Welcome back to the podcast Episode 8.
I heard the story recently about Charlie Munger, that I loved.
I love a lot of stories about Charlie Munger, but this one I thought was especially good.
Apparently, one of his very wealthy billionaire friends asked Charlie.
He said, Charlie, if I give my kids all of my money through inheritance, is that going
to ruin them?
Is that going to sat their ambition and turn them into spoiled little brats?
And Charlie said, of course it will.
But you have to do it.
And his friend said, why do I have to do it?
And Charlie said, because if you don't, they will hate you.
Today's episode is about your money and your family, which might be one of the most complicated
topics in money and not just for billionaires like Munger and his friend, but for everybody.
The millennial generation is going to inherit something like $70 trillion from their parents
over the next 20 years.
And generally speaking, nobody knows how to do it.
Nobody knows the best way to pass money onto your children.
It's still incredibly difficult, and every parent, including myself, wants to use their
money in some way to better their children.
That's a pretty common goal that people have.
But it's so difficult to do it.
There's no playbook. There are no rules or even broad ideas for how to do it right.
A question that I'm often asked at conferences and events, is this very question?
How can you use money to help your kids while raising good kids who understand the value
of money?
And I'm always kind of stumped.
I never really know what to say.
A, because my kids are three years old and seven years old.
We're not thinking about passing long money to them anytime soon, other than the occasional
Lego and robux.
I think this topic is much broader than just inheritance for your kids.
The relationship that you have with your entire family, not just your kids, but your spouse.
It can even be your nieces and nephews and aunts and uncles and your own parents.
It's so difficult.
There's a saying that I like that I think is really true.
That so much of marriage success comes down to three things.
Do you agree about whether or not to have kids and how many kids to have?
Do you agree about religion?
And do you agree about money?
Those three topics, of course, there's more than that, but those three topics are a huge
part of the success of any marriage.
Many years ago, I did this consulting session with a group of NBA players.
It was so much fun.
And most of them were rookies.
They were young NBA players.
And this is such an interesting group because a lot of these kids came from deep inner city
poverty where they grew up with nothing.
And then when they're 19 or 20 years old, they get drafted to the NBA and also they're
making $20 million a year, $25 million a year.
The stark contrast was staggering.
And one of the things that they brought up that they are very attuned to and they all
know is a percentage of NBA players or any professional athlete that ends up going
bankrupt.
Some like more than half of all professional athletes end up broke within a couple years
of leaving their sport.
And there was one young NBA player.
I think he was 19 years old who brought this up and it was a point that I thought was
so astute.
He said, look, when you make this much money and you came from inner city poverty, that
money is not just yours.
That money effectively belongs to your neighborhood.
You can't just tell your mom and your dad and your siblings and your cousins and your
neighbors and your teacher and the guy who owns the deli downstream.
You can't just tell them all, hey, I got my money.
Best of luck to you.
You can't do that.
You got to buy your mama house.
You got to buy your brother house.
You got to buy your grandma on Mercedes.
It all trickles down and he said that is the biggest source of bankruptcy among professional
athletes.
It's not spending the money on themselves.
It's when the family comes into the picture and the friends come into the picture and
they all want a little bit of the money too.
And you feel such an obligation to take care of them.
Those are all rich people stories, monger and the NBA athletes.
But I think this topic applies to everyone.
Dealing with money and family is an incredibly complicated topic and that's what I want to
talk about in today's episode.
Many years ago this old coworker remind we were sitting around talking about money and
the kids.
I was pretty young at the time.
I was in my early 20s.
He was maybe in his early 40s.
We were talking about saving money for college for our kids and he said he was not going
to save any money for college for his kids.
He said he was going to tell his kids not to even go to college because he thought he was
waste of time and money.
Instead he was saving money to buy his kids a McDonald's franchise and he said when they
turned 18 rather than giving them tuition to college, he was going to give them a McDonald's
franchise to run so they could learn about business and he thought that was a much better
way to teach his kids about life.
That was a better education.
Part of me at the time thought wow that's amazing.
That's so creative and that is a great idea and your kids are so lucky.
That's awesome.
Part of me as I get older and I think about that conversation wants to sit back and ask
hey do your kids agree with that?
Do your kids agree that running a McDonald's is better for them than going to college?
Are your kids on the same page with that?
Do they agree with you?
Maybe the answer is yes but I often wonder if the answer is no.
If I was 18 and my parents said here's a McDonald's franchise I would have been so despondent
and dejected and I would have said I want to go to college with my friends.
That's what I want to do.
Maybe the main takeaway for me from that little conversation is just realizing that there
is no one right answer for how to deal with money in your family.
There's no template where you can just say do X and they're better off, do Y and they're
worse off.
It just does not work that way.
Maybe having a McDonald's franchise at age 18 is the best thing for some people.
For other people it would be an absolutely terrible idea.
The same is true for college.
The same is true for whether or not to buy your kids their first car, helping with a down
payment on their house.
This can go on forever.
That is a theme that I think comes up pretty often in money.
But there is no one right answer and it makes this topic of money and family particularly
difficult.
One analogy that I've always liked is between medicine and finance.
Medicine is probably the closest field that has the most overlap with the problems and
the potential solutions that we deal with in money.
Back in 1931 a guy from Ohio and in Clarence Hughes went to the dentist.
His mouth was radiating in pain and his dentist put him under crude anesthesia to ease the
pain.
When Clarence awoke from his anesthesia several hours later he was missing 16 teeth and
its consoles had been removed.
And then everything went wrong.
Clarence died a week later from complications from his surgery.
His wife, his widow, sued the dentist.
Not because the surgery went awry and he died every surgery risked death back in the 1930s.
It was always dangerous.
But she said that Clarence had never consented to the procedure in the first place.
Hughes was put under anesthesia the next thing he knew he was done.
And his wife said he would never have consented to it if he was asked.
So she was suing the dentist for doing this treatment that the patient never wanted and
never consented to.
This case wove through the courts but ended up going nowhere because back in the 1930s
consent between doctors and patient was not black and white like it is today.
And for most of history the ethos of medicine was that the doctor's job was to fix the
patient and what the patient thought about the doctor's treatment plan wasn't that relevant.
The doctor was in charge.
The patient was just there to sit down in the chair and shut up and be a patient to whatever
the doctor wanted to do.
There's a medical journalist named J. Katz who wrote about the philosophy of medicine in
his book The Silent World Between Doctor and Patient.
And he writes quote,
Doctors felt that in order to accomplish the objective they were obligated to attend
to their patient's physical and emotional needs and to do so on their own authority without
consulting their patients about the decision that needed to be made.
The idea that patients may also be entitled to sharing the burdens of decisions with their
doctors was never part of the ethos of medicine.
That wasn't ego or malice on the part of doctors.
It was his belief back then in two points.
Number one that every patient wants to be cured.
And number two that there is a universal and right way to cure them.
So not requiring your patient's consent in treatment plans makes sense if you believe
in those two points.
But that's not how medicine works.
In the last 50 years medical schools suddenly started to shift teaching from treating disease
towards treating patients.
That meant laying out the options of treatment plans for your patients and then letting
the patients decide for themselves the best path forward.
You might have two patients who have the same terminal illness but one patient says give
me all the experimental treatments.
Throw the kitchen sink at it.
And you might have another patient who says just give me some pain medicines and let me
go home.
And either of those two patients can be right.
There's no one right answer about what you should do.
Cats wrote in his book that quote medicine is a complex profession and the interactions
between physicians and patients are also complex.
And I bring this up because I think it's the exact same for money.
That there are no two people.
There are no two kids, no two spouses, no two family members who are going to agree about
what is the absolute best thing to do with your money.
Everybody's different.
Everyone has a different view about how to use money appropriately and how to spend it,
how to save it.
There is no one size fits all rule or advice that you can give your kids or give your family
members.
I think a lot about this with my own children.
We're getting our young kids, they're three and seven.
But as my wife and I think about what financial advice do we want to instill on our children
and start to teach them?
I often get hung up on this question of well I have no idea who my kids are going to
be when they are adults.
Does my daughter want to be a partner at Goldman Sachs?
Does she want to work for Greenpeace?
Does she want to be a kindergarten teacher?
Does she want to be an entrepreneur?
And a lot of the specific financial lessons that I might want to instill in her or my
son would be very different depending on who they become.
I myself am the youngest of three and my brother, sister and I, same parents, same household.
We all ended up very different and we have different philosophies on money and of course
it's going to be the same for my own kids.
So how can I come up with a list of rules of this is what I want to teach my kids.
This is what you should teach your kids.
I just don't think it works that way.
Just about eight years ago is just before my son was born, he's our first child.
I started to think about what were some bits of financial advice that I think would apply
to him no matter who he becomes, no matter where he ends up in life, no matter what profession
he chooses, what are some bits of advice that I've learned myself that I think would
apply to him and to everybody.
So just before he was born, actually the day he was born, I published an article called
Financial Advice to My Son, it's a list of things.
When my daughter was born four years later, I wrote another article called Financial Advice
for my daughter.
The advice was slightly different just because I had learned a little bit more in between
their births.
But I want to lay out a couple of those points because this is I think as close as I can get
to providing universal advice for you and for my kids and for everybody out there.
And remember this is me talking to my kids.
Number one.
You might think you want an expensive car and a fancy watch and a huge house, but I'm telling
you you don't.
What you want is respect and admiration from other people and you think that having
an expensive stuff will bring it.
It might but it very rarely does, especially from the people who you want to respect and
admire you.
I want you to have fun and I want you to buy some nice stuff, but realize there were
people want and are really after is respect and humility will ultimately bring you more
respect than vanity.
True success is when the people who you want to love you do love you and that love comes
overwhelmingly from how you treat other people rather than some level of net worth.
Most important financial advice that I can give is that money won't provide the thing
that you and almost everybody else wants.
Because no amount of money can compensate for a lack of character or honesty or genuine
empathy towards other people.
Number two.
It's normal to assume that all financial success and failure is earned.
And very often it is, but only up to a point and a lower point than many people think.
It's easy to assume that wealth and poverty are caused by the choices that we make, but
it's even easier to underestimate the role of chance in life.
Everyone's life is a reflection of the experiences that they've had and the people who they've
met, a lot of which are outside of your control and driven by chance.
Being born to different families with different values in different countries, in different
generations and the luck of who you happen to meet along the way plays a bigger role in
outcomes than most people want to admit.
I want you to believe in the values and the rewards of hard work, but realize that not
all success is due to hard work and not all poverty is due to laziness.
Keep this in mind when judging people, including yourself.
Number three.
This might sound harsh, but I hope you are poor at some point.
Not struggling and not unhappy, of course, but there is no way to learn the value of money
without feeling the power of its scarcity.
It teaches you the difference between necessary and desirable.
It forces you to keep a budget.
It makes you learn to enjoy what you have and to fix what's broken and to shop for a bargain.
Those are essential survival skills.
Your parents will work hard to support you and open the doors of opportunity as much as
we can, but we are not going to spoil you.
And we're not doing that to try to be mean.
You need to be poor with dignity and you'll handle the inevitable ups and downs of financial
life with ease.
Learning how to live with less is one of the most powerful financial levers that exist,
because you have more control over it than things like your income or your investing
returns.
The person who makes $50,000 a year, but only needs $40,000 to be happy, is richer than
the person who makes $150,000 a year, but needs $151,000 to be happy.
How much you make does not determine how much you have, and how much you have does not
determine how much you need.
Number three, if you are like most people, you will spend most of your adult life thinking,
once I've saved X dollars, everything will be great.
And then you hit X dollars and ever it might be, and you move the goalposts down the field,
and you resume chasing your tail.
It's a miserable cycle to be in.
Save your money and strive to get ahead, but realize that your ability to adjust to new
circumstances is more powerful than you think, and your goals should be about more than
just your net worth.
Number four, do not stay in a job that you hate because you unwittingly made a career
decision when you were 18 years old and picked your college major.
Almost nobody knows what they want to do at that age.
Many people don't know what they want to do until they're twice that age, if even then.
It's okay to change your mind.
It's fine to admit that your values and your goals have evolved.
Forgiving yourself, for changing your mind, is a superpower, especially when you are
young.
This is true for investing as well.
I've noticed a tendency for people to think that they have mastered investing when they're
young.
They start investing at age 18 and they think they have it all figured out by age 19.
But they almost never actually do.
Confidence rises faster than ability, especially in young men.
Learn the skill of changing your mind, discarding old beliefs and replacing them with new truths.
It's hard, but it is so necessary.
Don't feel bad about it.
The ability to change your mind when you're wrong is a sign of intelligence.
Number 5.
Napoleon's definition of a military genius is the man who can do the average thing when
everyone else around him is losing his mind.
I think managing money is exactly the same.
You don't need to do amazing things to end up okay financially over time.
You just have to consistently not screw up for long periods of time.
Avoiding catastrophic mistakes is more powerful than any fancy financial tip can ever bring.
Number 6.
Everything has a price, and I'm not just talking about price tags.
The price of a busy career is time spent away from your friends and family.
The price of long-term stock market returns is putting up with uncertainty and volatility.
The price of spoiling your kids is their own sheltered life.
Everything worthwhile has a price, and most of those prices are hidden.
They're often worth paying, but never ignore that they are true costs.
When you accept this, you'll view things like time and relationships and autonomy and
creativity as currencies that are as valuable if not more valuable than cash.
And lastly, your world will be different than mine, just as mine was different from my
own parents.
So it's okay to reject any of this advice.
Everyone's different, and no one has all the right answers.
Never take anyone's advice without contextualizing it within your own values, in your own
goals, and your own circumstances.
Lastly, I put on these letters to my children, please, for the love of God, let your parents
sleep.
That one, I don't know if they took seriously.
Actually, I can state pretty equifically that they did not.
That was about as close as I could get, though, to coming up with universal values and guidance
that I want to instill in my children regardless of who they've become.
And I think looking back eight years later after writing that, I still feel pretty good
about it.
Maybe when I have adult children, I'll change my mind, I'll come up with some other
different points to tell them, and do I want to teach them?
But I think of the topic of kids and money, family and money, spouses and money.
I think those kind of points are hopefully the things that people can agree on, even
if we live in a world where everyone has a little bit different set of values, in goals,
and risk tolerances, and how they want to use money to build a better life for themselves.
That's all for this week.
Thanks again.
We'll see you next time.
