sort of help to give.

I’d argue that these rules probably apply as you move down the income scale: Help with a down payment on a reasonable mortgage is probably better than buying your kids a house (or a car, or a stock portfolio, or regular cash infusions). You want to give them the tools to build a prosperous life, but if you subsidize the life itself, they’ll end up building lives they can’t really sustain without your help. And I know more than one family that was counting on a sizable cash infusion when Grandpa or Mom died, only to find out that elderly relatives can burn up an astonishingly large estate on lengthy nursing home stays.

Of course, all that is easier said than done. I think that most people need a real fear of failure to spur them to greater achievements - but having lived through some of those failures myself, I can’t exactly recommend the stark terror that you might not be able to earn a living. It’s terrifying to send your kids out there in the world to take real risks with big potential costs. Unfortunately, it’s often even more dangerous to keep them “safe.”

BY Megan McArdle, Bloomberg View columnist