"Financial Planning ... it's not always about money."

Putting Values at the Center of Wealth Planning

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting

The Covid-19 crisis has taken away so many things—lives, livelihoods, and daily life as most people know it. It has magnified income inequality, and stirred up feelings of fear, guilt, gratitude, and generosity. It has also forced families to spend more time together, for better or worse. Parents are working from home, teens and college students are logging in to virtual classrooms, and many young adults have returned to the parental nest to escape cramped city apartments or regroup in the midst of layoffs and hiring freezes.


It shouldn’t take a pandemic to bring into focus what matters most, but if ever there was a time for families to take a close look at values—and how they relate to money and wealth—it is now.

Talking about financial “feelings” might seem indulgent when so many people are worried about basic needs. Yet, it’s during pivotal moments like these, say financial advisors and behavioral psychologists, that families can have productive conversations about what they care about as individuals and where their priorities overlap.

There is a practical component. Values determine how we manage our time and money, which are limited resources even for those who have an abundance of both. “Without an understanding of values, you can’t really make great choices,” says Jim Grubman, a family wealth psychologist.

“Values won’t tell you whether you should buy or sell right now, but they will help you understand what your purpose is for this money,” says Susan John, head of financial planning at F.L. Putnam Investment Management in Wolfeboro, N.H. The growth of ESG investing adds another element, as environmental, social, and corporate governance factors play a growing role in investment decisions.

There is also the emotional side of addressing values: “How we think and feel about money impacts many, many parts of our lives,” says Sarah Newcomb, a behavioral economist for Morningstar and author of Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind.

Cracking the code on values isn’t easy, however. Most parents are reluctant to talk with their children about money, much less their feelings associated with it. And unlike the power of compounding or the perils of debt, values are in the eye of the beholder.

“I don’t know that there are right answers, but I have seen when there are wrong answers, and with some bad results,” says Grant Rawdin, founder and CEO of Wescott Financial Advisory Group in Philadelphia. Over his career he has seen extremes, from tragic accidents with sports cars to a 16-year-old who understood the intricacies of the family balance sheet and went on to be a successful financier. The values part of the equation is so key that the firm has a psychologist on staff. “Children whose decisions are predicated on having a certain level of wealth for their lifetime often lose the ability to find one of the most important things that we all need—and that’s having a purpose.”

A firm understanding of values is key to finding purpose when the usual financial incentives are less relevant. Even among families that aren’t wealthy, however, teaching children the value of a dollar or the satisfaction of earning and saving money requires conscious, and sometimes heroic, efforts—as anyone who has said no to a screaming child can understand.

Getting in Touch With What Matters

The role of values is gaining prominence among financial advisors and behavioral psychologists. Many large wealth management firms have experts dedicated to helping clients understand the intersection of the two. While all families could benefit from serious conversations about values, the stakes are particularly high for family foundations and family-owned businesses.

Grubman likens the experience for many families to the immigrant experience. “Values are incredibly important in keeping the family on track across generations, and in building good skills and attitudes about money and wealth,” he says. Roughly 80% of millionaires in America are the first generation of their family to be rich, he says, and that raises three key questions: “What do we keep from our heritage that still serves us well? What do we let go of that no longer serves us? And what do we learn and take on in the new circumstances that will serve us for the future?”

Parents and grandparents should first try to answer these questions themselves and, if they’re married, with their spouses. These views—and where they diverge—can be the root of many conflicts. They can be relatively benign: Should you insist that your kid have a summer job that pays minimum wage, or would her time be better spent mastering a foreign language, instrument, or sport? They can also be serious: Should we continue to provide financial support to an adult child with substance-abuse problems?

At some point, parents should bring their kids into the conversation. When children are younger, parents can instill values by sharing stories about experiences, tough decisions, or lessons learned around money.

Families with teenagers and young adults can take the discussion to the next level with value cards and related exercises. Families can make their own cards with 30 to 60 value words, or buy value cards online.

“We have seen this be able to take seemingly esoteric topics to a very tangible conversation,” says Judy Spalthoff, head of Family and Philanthropy Advisory Services Americas at UBS Global Wealth Management. UBS created a deck of 30 cards, from which each family member picks the three that most reflect their values at this stage of their lives, and three that don’t.

The goal shouldn’t be for everyone to have the same values. Rather, families can use these values to find common ground and ground rules for decisions. Some families use this insight to craft mission statements, family constitutions, or principles. “It’s an agreement about how you’ll make decisions as a family and be accountable, even if your values differ,” says Matthew Wesley, managing director at the Center for Family Wealth at Merrill Private Wealth Management. For example, a family may talk about principles of lifelong learning or hard work, but how individuals apply those can differ based on their own values.

It may sound a bit new age-y, but the whole point is to start a conversation and spend time thinking about what money and wealth represent—and how it can support or detract from bigger goals. “There’s a tremendous number of parallels between how businesses use values and how families use these values,” says Grubman, recounting a situation where a large family business referred back to its family constitution to settle a debate about whether to price a new product to maximize profitability or availability; they went with the latter.

Of course, parents can talk about values until they’re blue in the face, “but nothing matters more than your kids seeing what you do, how you live, and how tuned in you are to things you say you care about,” says Madeline Levine, a psychologist whose book The Price of Privilege chronicles emotional problems among teenagers from affluent families; her newest book, Ready or Not, looks at how teens and parents can prepare for an uncertain world. “Even worse than having poor values is sending a double message of ‘this is good for everyone else, but we’re special,’ which is the gateway to entitlement.”

“I often get asked about flying private and if it’s going to harm the kids,” Levine says. As she sees it, the problem isn’t flying private per se. “You can be a jerk on your private plane, or you can be respectful, just as you can be a jerk on a commercial plane,” she says. Whatever the circumstances, just know that your kids are watching.

Jeremy Grantham, chief investment strategist and co-founder of Boston-based asset management firm GMO, echoes this sentiment. “It isn’t what you say; it’s what you do,” he says. “Long before you get to the intellectual level [about values and wealth], the deed is already done.” Grantham and his wife sent their three children to prestigious academic institutions, “but the boys were never the best dressed,” he says, recalling that his oldest son had a reputation for clothing himself from his school’s lost and found. What the parents did give their children was experiences, and family trips to such places as the Amazon, Borneo, and the Galapagos sparked a shared obsession with climate change. In 1997, the Granthams converted their foundation to focus exclusively on the environment. Meanwhile, all three of their children went on to study and work in areas related to the environment, of their own accord.

Putting Principles Into Practice

Values are a big component of wealth planning, but they can’t exist in a vacuum. “Wealth skills have to be built on a good foundation of money skills,” says Grubman. Families of any income bracket can help raise financially responsible, well-adjusted adults by introducing their children to the concept of money early on.

“You have to create a mini economy of income and expenses for children to learn money skills, and allowances are a great vehicle for doing that,” he adds. Ideally, the allowance should be enough to cover common expenses and encourage saving and giving, but not so much that kids don’t have to make choices between spending, saving, or giving.

Money manager Brian Yacktman learned the value of saving—and a passion for investing—thanks to matching contributions from his father, legendary value manager Don Yacktman. Now the father of six, Brian Yacktman puts a modern twist on the tradition. Using the iAllowance app, he gives his kids the choice of “spending” or “investing,” in which case he doubles their savings and pays them a 0.2% weekly return. “What’s interesting is, some children had a propensity to spend, and some to save, but once the ‘spenders’ started seeing their ‘saver’ siblings making tons more money than them….It literally changed their behavior,” he says.

Allowance shouldn’t be tied to chores, but that doesn’t give kids a pass. Kids should learn how to make their own beds, wash dishes, and do other tasks, Levine says, even if their parents have household staff to do it for them. “I was speaking to a group in Silicon Valley and someone asked if his child needed to learn how to make a bed, his reasoning being that he didn’t have to make his own bed,” says Levine. “It assumes that this wealth will always exist, and it doesn’t take into account what happens when the kid goes to college and his roommate says make your damn bed.”

Philanthropy should also be part of the program. Younger children can learn with three clear jars—one each for spending, saving, and sharing—but many families give older kids a say in more-substantial gifts. “It’s becoming more and more common for clients to establish donor-advised funds to facilitate charitable giving, have some really constructive family discussions, and give younger generations the opportunity to look for causes they want to support and do the research on those charities,” says Spuds Powell, managing director with Kayne Anderson Rudnick Wealth Management in Los Angeles.

Setting up such a fund typically requires a $5,000 to $25,000 initial contribution, but families can take their time dispersing the funds to charities.

“I like the idea of giving kids money to learn about philanthropy for a million different reasons,” says Levine. “It’s a good family project, and a way of underscoring that we care about more than ourselves, and it takes some work to do it well.”

Grappling With More-Grown-Up Issues

At some point, say experts, the question among wealthy clients is how much to share with their children. In a Merrill Private Wealth Management study of wealthy Americans, 64% said that they have never talked with family members about how or why they intend to pass on their assets, and 10% said they had no intention to do so.

A common reservation is that the promise of an inheritance might lead kids to be less motivated. “What it boils down to is that they want their children to be resilient,” says Merrill’s Wesley. “They want their children to be able to make their own way in the world to weather the forces that come, and they don’t want them to be hothouse flowers.”

Talking about values and reinforcing them with practical education and good role modeling can go a long way toward ensuring that kids don’t have to be on the family payroll. Meanwhile, parents can be forthcoming with their kids without oversharing. His advice is to start with values and education, and make numbers the last part of the process. “Most parents view [telling their kids about their wealth] as a light switch—either I turn it on and tell them everything, or keep it off and tell them nothing,” says Wesley. “We view it as a dimmer switch.”

Values become even more critical in bigger estate-planning questions. Again, advisors see many extremes, from parents giving their kids large inheritances before they’re ready—in many cases because of tax planning—to families making unreasonable (and unreasonably specific) stipulations in their estate documents. “There can be some serious unintended consequences for being too specific,” says Newcomb.

As an alternative, she says many families write ethical wills, which are documents that pass on ethical values from one generation to the next. “It’s a Jewish tradition that has become common in other cultures,” she says. These letters, which are not legally binding, typically outline why people made the financial decisions they made and how their heirs can honor their wishes.

While parents and grandparents are eager to impart their own lessons and values, there is also something to be said for letting kids find their own way. “This is classic good parenting: You lay the foundation, and you try to give the kids the practical tools they need to make good decisions,” says Rawdin, who recommends that ultrahigh-net-worth families carve out funds for adult kids to pursue their own endeavors. “But then, when it’s appropriate, give them a certain degree of freedom and hope that the work you did early on is going to pay off.”

Email: editors@barrons.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting