Inheriting Money in America

John D and Son Consumerism Commentary carried a post yesterday by its founder Flexo, who seems to be changing his nom-de-blog to Luke Landes, which is more alliterative and almost sounds like a real name. Should Rich Families Leave Their Wealth to Their Children? is a reflection on one of those topics that would be a recurring theme, if only we were comfortable discussing it.

It boils down to an important financial planning question. Are you saving so that you can have enough to live a long and happy retirement or so that you can have a long and happy retirement and then leave a little something to the kids? Or maybe even more than a little something?

If you poke around the mainstream personal finance literature, you will find that leaving money to the kids is rarely discussed or even mentioned as a possible savings goal. Indeed, there is a vein of personal finance literature that emphasizes how important it is to not give money to your grown children.

And yet. Having money left over when you go is clearly a widespread ambition. It is the unspoken flip side to the fear of running out while still alive, and I think it is one of the big reasons annuities are not popular.

Personally, I do not have strong feelings about it. I love my kids (who are both currently non-grown children) and imagine that leaving them a small pile when I go would be a nice thing. Since I hope that they will be around retirement age when I meet my maker, the money might come in particularly handy. But it is not the highest of my planning priorities.

And it is my sincere wish that my parents spend their last dollar on their last day. I have no ambition or expectation of inheriting anything of monetary value from them. (And I would prefer, for obvious reasons, that they not run out of money, but I would happily accept that as the downside to having them around longer than expected.)

Flexo/Luke discusses this in the context of American culture, comparing it implicitly to European culture. Europe is our continent of cultural, if not genetic, origin, so this is useful.

I happen to be an expert on European culture. (I have personally visited there at least half a dozen times. Also, I read The Economist.) And I can share the following profound observation.

Rich Europeans prefer people assume that their money was inherited, the older the better, even if they made it all themselves relatively recently. Rich Americans prefer the opposite, that people think they made every dime themselves, even if great-granddad was a partner in Standard Oil.

When you get down to it, Americans consider inherited wealth to be embarrassing. Calling somebody in their 20s a “trust-fund baby” is to conjure up images of somebody spoiled, lazy, and decadent, in short, somebody useless to society.

Wanting to leave money to your kids is only a bit less embarrassing than having inherited money from your parents. In both cases, the implication on this side of the pond is that the heir is lacking in talent, that he could not make it on his own.

What set off the Consumerism Commentary post is some survey info from US Trust which tells us that 32% of high net worth Americans (basically millionaires, so well-off but not private jet aristocrats) said that leaving money to kids was unimportant. Flexo/Luke and the CNN item that is his source spin this as a surprisingly high number.

But I am surprised how low the number is. It implies that the easy majority, 68% of HNW Americans, think it is important to leave money to their kids. I think that probably even more would like to leave their offspring money, but getting 68% of them to admit it, even on an anonymous survey, is impressive.

This is still something of a taboo subject. Just how awkward it is can be illustrated by data from the same survey. Only 37% of HNW Americans fully disclose the extent of their wealth to their children. “The main motivation behind not telling their kids how rich they are is concern that it would "negatively impact their work ethic."”

In other words, the danger is that if you tell Junior about the $2M he is likely to come into later in life, he might act accordingly. Can’t have that. No. Just wouldn’t do.

[That’s John D. Rockefeller and his son John D. Junior in 1915. You can tell they are rich from the special hats they were then required to wear.]

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