Tuesday, July 6, 2010

What Have We Learned from the Financial Crisis?

From time to time we feel compelled to share our analysis of thought-provoking events relating to wealth management. We hope you will find our first blog informative and useful. We welcome your feedback!

Those who debate about when the economic crisis will end are asking the wrong question.

The right question is: what we can learn from the financial turmoil? People from all socio-economic strata need to rethink their connection with money and the skills their children need to be successful in any economic environment. Kids who grow up as if they need to make it on their own, are likely to handle life and money responsibly. Those who cannot lead productive lives become dependent and depressed. Often they engage in dysfunctional, risky behaviors. Parents at all ends of the economic spectrum would be wise to think deeply about their choices: how they spend, save and invest, and how they communicate-consciously and unconsciously-with their children about their financial values.

Music rapper Sean Combs, better known as P Diddy, was not concerned about the message he sent to his teen when he gave his 16-year-old Justin Dior Combs a $360,000 car earlier this year on the TV show "My Super Sweet 16." Responding to some criticism on an ABC Nightline interview Combs said, "No-body knows the lessons that I've taught my children to understand, if they are mentally ready for that," he said. "It wasn't even about a lesson; it's what I wanted to do. I could do whatever I want to do and you can't question me about it."

The recent "bling ring" case in the news portrays the potential consequences of failing to impart financial values to children. Six teens, who robbed upwards of $3 million during a burglary spree at the homes of celebrities such as Paris Hilton, Lindsay Lohan and Orlando Bloom, were stealing for kicks, not cash. The teens were from affluent families who shared an obsession with celebrity culture. They partied in their victims' homes, leaving their fingerprints everywhere and flaunting themselves before security cameras.

They almost begged to be caught. Perhaps they wanted the one thing their parents and the public may not have lavished on them: attention. Their behavior illustrates the unintended consequences of living in a super-wealthy environment: entitlements and ennui.

But it doesn't have to be that way. During a recent appearance on the Oprah Winfrey Show with his wife and three children, celebrity Will Smith said he tells his children, "'Mommy and Daddy are rich. You all are broke.' We don't allow them to just sit around. We talk about the concept of the group and the necessity of you adding to the family. Then you have to add to your neighborhood, and then you have to add to humanity."

Another example: Peter Buffet, son of one of the world's wealthiest men, Warren Buffett. Peter, a musician, recently published a memoir, Life is What You Make It, in which he details his remarkably modest upbringing. His father was present nightly for dinner and emphasized the importance of values and pursuing your dreams. He informed Peter and his siblings they would not become trust-fund babies; he planned to give most of his fortune away. The children would have to make their own way in the world.

Wealth, for all the wonders it can bring, has a dark side, especially on the next generation. It takes enormous effort and thought for affluent parents to raise children who are capable of being productive and finding happiness within themselves, not just in the material trappings of their lifestyle.
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Jayne Pearl (413-256-1310) and
Richard Morris (847-328-3096)