“From the time we taught our children how to wash their hands, whenever we wanted them to know something, we didn’t just tell them about it, we did it with them. We’d put their hands between ours and stick them under the faucet and rub. And that’s what we’ve done with philanthropy.”

– Alan Alda, at the Council of Foundations 1995 Family Foundations Conference

My grandmother lovingly calls my children “trash barrels of knowledge,” a title which she also applies to herself. You could say it runs in the family. They are full of trivial facts, which they will readily share with anyone at any time. They have absorbed these tidbits seemingly from the ether, although we have tried to provide an environment that nurtures their natural curiosity. Children are sponges, soaking in whatever they are shown.

I figure that at least 90% of my clients are worried about an inheritance reducing their children’s motivation to be contributing members of society. Legal structures and financial education, while important, cannot fully alleviate this concern. To encourage children to contribute to society, you must look beyond the family’s financial capital and focus on the family’s human capital. Human capital is developed by intentionally creating an environment that allows children to answer, “who am I without my family’s money?” If you want values to “run in the family,” your children need to see them from you.

Philanthropy is a tool to develop the human capital of a family. It provides a place for showcasing family values and legacy, displaying the meaning you have attached to family money. In this context, the child has an opportunity to think critically about their own expression of family values and what is meaningful to them. Seeing need in the world allows them to recognize their privilege and broaden their understanding of the human experience. Furthermore, giving as a family unit may require children to work together with siblings, cousins, or other relatives, which teaches them collaboration and compromise – skills that will be especially important if they run a family business together one day. 

Creating an environment for giving requires intentionality, but not necessarily formality. Simply discussing the organizations you support is a start. My children know which non-profit boards I serve on and why because I share it with them when we talk about our days. It is part of their environment. If you are already involved charitably, let your children know. Take them to charitable functions. If they are old enough, volunteer together. Through volunteering they can see their ability to do good in the world and examples of people who are working to make a difference. By looking for, and capitalizing on, the teachable moments, you can create an environment that fosters contribution.

For young children, giving can be built into their allowances. My kids are required to put a third of their weekly allowance in a “give jar” which they are to donate periodically however they please. Consider letting a child give a donation to an organization in person, which can be more meaningful to them than sending a check. If the donation is made in the child’s name, they will likely receive solicitation mail – something only a child loves – and can use the flyers they receive to guide future giving decisions. Furthermore, you could also institute a family matching program to further encourage your child to give financially. 

A step toward formalizing family giving is to host a family meeting in which you include your children in the family’s allocation of funds for the year. This can be done without disclosing numbers. Start by reviewing last year’s giving. What organizations were supported and why? How does your giving reflect your family’s values? From there, discuss what organizations you would like to support this year. This is an opportunity for parents to discuss why certain causes are meaningful and for children to discuss their own interests. You can investigate organizations they want to support. Who does it help and how? What would the organization do with the money? Why this cause and not another? You can find guidance from your family’s values in making the ultimate decision on where to donate; however, be prepared for your child’s preferences for expressing those values to differ from yours. What matters most, especially at the start, is creating the environment that will allow them to understand your family’s legacy and their role within it. Making space for their interests and preferences will keep them participating in the future.

If older generations of your family already have family meetings, younger members can be brought into the fold starting with charitable discussions. In The Legacy Spectrum, author Mark Weber describes one family where grandchildren met as a “Charitable Board of Directors” from the ages of 8 to 21, under the direction of their grandmother. This taught them the decorum required for serving on a board and expectations for behavior. Children were given formal roles, such as president, secretary, and treasurer, with real responsibilities. The children worked together to determine recipients of funds and review the effectiveness of previous grants. Furthermore, participation gave them an opportunity to get to know each other and work together, which would be necessary when they graduated to the full family meeting as adults.

Many families ultimately create entities for charitable giving such as donor advised funds or foundations with the intention of perpetuating giving for generations. These vehicles prompt the establishment of formal family governance. Families may create a mission statement for the entity and its responsibility to the outside world. Individuals can take on roles for managing assets, evaluating grants, making decisions, organizing volunteer efforts, and setting the vision. In these roles, individuals’ human capital is fostered as they find purpose, and even employment, in the family’s charitable entities. The entity becomes an outlet for contribution for generations.

Philanthropy can be an on-ramp for financial education, without some of the emotional baggage that often comes with discussing money or sharing the entire family balance sheet. Depending on the structure your family chooses for giving, your child can be exposed to investment management, reviewing grant proposals and effectiveness, pitching grant ideas, entity management, financial statements, and budgeting. These financial and interpersonal skills will support your children in managing the responsibilities that come with wealth.  

Your legacy to your children is more than the money you leave them. How a financial inheritance affects them depends mostly on whether they have developed a sense of identity and purpose. When incorporated into charitable giving decisions, children begin to see their role in the family legacy and their value in adding to society. The family’s wealth becomes more than just something to spend, but a way to positively shape the world. When money has meaning, there is an immediacy to the care of family wealth.  As the introductory quote from Alan Alda suggests, the development of human capital requires hands-on effort. You cannot outsource it. You must be the model.  

For informational and educational purposes only.  Not intended as legal, tax or investment advice or a recommendation of any particular security or strategy. Quadrant Capital Group LLC, or its affiliates, or its other employees. Constellation Wealth Advisors, LLC (“Constellation”) is an SEC- registered investment adviser. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments based on conditions at the time of writing and are subject to change without notice. For more information about Constellation Wealth Advisors, including the firm’s Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513.871.5500.

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