As I’ve had a chance to gather my thoughts on generational wealth for this post, one of the comments left on part one of this topic really cleared things up for me. It reaffirmed what Kim and I were thinking. The comment, in a nutshell, stated that our kids will have the opportunity to build wealth as well. While we will try to pass down as much information as we can, they will need to apply that knowledge themselves. Yet, there’s still the high possibility of us passing some of our wealth on to them, with which they will need to know how to handle.
Figuring out how and when to pass it to them is the part we’re trying to figure out and will be covering in this post. This brings me to one of my favorite books, The Richest Man in Babylon.
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The Richest Man In Babylon – Arkad & Nomasir
The Richest Man in Babylon is one of my favorite personal finance books. I like it so much that I typically read it yearly. There are several different stories in this book that centers around Arkad, who becomes the richest man in Babylon from nothing. However, there’s one particular story about his son, Nomasir.
In Babylon, kids live with their parents in order to prepare to inherit the estate. Arkad basically tells his son that he doesn’t agree with this custom, but he does want Nomasir to inherit the estate. However, Nomasir must prove his ability to manage the estate. Arkad tells Nomasir that to prove himself he must go out into the world and build wealth on his own. If Nomasir fails to prove his ability to manage the estate Arkad states he will give it away to the priests. Nomasir is to come back in 10 years and give an accounting of his journey. However, before sending Nomasir away, Arkad gives him a bag of gold and a clay tablet with the 5 Laws of Gold.
A Framework For Passing Down Generational Wealth
There are a couple of concepts that stick out to me in this story that I would like to share. They help to build a framework for passing down generational wealth.
Arkad disagreed with the “mainstream” culture. I think most parents feel an obligation to pass on their wealth to their kids even if the kids’ actions aren’t pointing towards maintaining that wealth. Screw that. I completely disagree. The mainstream culture is broke. If you’re building wealth then your gut is probably more correct.
Arkad let Nomasir know that an inheritance wasn’t a guarantee. We want our kids to feel the same. Receiving an inheritance is a privilege and a responsibility. It isn’t a right. We plan to let them know that if they don’t develop the character and knowledge as well as show their ability to build and manage their own wealth then they won’t be receiving an inheritance.
Arkad started with no knowledge and no money. He built his wealth from scratch. Before sending Nomasir off he gave him the knowledge and money to start with. We plan to do the same with our kids. They’ll more than likely have their college paid for and we will probably be able to afford to help them with a down payment for a first home purchase. Beyond that, it’s on them to use that foundation to begin to build their own wealth. Also, the idea of one generation leaving the next generation in a slightly better position sticks out to me.
Arkad sent Nomasir away. Arkad could have told him to stay in Babylon to keep a close eye on him. However, he sent him away. My takeaway here is that, at some point, I’m going to have to let my kids go and learn from their own mistakes. Nomasir definitely made mistakes but the knowledge he received eventually became his guiding light.
Arkad let Nomasir know that he wants to hear an account of his experiences. What I take from this is that Kim and I have to communicate these ideas in a way that leaves the door of communication open with our kids. As long as the lines of communication stay open our kids will share their wealth-building journey with us and we’ll become more comfortable with passing it on to them. This is the hope at least.
Final Thoughts
I didn’t mean for this to turn into a book review of sorts, but it was the best way I knew of how to get my thoughts out (with a huge thanks to Kim for helping me), especially since that particular story had so many good, practical concepts in it that we can tweak and use for our kids.
We still don’t have a concrete answer for when and how to pass down our wealth. But this is a starting point, and it’s definitely food for thought. I’m sure it’s something we’ll continue to think about and discuss until we come up with something that makes the most sense for us and our kids. Ultimately, we just want to set them up the best we can to be able to pass on their wealth for generations to come. Or at least that’s our hope.
Kim’s Thoughts: I love the concept of sharing a condensed but useful version of our financial knowledge with our kids and then giving them some money to see if they’ve grasped the concepts. Why? Because they need to know how to build their own wealth as well instead of thinking or expecting us to give them everything.
Originally Omar talked as if he was fine with waiting until the kids were much older in order to give them some money outside of their college education. However, I feel that if the point is for it to help them get a good head start with building their own wealth, then it would need to be done sooner in life (like late 20’s or early 30’s or even in their 40’s) versus later in life. So I think that if we do something similar to what Arkad did for his son, then it will be a good middle ground that we will both be comfortable with.
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We have given them small gifts, like $1O,000 each and may do that again from time to time, but nothing large. I want them to make their own success.
Wow! But I bet at this point theyve done pretty well for themselves so that amount in a lump sum didn’t really hurt them. Did your parents do the same with you Steve? Just curious.