Giving with a Warm Hand: Smart Inheritance Strategies for Modern Families

Preparing the next generation for substantial wealth begins with instilling values long before writing checks. Allowing young adults to experience financial scarcity teaches the true worth of earned income, ensuring that when significant family wealth is eventually transferred, it strengthens their future rather than compromising their drive.

Excerpt below from Morgan Housel's podcast. Morgan Housel is the New York Times Bestselling author of The Psychology of Money, The Art of Spending Money, and Same As Ever.

The Question: Navigating the Greatest Wealth Transfer in History

The first question comes from Ross from California. And Ross asks:

"Given that the next 10 to 20 years is going to see the largest generational wealth transfer in our country's history, what advice would you have for parents and grandparents as they prepare to transfer some of that wealth? Keeping in mind that a college degree for grandkids 10 or 20 years from now may not provide the same benefits that it did for previous generations, and mindful that significant wealth transfer can have both positive and negative benefits. I'd appreciate your thoughts on this topic."

Ross, thank you for your question. And I have several ideas and thoughts about this topic of money and kids—particularly passing down money, which is not just a topic that applies to very wealthy people. Lots of very, let's call them middle class, middle of the road, ordinary people, are going to have some amount of money to both support their children while they're still alive and pass down to their children after you pass away. This topic affects many, many people, and probably the vast majority of you listening right now.

Beyond Financial Gifts: What Dying Parents and Children Value Most

Let me start off with a story that I heard a couple of years ago, and it was one of those that just stopped me in my tracks—that's an incredible story. It was a story from a priest who had worked in a hospital for many decades, and part of his job in the hospital was performing last rites. A big part of that are children whose parents are dying, whose parents are about to die, who come to the priest and say, "How do I say goodbye to a parent who meant so much to me? It's such a big deal, and how do I make any sense of this?"

And the advice the priest had was: go into the room where your dying mother or father is and tell them the one thing that you are the most grateful for that they did for you as a parent. That's the most meaningful thing that you can do.

But the priest had a very interesting insight. He said in relationships—in families where he knew that there was a lot of tension and a lot of strain, not a very good relationship between the children and the dying parent—he said almost always what the child thanked the parent for was financial.

"Thank you for putting me through college. Thank you for buying me a car. Thank you for the support you gave me."

Whatever it might have been, it was a financial thank you. It was something tangible that they purchased.

The priest said, in families that he knew had a very good relationship between the parents and the children, the child every single time said the same thing, which was:

"Thank you for believing in me."

And I love that story because there is so much in financial media that talks about what money can do for you. And there's a lot that money can do for you. There's a lot in which money can give you a better life, of course—absolutely. There's an even longer list and a bigger topic of what money can't do for you. And I love that idea that when people are looking at the wholesomeness of their life and thinking about what a parent did for them, the people who had the best relationships, it was never about what you did for them financially.

Now, I want to help my children financially. I've actually evolved my views on this quite a bit in the last couple of years, which is maybe the question that Ross is talking about. I have two young children; they are still young, elementary school. But I love the idea that my goal as a parent is not to raise good kids; it's to raise good adults. I want to instill in them values that are going to help them grow to become good adults 10, 20, 30, 50 years from now. That is the idea. And can I use money for that? I sure hope so, and I try, and I want to do it.

The Inheritance Dilemma: Why Traditional Estate Timing Falls Short

But of course, this is an endlessly difficult topic. Charlie Munger once told the story—I may have mentioned this before; it's a good story, so I'm going to tell it again. He said one of his very wealthy friends came to him and said, "Charlie, if I leave money to my children, is that going to ruin their ambition?"

And Charlie said, "Of course it will, but you still have to do it anyways."

And the friend said, "What? Why do I have to do it anyways?"

And Charlie said, "Because if you don't, they will hate you."

And maybe that's overstated, as a lot of things he said were, but I think there's a lot of truth in this. This is a very, very difficult problem to solve: how do you use money to benefit your children without spoiling them?

Here are a couple of my thoughts.

Number one, the antiquated idea of waiting to give money to your children until you have passed away does a lot of harm in the world. I think there is literally trillions of dollars in the economy that passes from generation to generation with very little benefit. And what I mean by that is a 90-year-old parent dies and leaves their money to their 70-year-old children who probably don't need it that much. They've already made it through life up to age 70. They probably already have a house. Maybe it's not the greatest life ever, but it's their life, and they don't necessarily need it at that age. And then those kids hold on to the money that they don't necessarily need, they die when they're 90, and pass it along to their 70-year-old children who don't need it that much.

And so the idea that I love—I read this in Lloyd Blankfein's biography recently—he said:

"It's much greater to give with a warm hand than a cold hand."

Because when your children probably need your money most is not when you die and they're 70. It's when they're 30 and they're trying to buy their own house, put themselves through college, maybe pay off their student loans, have children of their own, and are staring down child care costs and health care costs, working 60 hours a week and hanging on by a thread. That's when they need your money.

That's been the biggest shift in my thinking with this over time: yes, I want to use money to help my kids. I want my kids to inherit some of my money, but I want them to do it during the most meaningful portions of their life, which is not, hopefully, when I die and they are older, established adults.

The Spoiled Child Myth: Nature, Nurture, and What Money Actually Amplifies

The problem with this for a lot of people—if you hear that, what a lot of people will say is, "Yes, but if I give money to my younger kids when they're young adults, it's going to spoil them. It's going to ruin their ambition," sort of what Munger just mentioned.

Here's my evolving thought on this. Now, this is not an academic study, but it's something I increasingly believe just the more that I see it all over the place: giving your children money almost certainly will not spoil them.

Now, it's possible that you give your kids money and they turn into spoiled little brats. My theory is they would have done that anyway, regardless of whether you gave them money or not. There's so much evidence at all stages of your life that having more money, whether you're earning it yourself or getting it from other people, just exposes who you already are.

And yes, there are lots of trust fund kids who got a lot of money—or even not trust funds, just inherited money—and they turned into ungrateful little brats. But let me tell you, of course—this is not a bold statement—there are lots of people in the world who did not inherit money, who do not have lots of money, and they are little brats themselves. They have all kinds of personality traits that you would not find pleasant. And it is very common that if an unpleasant, ungrateful person happened to inherit a lot of money, we automatically make the jump and say, "Well, the reason that they act like that and they have that personality trait is because they inherited all the money." I don't think that correlation always exists, or if it does, it tends to be very loose.

The flip side of this—and this is maybe what changed my mind on this topic the most—are the number of people who I've met who have come from very wealthy families, who had access to lots of money when they were young, and they are some of the most pleasant, down-to-earth, empathetic, hardworking, taking-responsibility-for-their-own-life people. And it's very common in that situation to say, "How did your parents do it? They gave you all this money, but you're not spoiled. How did that work out?" I think that's just who they were. Even if they did not come from a family that had lots of money, they would have been good people.

Now, it is frustrating as a parent—I deal with this a lot—to understand on the nature-versus-nurture spectrum how much of your child's personality is probably nature and not nurture, and that everyone's personality was forged many, many years ago before you were talking. What we do as parents, yes, of course, has an impact and you can guide them in the right direction, but by and large, the kids are who they are. And I think a lot of parents, being scared of turning their kids into spoiled brats, have withheld financial support in a way that—if they gave them financial support—the kids are probably going to be who they are regardless.

I have known people in my family who have, let's say, three siblings. All of them inherit the same amount of money at the same age, and the variance of outcomes among those kids can be extraordinary. You can have one sibling that blows everything, is irresponsible, goes into debt, and ends up in rehab, and another sibling who came from the same parents with the same values from the same household, who gets the same amount of money, saves everything in index funds, and leaves it alone for 50 years. That is a situation where the money didn't ruin the person; the person already was who they were.

So my biggest point and takeaway for this, Ross, is I want to use money for my kids soon, when they need it the most. I don't want to wait until it's a generational transfer; I want to make it an in-life transfer.

The Value of Early Friction: Why Young Adults Need Scarcity Before Support

Now, when both of my kids were born, I wrote them a letter giving them some financial advice. Now, of course, there's more to life than finance, but that was my field, so I wrote them a letter giving them some advice on what I hope for them in the future. And one of the things that I wrote is: I hope at some point you are poor.

I said not struggling, not flat on your face, of course, but you only understand the value of a dollar when you experience its scarcity.

And so I hope this doesn't contradict anything that I just said—I don't think it does—but I do want my children, when they are very young adults, maybe in college or just out of college, to struggle a little bit. To struggle enough so that they do understand the value of a dollar and that they understand what it takes—that this is not like oxygen that's always available, it's something that requires work and dedication and providing value to society. That I want.

What I want to do is, hopefully, when my kids are beyond that early adult phase of their life and they get into their 30s, 35, whatever it might be—they're married, maybe they have kids, they're looking to buy a house—that's when I want them to get effectively all of their inheritance.

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