Fables of Fortune

by Richard Watts

  These children of entitlement don’t recognize the nature of their offense. They don’t comprehend the disrespect inherent in their actions. Mom and dad brought them into the kingdom of the wealthy a long time ago, and preservation of the family wealth is the kids’ highest priority, at least until they have control of it. Mom and dad—the ones who generated the wealth—may conveniently lose control over their own finances.

  Have nots tend to see parents as parents rather than as a luxury cruise ship complete with captain and crew. When you go over to your mom and dad’s house for dinner, you take your spouse and kids, a salad, a board game, and a few family stories you probably repeat too often. As a parent, when you tell your favorite joke for the millionth time, your children won’t exchange looks and begin to plan a secret family meeting in order to discuss your mental health. They’ll probably laugh right along with you. Your grandkids will sit in your lap without putting their hands in your pockets.

  Your legacy will be shaped by what you actually do rather than what you have. With no kingdom to run, you will have more time, which is the real treasure in this life. Your descendants will remember you as “father” or “mother” rather than “founder.”

  Consider the advantages of raising children in a world where needs and wants are clearly defined, where money is something to be earned and handled with care. Your children will respect the way you provided for them. When they become parents, they will begin to understand the sacrifices you made and respect you for them.

  CHAPTER SIX

  THE DANGERS OF INHERITED WEALTH

  The Petrov family is Czech. Or maybe it is more accurate to say they were Czech, because every part of their family heritage, customs, traditions, and values is gone.

  Mom and Dad Petrov grew up in poor households. Their parents emigrated from Czechoslovakia in the 1920s along with many others who wanted to pursue political and spiritual freedom in the United States. Grandma and Grandpa Petrov did not seek riches; they sought opportunity. There is a big difference.

  Opportunity is a state of mind. It satisfies at every level of human desire. As long as we have opportunity, we have hope. And when we have hope, we become motivated to achieve our goals through hard work and persistence. Ultimately, this kind of opportunity is not about wealth, but contentment. It is about getting to a place where our basic needs are met—food, shelter, transportation, utility bills, education, and so on. Opportunity is a cycle of setting and reaching goals.

  When we no longer need to work hard to meet our needs, the opportunity for achievement is diminished. We fail to set and renew goals; things come too easily; we often lose our focus. Satisfaction and contentment are ideas to be chased. The very act of reaching them can cause the beginning of personal stagnation.

  MAKING THE MOST OF OPPORTUNITY

  Papa Petrov decided to move his family near Palm Springs, California. Pursuing the goals instilled in him by his parents, he worked in the industrial sector for most of his life. His wife was the consummate mother. They had three beautiful boys in about three years.

  Then, when Papa Petrov reached his sixties, he was forced to retire from a life of strenuous labor in the factory. Because he was frugal to a fault, he and Mama Petrov had saved a tidy sum of money along the way. He recognized his adopted hometown was situated along a path of growth in the Inland Empire, a dry, windswept valley between Palm Springs and Los Angeles. Papa Petrov began purchasing small commercial sites with a variety of tenants, including convenience stores, markets, post offices, and strip malls. Over the next twenty years, he accumulated mobile home parks, shopping centers, apartment buildings, mini-storage units, and some valuable raw land. The value of his properties skyrocketed. His income soared, and he became one of the wealthier landowners in Riverside County, California.

  But Papa Petrov never owned a new car … and I mean never. He could easily have built a mansion, but he, his wife, and their three boys lived in a plain three-bedroom home on a busy street. The accumulation of riches wasn’t on his list of goals and things to accomplish. He was more concerned with value and opportunity, with the journey rather than the destination.

  THE DRUG OF INHERITANCE

  Papa Petrov pushed his boys to find their own way … or at least he tried. But they unavoidably lived in the shadow of his success. The boys asked for cars, but they didn’t get them. They lived according to their parents’ standards; they wanted more, and they knew it was available.

  The Petrov children began to disguise their wants, claiming to seek their own opportunities for personal advancement. Papa Petrov invested capital in each son’s business or aspiration, but he required them to work hard at their chosen vocation. Any request for additional capital prompted a lecture about work ethic and a barrage of criticism. Before long, his sons kept quiet, pretending to be content with the lifestyle they could afford.

  Papa Petrov lived to be seventy-six and died of a heart attack. Mama Petrov lived another fifteen years. She wasn’t as adept at holding the reins on her team of sons as Papa Petrov had been, and they stampeded her with constant ideas for the use of her wealth. Slowly, she succumbed to the boys’ incessant requests to begin distributing some of the family treasure.

  At first, their reasons included legitimate concerns like sending her grandchildren to college. The sons’ arguments were persuasive: “Times were different when you were raising a family, Mom. Today everything is more expensive; college tuition has skyrocketed, and kids today want more.” They made it sound like her grandchildren wouldn’t survive without the influx of at least part of the family wealth. Mama Petrov’s resolve weakened with each request.

  When she transferred ownership of the first of the large apartment properties to her boys, each one began to receive approximately $50,000 per year. One by one, the Petrov sons quit working full-time. The eldest son pursued money as a vocation. Mama Petrov called me periodically, usually in distress or tears. She could not understand why the boys were becoming so aggressive about their financial needs. Next, she allowed the distribution of some of the smaller apartment buildings and commercial properties. The sons teamed up to purchase life insurance for Mama Petrov at a cost of more than $60,000 a year, ensuring they would receive another $3 million upon her death; their reasoning was they would need help paying her estate taxes. Who paid the premiums? Mama Petrov, of course.

  THE CONSEQUENCES OF WEALTH ADDICTION

  Our conversations over the ten years that followed will remain in my mind forever as a forbidding commentary on the pitfalls of inherited wealth. The eldest son started to hobnob with the wealthy people in nearby Beverly Hills, continually returning to his mother with promises of surefire investments. He pushed and pushed for the use of family funds for investments; he was certain he could maximize Mama’s income and increase the estate.

  Since her daughters-in-law didn’t need to work together with their husbands, conflicts arose, and soon each of the boys was divorced—the oldest son three times. The grandchildren became entrenched in bitter jealousies, dividing the family over trivial issues. One father and son stopped speaking; their rift continues to this day.

  I fought to secure enough money in banknotes to provide for Mama Petrov. If financial decisions had been left to the eldest son and his children, they would have removed the family wealth completely from her hands. She wouldn’t allow that. Neither would I. I had made a promise to Papa Petrov.

  Like a narcotic that’s taken too often, the pursuit of riches is an addiction. After a while, most people who experience wealth become dependent on it. Eventually they don’t care where it comes from or what it takes to get more. They just want a continuous flow, preferably in increasing amounts. Watching Mama Petrov as she was pursued by her children and grandchildren in the last years of her life was incredibly heart-wrenching.

  When I attended her funeral, I spoke of one of the most kind, loving, modest, and gracious women I had ever known. The boys appeared to be united in their grief, but arguments over the
management and distribution of the properties were already raging. Each brother teamed up with another on one issue and heatedly opposed him about something else. The strong undercurrents of bitterness and jealousy flowed freely.

  In the parking lot of the church, after the service and before the procession to the cemetery, one of the Petrov children approached me. He obviously had rehearsed his speech, “Mama thought of you like a son. I know you loved her. Can we meet at your office tomorrow with my brothers to discuss distributing the rest of the money?”

  My response was curt. “Let’s hold this discussion until your mom is in the ground.” He didn’t notice the sarcasm. In fact, he nodded as if he concurred with my suggestion. “Good idea,” he muttered, as he returned his hand to his mother’s casket as it was being wheeled to the waiting hearse.

  INTEGRITY AND INHERITED WEALTH

  A local shop owner who is aware of my profession and my specialty in managing wealthy families once asked, “Is the old adage about the third generation losing all the money true?”

  Good question.

  In order to understand the truth behind this statement, we have to address the differences between the children of the haves and the children of have nots. First, children of the haves are typically rich from birth. As they grow up, the presence of money is a fact of life, and the trappings of wealth are everywhere. Second, the opportunities and experiences afforded by the presence of wealth—with a few exceptions to prove the rule—lead to an attitude of entitlement. The sons and daughters of a rich family struggle to comprehend the privilege of having money. They didn’t earn it, but they are accustomed to it. They unknowingly become dependent on riches, expecting to have just about everything they want, everything they don’t know they want, and, most important, many things they really don’t need.

  The first generation to obtain wealth is usually a hardworking couple focused on a family enterprise or business. The mother and father start with little or nothing. They typically concentrate on providing basic necessities. Every decision is infused with a sense of deep concern about surviving slumps in the economy and other factors that might affect their income and threaten their ability to provide the bare sustenance of food and shelter. At some time in their careers they have to go without; they become “penny pinchers.” They understand value. An automobile that costs $10,000 and provides transportation is sufficient for their needs. Mom and dad would never consider buying an automobile that costs $12,000 because it looks better or is more popular. They funnel the $2,000 they save into other parts of the family budget. In simple terms, they make sacrifices to attain their top priorities of providing for the family in the present and planning for the future.

  As time goes by, mom and dad “make it.” Their company begins to generate excessive amounts of money. Do they choose to drive Bentleys? Not usually. Mom still looks at the meat counter and considers the cost of top sirloin versus filet mignon. She may buy the filet, but she does so with an appreciation for the difference, for the ability to purchase the more expensive meat. She will never forget the sacrifices she and dad made to be able to purchase the filet. Mom and dad never take their good fortune for granted.

  Now let’s consider the children, the second generation. Are they innately spoiled? I’ve always been interested in that word. According to Webster’s dictionary, spoiled is defined as “to strip of natural covering, to impair the quality or effect of something, or even to rob by force.”

  Some of the children of wealthy families exemplify this definition. They have been stripped of their natural covering, and their ability to appreciate their blessings is usually impaired. The question becomes “Who is robbing them of these things?” At first glance, only two parties are involved: mom and dad, on the one hand, and the children, on the other.

  But perhaps another factor is at work. Wealth is like a giant reservoir. As mom and dad continue to fill it through their hard work, it eventually exceeds the needs, wants, and desires of the family and begins to overflow its capacity. Imagine Lake Mohave in Nevada. Mom and dad may have once been laborers whose sole desire was to fill the reservoir, bucket by bucket, in order to provide security in case of a drought. Those days are over. They are operating Hoover Dam. After the water leaves the dam, the flowing river carves its way through natural terrain. The water may cut one way in a certain type of rock and in a different way in another. But make no mistake; either the flow will result in downstream irrigation and abundant crops, or it will create the Grand Canyon.

  Once a flood of wealth is released, each child will be affected in a different way. The natural character of each child is often stripped away by the unrelenting flow of water. A few may channel the flow positively, utilizing the wealth for the benefit of the family, company, and community. But the majority will be swept away by the promise of unbounded materialism.

  No matter where a child is downstream, it is always easier to live along the banks of a river than it is to walk into the hills and create your own reservoir. The second generation has difficulty understanding sacrifice, the decision to give up something to obtain something better later.

  Unfortunately, children of wealth understand little about their supply of water other than the fact that they live on a river and it always keeps flowing. In law school, my professors taught that people who own land along a river have “riparian rights,” the right to consume the water flowing across their property, no matter its source. They are entitled—with some restrictions—to consume it or at least a portion of it. The second generation of wealth often exhibits the obliviousness of entitlement. They expect to have everything, and they assume they deserve it.

  The third generation—the grandchildren—hardly have a chance. They never heard the stories of how mom and dad made it because they inherited it; they never learned to respect the sacrifices that made their current lifestyle possible. Children of entitlement give birth to a generation with no sense of the value of wealth. Though they may have the best intentions and want to give their children every advantage, the second generation didn’t earn the money, rarely sacrificed, and don’t model the behavior of discretion and discernment that a child needs to learn. Typically, the dam breaks in the third generation, the water flows without restriction, and the valley below the dam is flooded.

  PRICELESS POVERTY

  In essence, being “poor” is having nothing and knowing it. Being “rich” is having everything and knowing it. Being “entitled” is having everything and not knowing it.

  Our three sons grew up in a middle-class home. Sometimes we had and did nice things, but most of the time we lived a relatively normal lifestyle. When my oldest was admitted to law school, he declared he wanted to obtain loans and pay for his education on his own. “This is the only way I can own my career,” he insisted. We let him. He flourished. His brothers hated him for the precedent. My fondest memory is of the time he called me at the end of his first year, excitedly telling me he planned to treat fourteen friends to home-cooked New York strip steaks for dinner at his apartment. Immediately, his mother and I were concerned about the frivolity of his action … until he explained he had sold his first-year used law school books for $86 and bought the steaks at Costco with the proceeds. Now that’s the way to leverage one’s assets.

  My youngest son, Russell, just graduated from college and is living on his own, working full-time in order to save for his future goals. After his own round of Financial Boot Camp (FBC), Russell pays all of his own expenses, including gas, insurance, credit cards, and even Starbucks. He packs a lunch to take to work every day and, at least for now, barely covers his expenses. His mother and I could make this easier … but don’t.

  I am also very thankful when I consider Papa Petrov. He worked most of his life to get ahead, and in doing so he unintentionally made several generations of Petrovs unhappy, caused divorces, fostered broken relationships between siblings, and left his wife to die frustrated and unappreciated. His grandchildren are currently immersed in
the process of losing every dime.

  How about your family? Do you have meals together? Do the grandkids come over on weekends to play at Grandma and Grandpa’s house? Do you vacation together? Do you first think of the love you have for each other before you consider your parents as the providers of your dreams or sources of endless financial support? If you can answer any of these questions in the affirmative, then count your blessings. You are not mired in the trap of entitlement, and you cannot enable children of advantage.

  Perhaps the only way to savor the richness of family life is to experience some form of poverty.

  The next time you sit with your adult children, thank them. Thank them for allowing you to grow old with dignity and without assault. Thank them for praising you for your real achievements and holding you accountable for your shortcomings. Thank them for accepting and continuing the family traditions you hold as important because they understand why they are important. But most of all, thank them for permitting you to unconditionally love them and discipline them, for allowing you to celebrate their strengths and their accomplishments, and for looking to you in times of weakness or setbacks. They will thank you for allowing them to experience life on their own terms.

  CHAPTER SEVEN

  UNDER THE THUMB OF RICH IN-LAWS

  The Campbells were worth more than $100 million in 1969. Dad Campbell’s story was a compelling one, a rags-to-riches saga of a common farmer turned land baron. He built and controlled a manufacturing empire. I remember walking through one of his warehouses; its four walls stretched around an entire city block.