How Should You Distribute Your Wealth?

The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more.” – The Millionaire Next Door

Whilst reading through The Millionaire Next Door, this quote is what stood out the most.

People have been toting the phrase “the generational wealth gap” for decades. They say that wealth begets wealth and that the poor cannot compete. Why then does this book that was written over 30 years ago say that the opposite is true? And why does it resonate so much with me?

Throughout my adult life, I’ve always been quick to commit myself to thrift. It didn’t take me long to realise that this was due to being raised in a low income family. Because of this, I went into the world of work knowing that happiness can be obtained without a big price tag. When my income grew substantially, I quickly discovered that increased spending didn’t necessarily correlate to an increase in happiness. In fact, I discovered that spending less can sometimes make you happier.

But what would have happened if I grew up in a high consumption household? Would I be stuck in an endless hyper-consumer loop for the rest of my days? I would have never known happiness without consumption, how would I know that there is an alternate, much better way to bring myself joy? This difference in my life may well have slowed down my current Financial Independence trajectory, or even halted it completely.

The book goes into more details below.

Consider for a moment that you are a typical affluent parent. You noted that your oldest son or daughter even at an early age was extremely independent, achievement-orientated, and well disciplined. Your instinct is to nurture these traits by not trying to control his or her decisions. Instead, you spend more time helping your less resourceful child make decisions, or you actually make decisions for him. With what result? You strengthen the strong child and weaken the weak.

This book analyses hundreds of millionaires and the main mantra throughout is that the vast majority of these people were the first in their generation to accumulate this amount of wealth. They made their millions by being frugal, determined, and in a lot of cases, through necessity. These millionaires had a much better gift from their parents than money, they were taught thrift, discipline, and most importantly: how to fend for themselves. Everything that they wanted to achieve, they needed to obtain it on their own.

Discipline and initiative can’t be purchased like automobiles or clothing off a rack.

A lot of affluent parents tend to give large donations to their children to try and help them start a successful business or pay off their yearly expenses. What they don’t realise is that they are actually hindering them. Success and wealth is manifested within individuals that need to work hard in order to achieve something, generous donations cause these traits to dwindle and die.

A large contributor to the success of a business is the risk of failing. If you need something to succeed, you are bound to work a lot harder in order to ensure that it definitely does.

Risk is what has fueled some of the most successful companies of our time. Who do you think is more likely to fail? The entrepreneur who had £50k gifted to them by their parents, or the business owner that had to remortgaged their family home for this sum?

Suppose you have a ten-year-old child who goes in for a physical checkup. The examining physician tells you that your son or daughter is underweight and underdeveloped. How would you respond to this evaluation? You would find ways to improve your child’s physical health. You would likely encourage your child to exercise, take vitamins, life weights, and perhaps play sports. Most parents would attack such a problem proactively. Wouldn’t you find it odd if the parent took the opposite course? How would you respond if the parent encouraged his child to eat less and exercise less?

I have seen these mistakes manifested within my own life. My partner is the middle child of three children. Her parents, still happily together, were raised along the poverty line. This lifestyle prompted her father to work hard to create a better life for himself and his family. He never shied away from staying up late and, with determination, he came to own a multi-million pound business later in his life.

My partner has always been the more independent child of the three, working three jobs in her teenage years, she never accepted money from her parents. She left home at 18 to get a degree and never moved back. But what has happened to her brothers?

Her eldest brother, of three years, let’s call him Luke:

Luke was somewhat on the same trajectory as her sister. In his younger years, always working whilst he was a teen, showing traits of discipline and determination. He, however, struggled in high school. Not achieving good grades, his father, who had started prospering in the business world, wanted his son to be successful. So he thought he would make use of his status as CEO and hire his wayward son as an upper Manager of his business. “This will help give him a start with his career.” He thought.

What did happen? Now, 12 years on, the Dad, being his boss as well as his father, felt he owed it to his son to give him bonuses, continue to pay for his meals and holidays, and a lot of other expenses. This created a bubble of wealth around Luke, he had it good, why would he ever want to leave?

Luke stayed at home rent free until he was 28. He then moved out into rented accomodation with a friend. He still works for his father. He’s been ‘fired’ and bought back 2 times due to always being late to work or not coming in. He’s turned into a prodigious consumer, always moving on from hobby to hobby, spending all of his money on new things and holidays. He is the type of person who preaches that he’ll never own a mortgage. ‘Mort’ means death in French he says, you’ll never pay it off until you die.

His father is now worried about Luke, he’s starting the process of selling his company and retiring, but he’s having second thoughts because he doesn’t want his son to lose his job. If he did get fired for good, he doesn’t think he’ll be able to cope on his own.

What Luke doesn’t realise is that when his father ‘gifted’ him with that upper management position all of those years ago, he took away his independence, his motivation, and his own life. We’ll now never know what Luke could have become on his own. His father is already discussing giving more of an inheritance to Luke as he “helped him with his business”, but really it’s because he’s worried about him. What he doesn’t realise is that he’s continuing to strengthen the strong children and weaken the weak.

Things aren’t going so well for my partners younger brother either. Being the youngest by 7 years, he was born into a life of true wealth. Let’s call him Timmy…

Timmy is what you might call a spoilt child. Growing up, his parents doted on his every whim, instantly buying him whatever he asked for. Failing at school due to not wanting to spend his time at home studying, his parents decided to move him into a £5000 per term private school for his last 2 years. “Surely he will achieve better grades here?” They thought.

They were unfortunately wrong, money doesn’t buy good grades. He failed secondary school and had to spend an additional 2 years re-taking his core GCSEs. After passing with C’s he eventually decided that he would take an NVQ in ‘outdoor activities’, like his brother he enjoyed many different expensive hobbies, so why not take a course doing what he liked doing?

Throughout this time his father was trying to convince both him and his brother to start an outdoor activities business. He said he would fund it and buy the land, he desperately wanted them to be independent and happy. But Timmy and Luke didn’t have the motivation to commit to such a task, it would require so much effort!

In recent days Timmy decided that he wanted to go into videography after his father spent over £2000 on a drone and a ludicrously expensive camera. He’s not had any clients yet but his father has also recently spent over £5000 on an Intel Xeon computer for his son and his video editing, he asked for the most expensive PC in the shop, only the best for him!

What do you think is going to happen to Timmy? In all likeliness, his new venture will fail. As soon as he gets bored of this hobby, he’ll move onto the next one. His father has sucked out any bit of determination that ever manifested in Timmy by providing an environment that doesn’t require him to ever have any. He wrongly assumes that money is the answer, when in fact it is discipline and independence that Timmy needs. I fear, like his brother, it is now too late for Timmy to find his own path.  

So, what has this book taught us?

For me, it affirmed what I have been thinking about for a long time; that you should be very careful when giving money to your children, as if it is done incorrectly, it will damage them.

I plan to send my kids to public school and I intend to never give them anything, they will have to earn what they get. Instead, I will use the saved wealth to spend more time with them, to give them quality experiences and to teach them how to become independent, disciplined, and strong human beings.


22 thoughts on “How Should You Distribute Your Wealth?

  1. Anecdotally, all my cousins with well off parents and potentially life changing inheritances are useless parasites.
    As one of 6 children and with modest parents, I’ve never expected to inherit the family silver spoons- and it has spurred me on in life.

    As a father now, i worry of how much to treat/spoil my kids. It’s not an easy way to predict what consequences your actions will have in 20-30 years.

  2. Sharp observations – i hope you don’t get in trouble with the in-laws now 😛

    It seems so simple – and I had the exact same – let’s call them ideals – when I was your age. – But then I grew wealthy and had a kid…

    Giving out parenting advice is so easy, when you dont have kids 😛
    (Which is why I Per default dont take parenting advice from non-parents 😛 )

    My parents were not wealthy either. I never felt like we were poor – I had everything I needed, but I know that they struggled from time to time. Passing this “Poor Mans mentality” onto your children when you are in fact not poor, is extremely difficult!
    Good luck, when you get to that point 😉

    You might be able to, as you technically do (almost) live like a poor man 😛

    1. Haha, luckily, they don’t know about the blog. I hope they never find out!

      Yeah, I concede to that – it might all change when/if I do have children.

      Living like a poor man is the best way to live!! Haha.

  3. As the only child and having no siblings my parents gave me everything I wanted until they took a large amount of debt that didn’t turned up well. My parents being broke meant that I would have nothing I was used to. While that wasn’t very funny by that time, I now believe it has made a much better person, stronger and determined. I’ve got no kids yet, but I will certainly do the same as you, give them nothing they haven’t earned by themselves and hopefully spend more time with them if I never become really financially free.

    1. Make em work for it Tony! 😉

      Sometimes seeing your parents go from wealth to debt can make you even more determined to save (so it doesn’t happen to you). You’re lucky in a way that they learned that lesson for you, instead of you being the one getting into debt and learning from it.

      1. Exactly! That’s the primary reason why I’ve never taken any debt and probably why I haven’t bought a house yet. You just gave a new post idea! You are such a great a inspiration man!

  4. I grew up in a wealthy family (private education, Upper Middle class lifestyle regular overseas holidays etc) so had the examples of lifestyle inflation and I certainly aspired to have the same myself and make good money .
    However my dad is self made and I was always taught the value of money. I worked from being 16 and other than a couple of thousand towards my first property (a shared ownership 1 bed flat I bought 40% of) everything I have is mine alone . I’ve literally just started accepting gifts off my dad at the age of 38. He made up the difference to allow me to get to 60% ltv and a ten year fix on my mortgage (about 10k) after my having paid off over 40k in two years following a divorce by getting lodgers in, and he’s gifted me some more towards some house renovations. I have no ‘need’ for his gifts but allows me to do them without selling my investments and I am always in a position to pay them back if I have to.
    In contrast my step sister constantly moans about them interfering in her life but has quite happily taken 100k off them toward her first house. A 3 bed semi. When I suggested she try living within her means and buying a small flat thus negating the need to borrow money she looked at me like I was nuts and said ‘I don’t want to live in a pokey flat’

    1. This is what I glossed over a bit in my post. The Millionaire Next Door suggests that you can still distribute your wealth sensibly (like you’ve mentioned here). He says that you should only give “gifts” when the child has demonstrated that they are independent and have made their own way, then they will know how to properly manage it and it won’t affect their attributes in a negative way.

      1. Yes I think that’s fair. My step sister had her rent paid until recently by my dad and step mum. I don’t begrudge it were in very different positions financially and it’s much harder now but I like being in control of my own destiny and that if I disagree with my parents I don’t feel I can stand up to them because I’m reliant

  5. I grew up in a big family, parents were working class and grafted hard. They saved and invested what they earned and were able to retire early (my dad in his 50s, my mum in her 40s) They passed on their work ethic to us, ie you don’t work hard, you don’t get paid. The two occasions when my parents gave me money (as an adult) were loans for two of my cars and I paid back every penny.

    I already see that my niece and nephews see money differently from how I did when I was their age because their parents are a lot wealthier than mine were. It’s a tough but perhaps balance is the key.

  6. My parents were the original stealth wealth millionaires next door. My brother and I were raised poor and were both millionaires on our own doing before we inherited our parents unnecessary millions. My kids were also raised like they were poor so I don’t worry about any negative impact from the millions their mother and I will hand them some day. Being wealthy doesn’t have to make you a bad parent. That’s a choice.

  7. Agreed! Good post. I agree that simply giving your children everything they ask for is a recipe for trouble. As you say, it seems a much better use of your wealth to encourage them and reward them for working hard.
    I suppose one difference that money makes is choice. You’ll be able to encourage your children to try a variety of different activities and clubs, knowing that you’ll have the money to fund it, whereas someone who’s not in such a privileged position won’t have that same option.
    I especially like your idea of using your financial freedom to not have to work, and instead spend more time with your children. I think that will have a huge impact on your children’s well-being and development.

  8. Any parent knows that statistics and averages go out the window when you have kids. We just have two, and my husband and I raised them similarly but they are very different. Gee, I guess people are there own unique beings, even children. I know children of well-off parents who are wonderful people and not so wonderful. Same with parents who aren’t well-off. We do the best we can with our kids, and I’m sure many parents do the same even when they make different parenting choices than we do, including following (or not) whatever Millionaire Next Door or other books say.

  9. Good post TSN. I agree with a lot of that and I do like the Millionaire Next Door.

    What I would add is that it seems that those who really succeed are those with everything or nothing, those in the middle find it harder. My speculation is that at the extremes you have nothing to lose from taking a risk and it going wrong. If you have nothing and things go wrong you’re no worse off that you were before. If you have everything and things go wrong then your day to day life won’t change very much.

    I think that is why there are a disproportionate number of actors that went to private school. The risk of trying to make it in acting is reduced if you know that you don’t have to worry about food and rent.
    In the money space I don’t think it’s coincidental that Bill Gates, Steve Jobs, Richard Branson, Elon Musk, Mark Zuckerberg, James Dyson and many other entrepreneurs had private education and so (I believe) would have family wealth to fall back on should things have gone wrong.

    Ultimately I reckon this supports what you’re saying which is that the issue is not the family wealth per se but how it is given to the next generation.

  10. I agree with pretty much every point you and TMND make here, but let me play devils advocate for minute on a few points:

    1. I wonder if there is any selection bias in TMND’s picking of the people they looked at? I mean I presume they had a premise to writing the book before they started, and not everyone would want to speak to them either, so there is every chance they just picked people that lived up to their pre-existing hypothesis on how to become a millionaire? (I haven’t read the book so apologies if this is addressed in Chapter 1 or whatever and it says it is totally random how they picked their millionaires. Even so I would still be dubious though). If I were self made I think I would be much more likely to want to share my story than if I’d just inherited a mill from the folks.

    2. On the “You strengthen the strong child and weaken the weak” argument, we all know people like this and it just feels intuitively right (and it probably is tbf) but the thing is we have no scientific proof to point to (not from TMND or pointed to in this post at least, I may go off and try to find some though just out of interest). The anecdotal evidence we give is just that. There is no control world where the exact same child was brought up differently. Maybe Mrs Ninjas brothers would have become hopeless drug addicts if they had received no help from their parents and would be dead by now? Sorry to get all dark there, but my point is that you just never know as there is no parallel world running to see what would have happened. Definitely a bit of confirmation bias going on with this one (me included, as I say I agree with the points you made and use personal examples to back up my thoughts as well).

    I mentioned about my sister-in-law still living at home while her two younger siblings are out and about in the world being independent. While they do help her out more financially (by definition as she is living there for eff all rent) and she does little around the house to help them and we all find that a bit annoying, but the in-laws let her get away with it, so we obviously then assume that is the reason she is lazy… and yes, that might be part of the problem.

    But thinking about it, they have treated every child exactly the same from what I can tell when they were children (if anything you would have thought the younger children would have been more spoilt/pampered as that is usually the case). So maybe it mostly does actually depend on the child, who as a commenter above points out are real human beings and can pretty much do what they want.

    Certain personality types respond to different incentives so I think the real challenge is to figure out what type of person your child is at the youngest age possible, and then adapt your parenting style to suit each one.

    There is clearly no one size fits all advice on parenting that is for certain.

    Cheers as always for a thought provoking post 🙂

  11. Good post from the writer. I agree with a lot of points. Also want to add Real estate portfolio. It is nothing but the practice of managing wealth that will help to reach long-term financial goals.

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