From the December 2008 issue of Investment Advisor • Subscribe!

Addition by Subtraction

It's more blessed to give than to receive, but philanthropy is a practice your clients' kids may need to learn.

I have seen how money ruins families," says Louise Marie Cole, CFP, principal partner of Heritage Group of Companies in Toms River, New Jersey, and an advisor for more than 26 years. "As an individual it's easy to decide who gets the money and when, but if you are part of a family, the dynamics change. The conversations about values and things they want to see are missing in today's fast-paced world."

Most parents hope that if they instill the right values in their children, the kids will grow up to be happy and fulfilled. But in many cases, we don't do a good enough job of teaching them how they can use money to make a difference in the larger world, and how philanthropy can add meaning to their life.

No matter how much wealth a family has, helping the younger generation learn these lessons is an important part of planning for the future. Tom Rogerson, managing director of Family Wealth Services at BNY Mellon Wealth Management in Boston, often refers to it as "the other side of estate planning." He says, "It's not so much how do you prepare your money for your family, but how do you prepare your family for your money?"

STRENGTHENING THE FAMILY

"Families that stop and discuss their philanthropy with their children--whether it's helping at the local food bank or donating time in a myriad of ways--are far better off as a family," says Cole. "For me, there is nothing better than a good heated family discussion as to which charity should get this year's donation. It may be the only time the family becomes whole. It's extremely rewarding to me as a facilitator to see once-selfish individuals rationally discussing charities that may get the money anonymously."

She points out that instead of just telling clients to use charitable deductions as much as possible, advisors can suggest using these opportunities to teach children how families make decisions and how philanthropy benefits everyone. "If you know you are going to give a certain amount to charity, why not decide as a family where you want the money to go and then create a learning opportunity for the children?" she asks. "You can get your personal message across about which charities you espouse, and perhaps learn about others that your children would like to help. It may be the one thing you do as a family that will keep your kids there for you when you get older."

PARLEZ-VOUS PHILANTHROPY?

But how do you bring up this subject with clients? Here's a suggestion from Barry Kohler, an attorney and chartered financial consultant who works with a number of high-net-worth families at BDMP Wealth Management in Portland, Maine. "When clients are going to have a federally taxable estate, I start by telling them that they can leave what they have to their family, to a charity or charities, or to the government--and the bad news is, they have to choose two of these three," he explains. "Once the clients understand that, they say, 'Oh, tell me more about the charitable part,' because clients like to direct their social capital to causes that are important to them."

Kohler probes further during the planning process. What are the clients' values and attitude towards charitable giving? Have they tried to pass these on to their children? If so, how? By instruction or by example? The result of this exploration, he says, is "a conversation that helps me understand the culture of the family around philanthropy."

"Many wealthy clients find out about family retreats and say, 'Let's have one!'" Rogerson says. "The problem is, they introduce philanthropy too early." He goes on to explain, "Many of these entrepreneurial types are used to making decisions and then telling the family what their roles will be. That doesn't work. Before you introduce philanthropy, you've got to create a sense of 'we.'"

In the workplace, these business owners may know how to get a group of unique, strong, independent individuals to work together as a team. But they haven't built a team at home--a vital element in ensuring the family's survival.

At BNY Mellon, Rogerson follows a five-step process to help family members learn to work as a team. In step one, the entire family discusses issues related to their wealth: making it, losing it, spending it; the impact of spouses, gender, birth order. In step two, the group identifies family members' different communication styles, and explores how to use these styles as an aid instead of an impediment to progress. Step three is a values test: "Now that we understand what the issues are and how to talk about them, what are the values we want to transmit?"

Step four (at last) is charitable giving. "Ideally, we get the children to participate in the design of a family philanthropy," Rogerson says. In step five, the family learns to engage in healthy self-governance, making decisions on such wealth-related issues as fairness and what lifestyle level should be financially supported. "We don't want them to try to deal with those issues on day one," he points out. "If they hold off these discussions until step five, they will generally be able to approach them with a more cooperative and long-term perspective."

HOW SOON CAN KIDS START LEARNING?

Some authorities recommend waiting to encourage philanthropy until children are past the "me" period of the Terrible Twos. Rogerson, for example, finds that "the only time you can't engage family members in some kind of a process is from birth to three years old."

In my experience, though, little kids are often natural givers. Szifra Birke, a wealth counselor in Chelmsford, Massachusetts, points out that a common example is the baby in the highchair who wants to feed you her Cheerios and smiles as you enjoy the gift, or the tot who shares his snack with the dog. "Some studies suggest that primitive forms of empathy may begin at age one or two, such as kissing a parent's hurt finger to make it feel better," says Birke. "Pleasure in giving can start quite young."

Peg Downey, founding partner of the fee-only advisory firm Money Plans in Silver Spring, Maryland, notes that at the age of three her daughter Colleen decided to give away her holiday gift money to the county's elderly poor. Young Colleen's desire to "help grandmas and grandpas who need it" was quoted (and applauded) in the local newspaper.

"Philanthropy can be taught at a very early age," Louise Marie Cole says. "Experiences should be age-appropriate--multiple small lessons allowing a child to feel how good it is to give. For example, you might hand a young child two cookies and then ask, 'May I have one of your cookies?' Your acceptance of the gift, and the big deal you make of it, is philanthropy in action. That child will enjoy the feeling of having given, even if you choose to give the cookie back."

Anne Anderson, a therapist colleague of mine at the Washington (D.C.) Therapy Guild who has worked with young children for years, cautions that kids between the ages of two and five are developing an identity in relation to others, so parents shouldn't require them to give away favorite toys or clothes that they may see as part of themselves. However, parents can familiarize even very young children with giving by allowing them to put the family donation in a church collection plate, or to help make up a holiday basket for needy families.

Cole believes it's important to be open with your philanthropy, explaining your reasons to your youngsters and letting them participate so they can share the pleasure. "Most of what we learn as a young child--three to five years old--is by listening and paying close attention to adults," she says.

Bhaj Townsend, an advisor with Legacy Plus and TRGi of Kirkland, Washington, agrees. "Exposing kids who are two and three years old to what their parents, other siblings, and other people are doing philanthropically is good modeling," she says. "It's best to start with no expectations. Then between four and six, as children start to become their own beings in their own world, you can begin asking them questions about what they see, about what their parents and other siblings are doing. For example, 'How do you feel when we're going to the zoo?'... 'When you see me at a board meeting, how do you feel about that organization?' Get them involved in their own feelings."

For my part, I think the concept of sharing one's wealth can start as soon as the child is old enough to receive an allowance. I would suggest that parents get (or make) a special bank like the one I saw years ago in a toy store. Each of the three compartments of a different color and size. A portion of the child's allowance goes into the first compartment for spending money, another part into the second compartment for savings, and the remaining piece into a compartment for worthy charities. In our instant-gratification culture, helping children see with their own eyes that money can be used for more than spending is a wonderful first step to raise their awareness.

Once kids reach the age of seven to 10, they can start getting involved in philanthropy more intellectually. Lisa Kirchenbauer, president of Kirchenbauer Financial Management & Consulting in Arlington, Virginia, observes that by this time, children should be getting an allowance or at least developing greater consciousness of the power and importance of money. At 11 or 12, depending on how mature they are, they will probably be old enough to start getting involved in the family philanthropy process. "I'm suggesting that they participate with their parents, not do it all on their own," she says. "But I have seen some exceptional children pursue low-level philanthropic efforts a little earlier." (See sidebar, next page.)

Kirchenbauer adds that a child's coming of age may be an ideal time to bring them into the fold. A philanthropic project could become part of celebrating their confirmation, bat/bar mitzvah, or quincea?ero.

TEACHING TEENS AND YOUNG ADULTS

Sally Rudney, executive director of the Montgomery County Community Foundation in Maryland, is a strong supporter of helping kids learn philanthropy. The parents she works with, many of whom are in their 40s or 50s, want their legacy to include charitable giving and involvement in the community. One group of five mothers and their daughters (students at the same middle school) have established a giving circle. Each family started by donating $2,500 to the circle, to be given away to deserving causes within the next two years.

Rudney's foundation is charged with helping the girls learn about philanthropy in this time frame. She explains, "It's not lecturing so much as encouraging the kids to examine the experience of giving and the tremendous rewards to the person who gives."

The girls played a Q&A game in one educational session, asking each other questions such as "How many kids get free or reduced school lunches in Montgomery County?" Since the area has a reputation for above-average income, the others guessed 2%, 5%, 10%. The actual answer--25%--shocked them and sparked a discussion about poverty in the county. They've also visited a farm where workers with developmental disabilities grow food for the homeless and indigent; and have volunteered at a food pantry where the harvest is sent. At the end of this period of education and experience, the girls will vote on how to allocate the money their families gave.

Contrary to the public image of teens as spenders, many have a strong natural sense of generosity that can be reinforced by their parents' example. Anne Slepian Ellinger, a longtime proponent of giving away wealth, shook her head when I asked if she had raised her son, Micah, to be philanthropic. "Not really," she replied, but then added as an afterthought, "Well, one time when he was about 13, he gave away all the money he had in the world to help the tsunami victims." This story made me smile--because his family's emphasis on living their philanthropic values had obviously rubbed off on Micah.

From the age of 15 or so up to 25, children start to use their own voice and make individual decisions. At this point, advisor Kohler suggests, parents or grandparents may want to establish a donor-advised fund and convene the family to decide how the money will be spent. "Maybe at first, the kids just come to meetings," Kohler says. He recommends encouraging them to talk about causes that are important to them, perhaps the environment, music, or a sport. Eventually, the kids may be ready to have more input into how fund recipients will be researched and chosen.

When the kids are 25 to 35ish, their concerns often include relationship issues. "You'll need to find a way to engage in-laws and significant others in your process," BNY Mellon's Rogerson points out. "How can you use philanthropy as a tool to bring these people into the family, and help them learn what it means to be a member of the family?" From 35-up, the challenges typically include how to involve their children in philanthropy...and the cycle begins anew.

GIVING AWAY AN INHERITANCE

Anne Ellinger and her husband, Christopher, have spent most of their lives helping wealthy individuals explore their values and use their resources to make the world a better place. Co-founders of More than Money and now of BolderGiving.org, Anne and Christopher recommend an unusual approach for junior-generation adults in wealthy families. Anne explains, "If they and their family already have enough, we encourage them to talk with their parents or grandparents about putting all or some of their would-be inheritance directly into a charitable fund."

That's exactly what Christopher did. Made well-off by a legacy from his grandmother, he told his grandfather, "I already have more than enough money for my needs. The most meaningful gift you could give me would be to put my inheritance in a fund that Anne and I can use for causes we care about." His grandfather's gift became the Chutzpah Fund, which launched them into their life's work of promoting philanthropy.

This is one of the rare cases where a younger generation educates the older folks about philanthropy. Like the Ellingers, I wish it happened more often. Anne observes wryly, "One of the many things that holds people back from giving boldly is their fear that their kids will be angry with them for not leaving them more."

Whatever your approach, my conversations with advisors, dedicated donors, and community leaders have strengthened my own appreciation of the power of philanthropy, and the usefulness of modeling a philanthropic life for children as early as possible. Helping families learn to function as a philanthropic team is a wonderful gift in itself--one that will help your clients strengthen their family legacy and pass on its values.

Reprints Discuss this story
This is where the comments go.