Once you have arrived at the point where your family has a good idea of your shared values, and you have had some fun together creating an appealing, meaningful, and realistic shared vision for the future, the next step is to start making that vision a reality. The question Family Bank leaders need to ask is this: do our Family Bank members have what it will take to get the job done for years to come? If not, what do we need to do to get there? It can be a humbling experience to see ourselves for who we are, rather than who we pretend we are, but it is an essential part of the Family Bank process.
Over time, a successful family honestly assesses and reassesses itself, building on its strengths and working on its weaknesses. Research shows that although people’s values are largely set by the age of twenty-five, their individual competencies and capabilities will evolve as they continue to learn and develop. This will be true in your family as well. As a result, your initial appraisal will involve not only evaluating the human and intellectual assets of your Family Bank but also the planning required to ready Family Bank members with the skills, aptitudes, and attitudes necessary to make your family’s shared vision a reality. If you have members who are not currently prepared for ownership, like young children, your plans will likely include trusted legal guardians who share your family’s values, understand the vision you have for your Family Bank, and can be relied upon to prepare these minors for future ownership.
In the initial stages, one or more Family Bank leaders will be overseeing this assessment process. Typically, the first Family Bank leader is whoever technically owns the financial assets and is thinking about how best to transition them to the next generation. This might be one spouse or both. Whatever the case, those assuming leadership will be agents for change in the family. By definition, a leader has followers, and effective leaders also have the respect of those followers. Actions that help earn this respect include being a good listener and consistently role modeling the family’s shared values. The Family Bank leader should be someone the other members are proud of and willing to learn from as they prepare themselves for their eventual ownership of the Family Bank.
Education is necessary for building strong intellectual assets in your Family Bank. First of all, the pursuit of an education instills self-discipline, and the wonderful thing about self-discipline is that it can be applied to everything in a Family Bank member’s life. Some other benefits of education to the Family Bank include members having the ability to track elaborate thought processes and develop imaginative concepts. Education fosters creativity. Also, gaining an education will remind each Family Bank member for the rest of their lives that they possess the intelligence, tenacity, and grit to pursue whatever achievement they aspire to, including reaching their family’s shared vision.
It is important to note that I am not referring here only to degrees from the finest business schools, or even to a university education. Your Family Bank will benefit the most from each member pursuing an educational goal that is meaningful to them and challenges them to their greatest capacity. Education is not only about the specific knowledge that is acquired, but also about the process of earning it. It is this process that will be a part of each family member earning, no matter the vocation, a respected voice in the Family Bank. Reaching one’s individual potential requires character traits such as commitment, hard work, high standards, and expertise. All of these attributes lead to excellence—excellence that in turn will contribute to your Family Bank.
The best Family Bank leaders will themselves be continual learners: curious, optimistic, and excited by the challenges presented in a world that, like the colors in a kaleidoscope, is constantly changing. In fact, a love of learning is not an option for a successful Family Bank leader. It is a necessity. One of my sons, currently a university student in engineering and computing science, has on numerous occasions shared Moore’s Law with our family. Moore’s Law, as proposed by Intel cofounder Gordon Moore in 1965, stated that the processing powers of computers would double every two years. Moore’s peers laughed at him. But where are we today? Computer processing power is now doubling every eighteen months.
Nothing remains the same for very long anymore. Consequently, what appears to be the right vision for your family’s future self will change more frequently than it would have ever before in human history. Those families who do not keep up will find their visions quickly becoming obsolete. They will miss opportunities to create bolder, brighter, and more relevant visions for their future. Ongoing learning, in addition to the insights of each generation of Family Bank members, will keep Family Bank leaders abreast of these changes. Leaders who exhibit a continual love of learning—and the self-discipline that this requires—are powerful role models for younger family members who will eventually become the leaders of the Family Bank themselves.
There is another kind of learning that will be essential in the stewardship of your Family Bank’s financial assets. Every Family Bank member, young or old, must keep up with the financial realities of the twenty-first century. I am pleased every time I open a newspaper, a journal, or a publication from a professional financial organization to discover an article on money matters. However, it is important to begin educating family members about these matters at a young age, in an age-appropriate manner. As evidenced by the currently soaring rates of personal debt, many people appear to be getting this kind of information too late, long after poor financial habits have become entrenched. With such articles published in the financial section of a newspaper, for example, I also wonder if the excellent advice is really reaching the people who are in greatest need of this guidance, or if it is being read predominantly by financial professionals like me. There are likely many people who either scan the financial section superficially, getting lost in all the complicated jargon, or routinely toss it aside, like I do with the driving section.
These financial advice articles are generally very good. Commonly, they argue that people should divide up their earnings and place the money in different accounts to cover savings, emergency funds, retirement, and the like. This is sound advice. But in our immediate-gratification, product-pushing culture, dominated by slick advertisers, it is very difficult for most of us to sustain such a level of self-control. That’s particularly true if we have not learned personal money management skills from childhood on and have no understanding of why this kind of discipline is so important for our future.
There is another point I want to make here, too. As a nation, we are constantly warned that our personal debt levels are too high. Well, here is a news flash: our governments have not been prudent financial stewards of the money we pay to them through our taxes. Like individual citizens, governments have also been spending more than they take in, and it is a situation that cannot go on forever. As noted earlier, this is a conversation all Family Bank members need to have, since social safety nets, including government-funded pension plans, will be affected in the future.
Remember, the most compelling shared vision for your family will be one that makes both emotional sense and rational sense. Pension plans are actually a terrific subject for a Family Bank conversation. Pensions are something we hear a lot about, but very few of us really understand them. Many young people might have heard somewhere along the way that the government provides a pension to Canadians over the age of sixty-five. However, they may have no idea about whether this pension plan is overfunded or underfunded and what that all means. We often hear about workers going on strike in different government-funded sectors. Often the primary reason given for this labor unrest, at least in the media, is wages. Even as the debate rages and kids are kept home from closed government-funded schools, the media coverage seldom mentions the pension benefits, the future income during retirement, this segment of the labor force is contractually entitled to. All of these are important issues every Family Bank member should be clear on as they begin working towards their own financial independence. If Family Bank members are made aware that, in the future, they may be required to pay privately for pension entitlements currently funded by government, they may be more willing to place their money in their savings and investment accounts early on.
Younger Family Bank members also need to be educated about the profound changes in our banking system. As a young girl, I often went to our local bank with my mother, where she would withdraw a set amount of cash each Friday for household expenses like food and gas. The bank tellers and branch manager had built long careers at the bank, and over time we developed real relationships with them, based on their genuine caring and concern for each member of our family. We respected the bank’s employees and saw them as custodians, safe keepers of our family’s cash balances and prudent lenders when additional money was required, pure and simple.
Then something happened: banks expanded their product offerings and a sales culture appeared. From the bank’s perspective, and that of their shareholders, it was a brilliant idea. Today, with a click of a computer button, banks have insider knowledge of their clients’ financial affairs. This knowledge itself is not the problem; the problem is what banks have done with this information. Almost overnight, bankers were apparently experts in a multitude of industries, including insurance, investments, and trusts. For my mother, who is now in her nineties and at a stage in life where genuine, trusted relationships are perhaps more important than ever before, this development has been distressing and disappointing—her personal relationship with the bank has been severed. What used to be a service culture has been replaced by a sales culture, and the bank’s employees do not see a future in which she, a woman in her nineties, will buy any of their other products. Many people find themselves in similar situations.
How does this product-pushing and cross-selling at the bank work? Here is one example. A close friend of mine downsized her home, and the result was a nest egg of capital that she earmarked for her retirement. On one of her visits to her bank, a teller noticed the lump-sum savings in my friend’s account. Caught unaware by this well-spoken, likeable young teller, my friend was introduced to an on-site seller who talked her into buying one of the bank’s mutual fund products. This is not the way to make a prudent investment decision, and my friend was unknowing about what was going on behind the scenes. She was not made aware of the fees that might be involved with this kind of product, either imbedded in the product or up front. Nor did she realize that the teller was likely incentivized, through anything from bonus pay to performance review recognition, to refer my friend to this licensed on-site “advisor.”
Another big change in the banking industry relates to credit. When I was young, I recall my mother having a credit card with the local gas station. She could buy only gas with it, not gas and a latte. Furthermore, the credit card had only been extended to my mother and father because they had an established flow of income through solid employment.
Later on, banks saw an opportunity to make more money by entering the credit card business. They are now quick to provide us with credit cards to buy the things that peers, advertisers, and professionals tell us we need. You see, they make substantial income on the usurious nature of this arm of their business. (Usury is the practice of lending money at unreasonably high rates of interest.) Many people do not pay off their balances every month, which means the interest charges mount. Suddenly, that expensive latte just got a whole lot more expensive.
Banks strategically target certain demographic groups in our society to sign up for their credit cards. One of the groups is university students. These students typically have not yet established a solid employment record. Even so, the banks have been known to offer inducements for them to sign up, including new laptop computers and cell phones. “But why?” you ask. “How could students meet the definition of good credit risk?” The answer is that this demographic has a fair share of young people from affluent homes. Parents may tell their children that any credit card debt belongs to them. However, once cards are maxed out, parents often pay the debt off in the end, high interest charges and all, not wanting the child to enter adulthood with a bad credit rating.
Corporations and advertisers go to great lengths to convince us to buy what they are selling. In my business, I see an endless number of cases in which people have received financial advice that is at best questionable. Think about it: every time we turn on the radio, surf the internet, or open a newspaper, we encounter yet another advertisement for some slickly packaged financial industry product described in emotive terms. The better ads even employ a little wit, for more appeal.
Here is a radio advertisement I awoke to at 4:30 one morning. A national lending company was aggressively advertising that if you own your own home, you could get a loan from them with no questions asked. The advertisement featured a short conversation between a potential borrower and a representative from the lender, along the following lines:
Borrower: “For an addition to my home?”
Lender: “You own your home?”
Borrower: “Yes.”
Lender: “Approved!”
Borrower: “To expand my business?”
Lender: “Approved!”
Borrower: “To establish a sasquatch farm...” (pause for dramatic effect) “... with a tennis court, of course.”
Lender: “Of course... Approved!”
I do have a sense of humor, and I understand advertisers’ efforts to have a little fun with a subject that can, for some people, be mind-numbingly dull. However, the unsophisticated listener will not notice that some vital information is missing from this advertisement, like the fact that you may be putting your home at risk if the expansion of your business fails and you are unable to pay off this easily acquired loan. That is not to mention what will happen to your ability to pay off the loan when interest rates rise from current record-low levels.
No one pays for costly, extensive marketing unless they have something to gain. Today, as we are inundated with a plethora of advertising campaigns and other dubious sources of financial information, we should evaluate these claims with three questions in mind: “What does this pocket-picker paying for the advertising want me to purchase?” Then: “What is the downside risk to me if I purchase what is being sold?” And then, for entertainment’s sake: “What is the advertiser using/saying/singing to try and hook me?”
I had fun using similar questions as a game with my children when they were young. By encouraging them to think independently about and thoughtfully question the sources and intent of media-supplied information, I was preparing them for the future onslaught of all things marketed and advertised. As one example, at a young age, my sons would sometimes get it into their heads that they needed the sugary food products advertised in the commercial breaks between their favorite cartoons. The questions in the game we played became a terrific tool for showing them what was really going on. As young men, they are now bombarded with advertisements for financial products, and they realize they are being marketed to. The only real difference between the sugary food products and the financial products is that one rots your teeth and the other your financial security.
Part of assessing your family honestly is examining members’ attitudes about lifestyle and work. I raised this issue in Chapter 3, when discussing the importance of shared values. It is worth revisiting, however, since many Family Bank leaders do not realize that they must specifically address their own legacy lifestyles or else inadvertently create what I call cookie-jar kids.
You might think the term “legacy lifestyle” refers to the kind of lifestyle in which I was raised. My family skied through the winters at a world-class resort where we owned a chalet and where, when the lift lines were too long at the bottom of the mountain, our parents had me and my siblings helicoptered to the top. When summer arrived, we jetted to the family yacht in the Mediterranean. We spent sunshine-filled days on the beaches of Saint-Tropez and mellow evenings in the bars and restaurants under the shadow of the royal palace in Monaco. Yes, this is an example of a legacy lifestyle, but there are, of course, other experiences that could certainly apply. A legacy lifestyle, as I define it, is one in which an individual enjoys a quality of life based on a certain level of affluence earned by another individual. Affluence is a relative term, meaning different things to different people, but it can be measured by looking at a family’s non-essential expenditures. For one family, affluence may mean owning a small speedboat, and for another, it could mean owning a fully crewed yacht.
Whatever a family’s lifestyle, the role the Family Bank plays in paying for it must be made clear to younger family members. Otherwise, children may grow up simply assuming that when they are adults, their lifestyle will remain the same. This assumption may lead to nasty entitlement issues. Holding regular ongoing conversations with all family members about the purpose of the Family Bank can prevent some of these legacy lifestyle children from facing a rude awakening when they realize in early adulthood that the effort, talent, abilities, or correlated earnings required to sustain such a lifestyle are no longer within their reach.
For children whose families do not have surplus financial capital, there is simply no metaphorical cookie-jar available. Consequently, by late adolescence, these children are applying for their first jobs. Job seeking and employment are vital components of maturation for all young people. It teaches them, perhaps for the first time, the effort it takes to earn their own money, as well as the true value of a dollar. However, the parents of cookie-jar kids often do not treat the ability for their child to earn their own living as a priority. After all, children who hang out all summer at the cottage lose the opportunity to pursue independent work.
These adolescents quickly learn that the cookie jar is full and the lid is easy to loosen. While their parents enjoy dockside relaxation at the cottage by day and party the nights away, these children are watching and learning. So, when the ski boat needs gas, or a teenager wants new board shorts, skate shoes, and some beer for that night’s party at a buddy’s cottage, no problem. These kids simply reach into the cookie jar. As these children mature, however, the postponing of their independence, including financial independence through work, is anything but a sensible idea. True happiness is realized through the ability to lead a free life, not only physically but also emotionally and financially. A cookie-jar kid, by definition, is not free; he or she is dependent on the parental supply of cookies in the cookie jar.
I believe that true financial happiness can only be found when you fill your own cookie jar with cookies you have baked yourself. Using the Family Bank approach, every family member will be prepared and assessed to ensure that they are on the path to becoming independent self-fulfilled individuals, eventually baking their own cookies—and maybe even running their own bakery. This is when the most important assets of the Family Bank, the human assets, are their strongest and healthiest.
Now consider the cookie-jar kid who becomes a cookie-jar adult. His parents may feel sorry for him, because he is apparently unemployable, but the reality is that the cookie-jar adult refuses to accept employment that he considers to be below his natural station in life. I have witnessed cookie-jar adults resorting to emotional blackmail when their elderly parents attempted to glue shut the lid of the cookie jar. They could also be individuals who assume that because one Family Bank member was assisted in some way, perhaps with a loan to buy a car, they must receive an equal benefit. They have lost sight of the fact that fair and equal are not the same thing. When the Family Bank approach is used, these kinds of issues are less likely to arise. As part of the process, everyone agrees to the purpose of the Family Bank and the deployment of its assets.
If the goal of the Family Bank is for every member to lead a free and independent life, finding paid work will be a priority. Therefore, the Family Bank would likely approve a reasonable car loan to assist a member in reaching their place of employment if there were no other reasonable means available. If another member wanted a car loan simply to travel back and forth from the shopping mall with their friends, though, that would not even be up for discussion. The request would not align with the family’s priorities for their Family Bank.
By definition, the Family Bank approach is a team activity. Although someone must take the very important lead role to begin with, in a short period of time the Family Bank will involve a group of individuals working together. Articulating the family’s shared values and vision requires robust conversations among people who are willing and able to work together. Additionally, the Family Bank approach makes a clear distinction between ownership and control. Once members have earned a voice on the Family Bank board, they become voting members in the stewarding and deployment of Family Bank assets. This is one of the profound benefits of the Family Bank approach. By working together, Family Bank members can amass decades of experience in preparing for the eventual transition of ownership, bypassing the need for the “beyond the grave” control structures typically recommended by succession and wealth-transition advisors. Over time, the Family Bank leaders will be continually assessing the family’s ability to work together effectively and can suggest adjustments as necessary.
In my family, we operate intentionally as a team to prepare our children for their future roles as stewards of our Family Bank. And working together over time allows our sons, who spent their growing-up years competing with each other, as all siblings do, to learn to work together in an adult sibling partnership with a shared purpose. Working together as a team allows our sons to see each other as the adults they have become rather than as the children they once were.
On more than one occasion, I have been asked by a client what to do when there is one Family Bank member who is not, for lack of a better phrase, willing to play nice. Forcing a relationship is never a good idea, and it is counterproductive to the Family Bank’s shared desire to work together for a brighter future for the family. So I always offer the same response, employing a little humor to brighten things up: “Then you should consider pruning the family tree.”
This advice may sound harsh. However, it is of no value for the family to wait for someone who does not want to be there, or who has perhaps joined another family by now. Remember, we are talking about the Family Bank here, not the family itself. Someone unwilling to do what it takes to earn a voice in the Family Bank can still be welcome at a family dinner. In fact, keeping the door open is always a good idea. Time itself has a way of changing an individual or group perspective on the past and keeping everyone in the loop may have unexpected results.
In one situation I encountered, one family member was not remotely interested in the Family Bank; specifically, in its financial assets or the family business operations. This person had fallen on hard times and chose to live on the streets. As time passed, this family formalized their philanthropic work by establishing a private foundation. When the disenfranchised family member learned of this development, it resonated with him. A short while later, he managed to pull his life together. The process of turning his life around earned him the respect of the other Family Bank members, as he demonstrated tenacity, purposefulness, hard work, and the ability to change. The man was welcomed back into the Family Bank and later assumed an active role in the family’s philanthropic foundation.
Stage in life is another important factor to consider when assessing individual Family Bank members. A young child will not likely have a direct voice in the Family Bank, but they will learn from role modeling and from listening to conversations about the family’s shared values and vision. By adolescence, this individual will have developed a clearer understanding of the family’s shared values and vision. Once this family member reaches young adulthood, they can choose whether or not they want to earn a voice on the Family Bank board.
For families adopting the Family Bank approach later in life, with family members who are already adults, it is advisable to start slowly. While assessing the strengths and weaknesses of Family Bank members is still necessary, it is wise to allow some leeway for those who are already overloaded in their personal lives. Involvement in the Family Bank is ongoing, but the level of commitment must accommodate each Family Bank member’s stage in life. For instance, a college-age child may not seem interested in the Family Bank. This is normal; people that age are often focused on finishing their education, finding a job, and becoming financially self-sufficient. They might be striving for separation from their family as they struggle for independence. Another example is the young adult who has a new career, a young marriage, and maybe even young children, who understandably may not have the time to participate fully in Family Bank conversations with the rest of their family.
Individuals pursuing lives independent of their families, including in financial terms, are actually developing strong human and intellectual assets for the Family Bank, even if they currently are not able to be directly involved. Again, it is strongly advisable to keep these family members in the loop. When communication is circulated regarding the Family Bank, include them on the distribution list. This can maintain or even improve trust within the family, since everyone is receiving the same information and has the same opportunities to learn about how the Family Bank operates. When it comes to communication within families, more is always better than less. An inclusive approach will prepare individual family members for their future roles and responsibilities and discourage the growth of behind-the-back rumor mills.
One of the advantages of the Family Bank approach is that it takes a long-term view, which means that you and your family members have time to nurture and further develop the human and intellectual assets of the Family Bank members going forward. For any member willing to share in their Family Bank’s vision, opportunities for active learning and preparation for the successful future generational transition of the Family Bank lie ahead.