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Have you ever wondered where our ideas about money come from and why they differ so much from person to person? Over time, these questions inspired me and my colleagues to create money “trees” with our clients as visual aids for understanding how their financial thinking developed and how to keep unhelpful preconceptions about money in check.
As a financial advisor, I see that some people find it easy to set money aside while others struggle to save, even when they could afford to. Some people’s investment-risk tolerances seem hardwired by early youth, often shaped by views from previous generations. One example is the Depression-era insistence that stock investing is gambling – a 90-year-old viewpoint that still influences some young minds.
While our individual attitudes about money aren’t always harmful, my ability to serve my clients is enhanced when we work together to examine – and where necessary challenge – beliefs about money that may be holding them back.
I’m not saying what specific financial lessons parents should teach their children. I’m sharing the idea that each individual’s impressions of money “are highly influenced by cultural issues, including family, ethnicity, gender, and socioeconomic status,” in the words of Sonya Britt, a professor of finance at Kansas State University. Another study suggested those attitudes are ingrained by age seven.
I share this view. From my personal and professional experience, the narratives, attitudes, and emotions that kids absorb about money before they’re 10 or 11 color their views for life.
Words to live by
Let’s take an example where the result of a child’s early impressions about money were, on balance, positive. I’m thinking of a successful business owner, now retired, who said his parents taught him several important lessons about money early on.
In particular, he recalled being six or seven years old and interrupting a conversation his father was having with another man to ask for a quarter.
Without otherwise acknowledging the request, his father – a boat builder – reached into his pants pocket and came up with a fistful of pennies, nickels, and dimes. “I don’t have a quarter,” he said, taking stock of the coins. Then he poured the change back into his pocket and resumed his conversation.
“That was it, he’d made his point,” the man recalled. “What I got from that was to be clear about your financial ‘ask’ or there can be costly misunderstandings – and that’s a lesson I’ve found extremely useful in business.”
When I sit down with clients to map out a flow-chart style “tree” of family members (and in some cases family friends), the emphasis isn’t on who begat whom, but how each family member influenced the client’s core beliefs about money. Generally, we start with these four questions:
- Who on the tree had the biggest influence on your attitude towards money – specifically, saving, spending, and investing?
- Do you maintain all the beliefs passed to you through the tree, or did you adopt a different attitude?
- Which beliefs do you want to maintain, and which ones do you want to curtail?
- What beliefs are you handing down to your next generation about money? Do you think these beliefs are healthy, or could they be improved?
It's a useful exercise. We like to think we act rationally when it comes to important decisions, but we’re more influenced by emotion than most of us realize.
Why this matters
I know the heir to a large multigenerational estate – a status he spent his youth and much of his adulthood feeling guilty about. Because he didn’t feel he deserved his inheritance, he tended to ignore my attempts to help him make plans for the long-term future of his wealth, which left him with too much cash and old portfolios in need of updating.
By patiently taking him through his own money, I was able to help him see his position as more of an opportunity than a burden. Specifically, we made him see that his parent’s messages to him about their legacy weren’t intended to make him feel unworthy but to emphasize his role as the steward of a fortune that, if well managed, could last for generations.
With this knowledge, I helped him develop a sense of responsibility around that legacy – both to honor the memory of his parents and benefit the broader community. At root, he learned that the money wasn’t about him; it was a means to benefit society and his heirs at the same time – and that, for now, he oversaw this mission.
Clients who are looking to create a legacy to last for generations can get a leg up by working to understand how their family history helps mold their beliefs and attitudes about finances. Clients and advisors who don’t make this effort to challenge financial preconceptions risk letting unhealthy attitudes about money interfere with otherwise sincere efforts to be a good and prudent caretaker of the family’s wealth.
On the other hand, taking the time to map out early influences on our present attitudes about money keeps legacies vibrant. It’s not just one exercise but rather a ritual that families should make a part of their periodic agenda.
Andy Ferguson is the founder and CEO of Proquility Private Wealth Partners in Las Vegas, Nevada.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
