S2 E1 - Raising Healthy Children in the Land of Wealth, Part 1 ft. Dr. Jim Grubman
Download MP3Welcome to the second season of the Our Family Office podcast. I'm your host, Adam Fisch. Over the course of this season, we'll be discussing the rising generation: Children raised in wealth who eventually grow up to raise children of their own. You'll hear from experts in the field who have a deep understanding of the unique challenges faced by wealthy families who want to raise the next generation to be resilient, well adjusted, and happy.
Adam:For today's episode, I was delighted to be joined by Doctor Jim Grubman. Doctor Grubman is an internationally recognized consultant to families of wealth, family enterprises, and the wealth advisory industry. Doctor Grubman has been honored with the 2024 Lifetime Achievement Award by the Family Wealth Report and the 2024 Richard Beckhart Practice Award from the Family Firm Institute. He is the author of the renowned book Strangers in Paradise: How Families Adapt to Wealth Across Generations, and co author of Wealth 3.0: The Future of Family Wealth Advising with Dennis Jaffe and Kristin Keffler and How Global Families Navigate Change Across Generations with Dennis Jaffe along with multiple other publications. Doctor Grubman is a leader in the Ultra High Net Worth Institute, an industry think tank, and holds fellow status in the Family Firm Institute and the Purposeful Planning Institute, as well as membership in STEP, an international trust in The States organization. His practice, Family Wealth Consulting, is based in Boston, Massachusetts, USA.
Adam:Now, if you couldn't tell from that biography, Doctor Grubman is a legend in our field. And I'm so grateful for his time. I found our conversation so illuminating. His knowledge, his experience. We talked about raising children with wealth. We talked about the importance of family communication. Our conversation went in a bunch of different directions. I really enjoyed it. I'm sure you will too. So you'll hear it now, and you'll hear part two of the conversation next week.
Adam:Jim, thank you so much for being here. Looking forward to our conversation.
Dr. Jim Grubman:Well, thank you very much for having me, Adam. I'm looking forward to it.
Adam:So this season is gonna be all about the rising generation, the next generation, sort of the young people or young adults that are coming into the world, having experienced family wealth. So I wanna start on a positive note. There's been a lot of talk over the years in various cultures about the shirt sleeve to shirt sleeves in three generations idea. Right? It's been different languages, different countries, and many people kinda take it as gospel, but you've helped shine a light on some of the flaws in that belief. So can you talk about where that idea comes from and the work that you've done to show that it's maybe less accurate than people think?
Dr. Jim Grubman:Well, that's a great place to start because although it was wonderful when it was first discussed during the era of what I have called Wealth two point zero, the last forty years and the development of the wealth management industry, it started to take on a life of its own that may not always be great. The idea is what's called an antiquity adage. And the proof of it is that it is in every culture. So of course, it must be true.
Dr. Jim Grubman:And it also makes a great story. Gee, did you know there's clogs to clogs in three generations, rice paddy to rice paddy. I mean, it just sounds really good. And it is often an intro that people use to start to warn people about whether they can avoid the curse of shirtsleeves to shirtsleeves. It also has been bolstered in our culture, by supposedly the idea that we have proof of it, that we have data. And of course, we all love statistics.
Adam:Especially when it backs up a story.
Dr. Jim Grubman:Especially when it backs up the story. And therefore, again, it must be true. 70% of wealth transfers fail by the end of the second or third generation or whatever. I did a deep dive in looking at the statistics part that had been cited by a whole variety of people, especially the Williams group over the years. And I found that actually, all of it pointed back to only one small study from the 1980s that had very limited applicability.
Dr. Jim Grubman:It was one industry with 200 businesses. And basically, it had been taken way out of context. But everybody started saying things and their basis for saying, oh, yeah, this is true, turned out to be this one study. So the combination of the statistics and the supposed universal wisdom of shirtsleeve to shirtsleeves has always said, wealth does not survive three generations. Maybe if you do a certain number of things, you can make it happen a little longer. But it actually turns out we have very little evidence for that.
Adam:And why do you think it is such an appealing story for people? Like what is it about this idea of, well, children born into wealth will be naturally less ambitious, less responsible, and the family will end up back where it started? Like, what do you think the underlying appeal is for people to so readily believe that story?
Dr. Jim Grubman:I can point to at least a couple things. One of which is, I mean, how many movies, TV shows, books, have you ever encountered that had anything good to show or say about the rich? I mean, we love drama. And it makes a good dramatic story, the downfall, the failure. And general society has a very ambivalent relationship with the rich. There's a term called hostile envy of the rich, where it is two sides of one coin. On one hand, everybody wants to be rich. But at the same time, they also are angry at and think that the rich are really terrible people. But of course, if you became rich, then you wouldn't be that way. You know how those people are.
Dr. Jim Grubman:The other thing, though, which is I think a more understandable human aspect, is a lot of it comes down to the anxieties of the first generation of wealth, wealth creators. If you're a good parent, you want your kids to turn out well, and your grandkids. And the circular nature of this is that there are some natural fears that, oh, this wonderful thing that I was able to achieve and help my family, I hope that there's no downside to it. I hope that I haven't made a mistake that inadvertently, it'll damage my family, it'll damage my children. And wealth creators tend to have this kind of innate, natural anxiety, worry that what has happened is not going to help their children.
Dr. Jim Grubman:And they come into wealth management and they sit and talk with us as wealth advisors. And the first thing is sort of, I want my kids to turn out well. The meaning being underlying is I'm afraid they won't. So when you have shirtsleeve to shirtsleeves, and you have the supposed statistics, it doesn't just say, gee, your worry is understandable. Your worry is natural. It says your worry is true. And that takes it a whole nother level that we need to back away from.
Adam:And you talk about the anxiety of the wealth creators, and I love the analogy that you and Dennis Jaffe sort of coined this idea of wealth creators being immigrants to the land of wealth, where their children are native born, much as, you know, the analogy is being immigrants to a new place versus their the immigrant children who are born there and those differences. Can you expand on that a bit for those that aren't familiar with it and how it highlights some of the unique challenges that the rising generation faces?
Dr. Jim Grubman:Well, this grew out of some review article that we did way back, actually twenty years ago, around 2005, 2006. We brought together a lot of the writings about the psychology of wealth. And in doing so, we looked at the demographics of wealth. And we found that in study after study, it was really clear that about 80% of the wealthy had come to that wealth in their lifetime. We often think of wealth as well, there's old money, there's new money, but actually, not only is it that way in most advanced cultures around the world, but in emerging countries, it's like 90% and more.
Dr. Jim Grubman:And so it dawned on us, if you are born and raised in one economic culture, not class, I mean, there are issues about class. But if you imagine it as a socio economic culture, like middle class, working class, poverty. And during the course of your lifetime, you become wealthy, you have migrated socioeconomic level or culture, and you now live in a very different kind of culture. The idea that culture could be economic, not just racial or geographic or religious, was the revelation. And we realized that that made a lot of sense for what we hear in working with families that, as you and I were just talking about, wealth creators say things very much like immigrants to a new land say, which is, you know, I look at my children or my grandchildren, and I think they have no idea where I came from.
Dr. Jim Grubman:You know, their life is so much different than mine at their age. How do I get across to them the things that helped form me that actually were important in my being able to make this journey? And how do I preserve our heritage, given the fact that we live in a very different land now? And that led to what we've called the immigrants and natives metaphor.
Dr. Jim Grubman:It also is really helpful in understanding some of the family dynamics that go on in wealthy families. They actually have a lot of dynamics, not unlike immigrant families, in which, you know, the first generation, the wealth creating immigrant generation keeps pointing back to the old country, and talking about it, and advocating for it, sometimes trying to preserve it and create the home as if it is still the old country and you never left. And then the second and third generation that says, well, that was really great, but that's not where we are now. And I know actually much more where we're living now than you do. I'm born and raised here. And some of the generational clashes that go on. So a lot of things fell into place, which have been very helpful in working with wealthy families.
Adam:Yeah, and thinking about that cultural divide, when you have immigrants that come to a new country, you know, geographic immigrants, they, as you said, they often try to hold on to some of that old culture, and they see value in it, and they see, you know, nostalgia, or they try to bring some of those values in the wealth immigration kind of analogy. They're trying to hold on to maybe something that is really valuable and has merit, this idea of, you know, whether it's the hard work that it took to get to where they are or being conscientious about money. Like, it comes from a good place, But it can present challenges to communicate that idea to kids that have grown up really with abundance.
Dr. Jim Grubman:Well, I think you just put your finger on it, which is if you were born and raised in an environment of scarcity, it can be tough making the transition to an environment of abundance. And if you're born and raised with abundance, you will not necessarily know scarcity. And again, if you're a good parent, that's kind of a mixed blessing. It's like, well, but scarcity was important in making me who I am. It taught me things, I learned skills, I have certain values.
Dr. Jim Grubman:I haven't written much about this. But an analogy that I often use is, imagine if money were water, and you grew up in a desert environment. I mean, we have the science fiction of like Dune, which is like the epitome of there is no water around. And look how people have adapted, like cherishing every drop of water, your own sweat, things like that. If somebody from Dune moved to Earth or any planet where water was abundant, just imagine the transition and adjustment that they would have to go through.
Dr. Jim Grubman:And that anxiety again, that would be natural of yeah, but this could go away anytime. You should always be careful, don't run the faucet that much. And imagine what they would be teaching their kids. And imagine also the kids who would look at a parent who comes from a place that has such scarcity and says, yeah, that's true. But you know, there's plenty of water around. We don't have to do that anymore.
Adam:We turn the tap on and it never runs out. It's not going to run out. What are you so worried about? Right?
Dr. Jim Grubman:Exactly. And I think that's the image, which is suppose you really moved to a place where that scarcity did not exist anymore. First of all, you would remain skeptical for a long time that yeah, but just wait or it can happen or, have I told you about shirt sleeves to shirt sleeves? It's sort of like, yeah, maybe not now, but someday. But the other thing is old habits die hard. And old perspectives and values can die hard. That the idea of being prudent, being careful, respecting and being grateful for having resources in abundance. Passing on those things is still perfectly good and in fact valuable. But you have to find a middle ground. And know my book, Strangers in Paradise, I talk about the three different ways that people can sometimes make that adjustment.
Adam:Yeah, so I think this is a great place to talk about that. So those three ways avoidance, assimilation, integration. As you said, I think parents' goals in so many cases are noble. They want to pass on good values. They want to show their kids that they should be appreciative, even if the way that those values manifest in the parents might no longer be perfectly applicable to the kids and how they're gonna live their lives.
Adam:But everyone is sort of coming at it from a good place. So explain those those different strategies and what the impact can be on the next generation and on the relationships between parents and that next generation.
Dr. Jim Grubman:Well, it's funny. Let's continue perhaps with my metaphor or analogy about water. And suppose you came from a desert planet, and you now lived in planet of water abundance. Cross cultural psychology and social anthropology has a lot of research that tells us that essentially, there's three main strategies by which people make an adjustment from one culture to another. One is - and the two dimensions that are important are the degree to which you hold on to, or let go of the culture that you came from matched to the degree to which you take on or keep away the culture that you are now in.
Dr. Jim Grubman:All right. And so it creates a little bit of a matrix. And I will briefly mention the fourth element in that. One strategy for adjusting is not to, you don't. That basically you hold on to the culture of where you came from, and you keep away and do not engage in adjusting to the culture that you're in. And that's called avoidance, in my parlance.
Adam:So that would be sort of almost like the stereotype of the old miser, right? It's the wealthy person who built this fortune, but doesn't want to spend a dollar on a new pair of shoes or sort of right? They want to hoard it all because they're so worried that it could go at any time.
Dr. Jim Grubman:Exactly. And to even draw it out further, some of that is not just their attitude or something, some of it is habit. It's sort of like they're more comfortable. They understand they know how to live in a scarcity environment and mentality. It's natural hoarding the toothpaste and things like that.
Dr. Jim Grubman:And so if you come from a desert and you yell at people for running the tap too long or don't waste
Adam:Keeping the lights on.
Dr. Jim Grubman:Yeah, it's the equivalent that at some point, it's like trying to preserve the old culture in the new and not making much of a transition. And ironically, particularly for general society, a lot of people in general society think that's great. Because it's like, well, yeah, you should always remember, and it could go away at any time. They can relate to a scarcity mentality.
Adam:And it goes back to kind of some of that resentment of the rich, right? That if you're not acting like it, then that's somehow more noble or more honorable that you're kind of remembering the scarcity that got you there.
Dr. Jim Grubman:Exactly. And so that's that one. The problem is, and we can maybe come back to this in more detail. The problem is it's unsustainable over a period of time. That one of the things that it does is it doesn't prepare the next generation to be able to live in an environment of more abundance.
Dr. Jim Grubman:It just teaches them, stay away from it. In fact, a lot of people don't even tell them about the money. Kids don't know that the family is that rich until something happens. There's a lot of fallout over it.
Dr. Jim Grubman:The other one, what I call the assimilation strategy is the opposite. It's jumping in with both feet to the new culture and abandoning any vestiges of the prior culture. And that would be somebody who is so happy to now be in a planet of great water, that they waste it all over the place. And they have six swimming pools.
Adam:The quote unquote new money, right?
Dr. Jim Grubman:Exactly. And that they're just so joyful at being freed from the scarcity, that they are not prudent, not good stewards, that there are no limits, they just want their independence. And again, that has a big downside, which is it does not teach the next generation how to be prudent.
Adam:Right. In letting go of the scarcity mindset, they're also shedding the values around responsibility and respecting the wealth and gratitude that helped them get there.
Dr. Jim Grubman:Exactly. That if you move from scarcity to abundance, you need to appreciate the abundance, you need to be grateful for it. You need to not take it for granted. And you need to teach the values of what we now get to the third option of what's called integration. That is sort of the blend or the best of both worlds, where I often talk about the three main questions of adaptation Of number one, what from our heritage still serves us well, and we should keep. What from our heritage no longer serves us well, that we might let go of. But for integration, the idea is and what from the new culture do we learn and take on that will serve us well in the future in our current circumstances. For an individual to constantly be judging that, and for a family to be putting their heads together and talking about that in a continuously adaptive way over time, is the best way. And in fact, there's research evidence in cross cultural psychology that the integration strategy tends to produce the best outcomes on a variety of measures. But for a lot of people, it's hard.
Dr. Jim Grubman:I mean, the assimilation or avoidance strategies make everything very easy. You always make the decision in one direction, one or the other. With integration, you have to really think about what are your goals? What do you want to do in each thing and fine tune it and that takes some thinking.
Adam:And I would say avoidance or assimilation is it's not necessarily easy as much as it is simple.
Dr. Jim Grubman:It is simple.
Adam:Because it comes with its own challenge, right? Especially in cases where you could have different family members who, if they're not communicating, can be at different points in on that matrix, and then really don't understand each other or the choices they're making at all. Right? Which can lead to all kinds of conflict.
Dr. Jim Grubman:And you put your finger right there again, on some very real dangers of either avoidance or assimilation, which is, it doesn't teach the next generation how to handle things thoughtfully. Often it creates a backlash. Avoidance parents often have children who will overspend once the constraints are off, they get the money in their own hands. They've never been told how to handle money. Children of assimilators often either continue to overspend and blow the money, or they will go the other way and through guilt or shame, or simple unhappiness with how their parents handled it, never spend the money and say, I'm never going to do that myself. Which again, is not great. It's the integration strategy that actually prepares people both with skills and with attitudes and values to be able to adapt to the land of wealth effectively. So I want to talk a little more about avoidance because I think the assimilation, that coping strategy, I think people more reflexively understand the downsides of it, right, of sort of that irresponsible going out, wasting it. It's not sustainable. You're gonna that's where you do get that shirt sleeves to shirt sleeves. So I think people have a more natural skepticism of that approach. But the avoidance mentality is one that, as you said, I think the general public reflexively can see positively as well you're not wasting it. You're being careful, which is good. We like being careful. But that idea that you alluded to of there being a surprise. Right?
Adam:It's that that idea of surprise will reading. Right? All of a sudden, there's way more than you thought, or it's it's hidden places you didn't know about, or it comes out when children are adults or in some cases maybe even seniors and they have their own kids. So let's talk a little about the downsides to that approach, that even though it truly is coming from a good place and coming from this idea of I don't want to lose the good values in the place I came from, but the impact on the next generation can be, I think, much different than parents expect and can in some cases be quite traumatic.
Dr. Jim Grubman:Well, you're very astute on that Adam, that in some ways, people in general society who don't have a lot of experience with wealth and only see what's in the movies and TV and all of that, only imagine that there's basically two ways to react to having money. Going crazy overboard or handling it responsibly and being what we think of as a normal person, a regular person. The idea that there's a third alternative that they have not seen of this integration approach that blends it often just simply doesn't occur, or they have never seen that that exists. So general society, again, for many people, they think what happens when you become rich is you lose yourself and you go nuts and you become an assimilator. And they say, you know, and that's terrible.
Dr. Jim Grubman:And of course, that's why we have shirt sleeves to shirt sleeves in three generations. The idea that as people working in the wealth industry, we actually know that the avoidance mentality is much more prevalent than the overspenders. What we don't often see are the balanced middle ground people, the integrators, but talk to any wealth advisor and certainly you in the multifamily office, you know this, a lot of clients come in and they have to some degree greater or lesser, the avoidance mentality. That is much more common. And yes, they just don't realize the downsides of it. A lot of what they're afraid is their kids are going to be the overspending assimilators. And we have to prevent that.
Adam:So let's focus a little bit on kind of what a good integrated parent would be doing, right, in raising their kids. So they're growing up they're they have wealth. They're no longer they're either no longer in that scarcity mindset or maybe if they're a next gen, they were never in that scarcity mindset. But a lot of the natural ideas about parenting and saying we can't afford that or it's not possible. Right? You don't have those restrictions anymore. So it's instead of we can't, it's we won't. So what have you found are really the healthy ways for parents living in abundance to raise their kids to have those values when you don't necessarily have the natural limitations that would breed them?
Dr. Jim Grubman:Well, that's a great segue and that's what we have to talk about next.
Adam:I hope you enjoyed today's episode and you'll hear part two of my discussion with Doctor Grubman next week. Thank you so much for listening. Our Family Office is Canada's first purpose built shared family office, and the Our Family Office podcast is produced by Henry Shew. Please visit ourfamilyoffice.ca for more information about our firm, and don't forget to rate, review, and subscribe so you don't miss an episode. And of course, share it with your family. See you next time.
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