In the last few posts I’ve spent a lot of time talking about kids who grow up in wealthy families and the issues they face, as well as a bit of time talking about how virtually all American kids are raised these days. I’ve devoted so much time to these subjects because I want to emphasize the many minefields that surround the subject of money, even though they don’t always seem to be directly related to money.

Given the existence of those minefields, how should parents have “the talk?” In my experience, the best way to have the talk and to dodge the money minefields is not to talk not about money at all, at least not in any direct way. Instead, families should talk about family. They should tell family stories, beginning when their kids are quite young, and progressing to more complex stories as the kids get older.

All too often kids in affluent families grow up imagining that money is just this random thing that’s happened to them. But money doesn’t happen randomly. It happens to real people who have real strengths and weaknesses. It happens because family members took risks, worked incredibly hard, stumbled many times. It’s important for kids to see these people as they really are – or were – and to understand that they were people just like themselves. Money was the result of what these people, whose DNA the kids share,  did over the course of many years.

Whatever the kids ultimately think of their family’s money, they need to grow up feeling proud of what their family has accomplished. I don’t mean the making-money part, but the human effort part, the part that created goods and services that improved the quality of the society the kids still live in. In an honest society the only way to make a lot of money is to produce something that other people are willing, even anxious, to pay for. They are willing to pay because whatever the family produced made their lives easier and better.

These family stories are analogous to the poems, songs, stories and fairy tales that early human societies have told down through the ages. Those stories celebrated great victories, told of the extraordinary courage and ingenuity of earlier men and women whose DNA the listeners shared. Before the invention of writing the stories preserved – and embellished – the historical record. Almost always the stories told of people striving to make their worlds better in the face of hostile forces.

As with family stories, societal stories helped weave the threads that held people together. Much of the Holy Bible, for example (especially the Pentateuch), was originally an oral tradition that was only written down around 900 B.C. Family stories play the same role, albeit on a more intimate stage.

Just as an example of how best to conduct these conversations, let’s imagine a wealthy family where the originators of the wealth are the great-grandparents of the current kids. To set the stage I’ll lay out a brief history of the family. Note that every episode in this family’s history actually happened in one family or another I’ve worked with over the years. However, these episodes didn’t all happen to the same family. The family I’m describing is a fictional composite of many actual families.

Henry Knox, the great-grandfather of the current youngest generation of the extended Knox family, was raised on a ranch in rural northwestern Colorado, near the Nebraska border. Young Henry wasn’t cut out to be a rancher (see stories in my next post), and when he was seventeen his father suggested that he seek his fortune elsewhere. (What Great-Great-Grandpa Knox actually said was, “Son, if you stick ‘roun’ ‘ere an’ keep ranchin’, yer even dumber ‘n I thought.”)

Henry headed east, but he didn’t get very far. In Lincoln, Nebraska, he found a job at the L&M Building Parts Company, what today we would call a steel fabricator. L&M was abysmally managed by an owner who spent more time drinking than managing, and Henry soon made himself indispensable. He had a powerfully mechanical mind and he could fix anything at L&M that broke. Not only that, but he could fix it a lot faster and cheaper than the engineers who formerly had to be brought down from Omaha.

L&M limped along while economic times were good, but when they turned bad the company slid into bankruptcy, leaving its creditors high and dry. It looked like everyone at L&M would lose their jobs, but Henry had a different idea. He pitched the local bank on a scheme to reopen L&M using much more efficient machinery invented by Henry himself. Loaning money to a bankrupt enterprise was too much of a stretch for the bank – but not for the bank president, Albert Reed.

Reed knew L&M from the bank’s earlier relationship with the company and he was impressed by Henry Knox’s plans. Reed invested his own capital in L&M, which was renamed A. Reed Fabricating, Inc. The new company struggled for years, often failing to meet payroll, but began to gain traction late in the Depression and flourished during World War II and the economic boom that followed the war.

Eventually, Great-Grandpa Henry passed leadership of the company to Grandpa Hank, who is still living. Fairly recently, Grandpa Hank moved up to Chairman and Henry III, father of the current crop of Knox kids, became CEO.

Next week we’ll take a look at the family stories the Knox’s have passed down for generations.

Next up: The Talk, Part 7

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Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

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