Raising Ethical Children

Helping children understand that wealth means more than having credit cards

by Melissa Babb

November 1, 2006

E thical concerns know no social class. Most parents, regardless of their economic position, want their children to learn right from wrong and to have a framework for making difficult decisions. But for wealthy families, the stakes are much higher: the power they wield broadens and amplifies the potential impact of their behavior.

JPMorgan Private Bank serves as an advisor to wealthy individuals - business owners, corporate executives, serial entrepreneurs and multi-generational families - on all aspects of wealth management and family governance. The challenge of raising children amid great affluence is a concern that comes up often. Most parents we talk with feel strongly that the best way to impart values to children is by example. Here are a few of the essential principles we've gleaned from working with multiple generations of clients over the years.

Ambition is not synonymous with greed.
The dividing line between the two concepts may seem fuzzy, especially to children raised to view success in monetary terms; it's important that they be able to recognize the difference. Healthy ambition implies the energetic pursuit of success and the material gains that go with it - but in a way that is neither immoderate nor hurtful to others. The American Heritage Dictionary defines greed as "an excessive desire to acquire or possess more than what one needs or deserves."

At the risk of oversimplification, ambition - the desire to succeed - is good, while greed - the desire to accumulate - is generally perceived as bad.

Wealth frees children to do great things - not to do nothing .
It is natural that parents will want to give their children the advantages of wealth to whatever extent they are able, but that doesn't imply giving kids a free ride. Wealth can provide children with the option to identify and cultivate their interests, pursue a chosen career, and then work hard at it - not to wallow in hedonistic idleness. It's a lesson children can begin to absorb early in life, through the expectation that they will take summer and after-school jobs. It is never too early for children to begin developing a healthy work ethic.

Broaden exposure to enhance growth.
Wealth can have a constricting effect on the lives of children, limiting them to a privileged circle of friends and acquaintances and fostering a narrow and elitist view of the world. Parents can counteract this by making sure their children have opportunities to attend schools, play sports, participate in other extracurricular activities and form friendships with children from a diversity of backgrounds. This communicates the message that people should be judged without regard to their social standing, net worth, ethnicity or other extraneous factors. Broad exposure offers multiple benefits of making our children into more interesting, well-rounded people with the intellectual capability, insight and judgment to impact our world for the better.

Wealth does not confer entitlement.
Professional advisors, merchants, household staff and others who deal regularly with wealthy families may often behave in a way that appears deferential. Children observing these interactions may come away with a sense of false entitlement - a belief that such treatment is their birthright. Parents can nip this misconception in the bud by teaching their children that respect is earned, not inherited. A child's family name or social standing does not endow him with unfair special privileges, or absolve her from the obligation to treat others with courtesy and respect and earn theirs in return.

Philanthropy is its own reward.
Wealthy families have an opportunity - some view it as a responsibility - to "give back" a portion of their wealth through philanthropy and by lending their name to worthwhile organizations and initiatives. It's a lesson that parents can begin teaching when their children are still young. One JPMorgan client gave each of his five teenage children $1,000 and took them on a tour of not-for-profit venues, including a soup kitchen, a literacy program and a clinic. Then, at Thanksgiving - appropriately - they discussed how they would use the money.

For many, philanthropy extends beyond monetary contributions. Children can be encouraged to make the world a better place by becoming active - perhaps as volunteers or summer interns - in causes that are meaningful to them.

Heirs are the stewards of wealth - not just its beneficiaries.
As a rule, those who inherit wealth bear a different set of responsibilities from those who create it. Business founders are wealth creators who are often focused on the success of their enterprise to the exclusion of virtually all other considerations. They may give little thought to estate planning, wealth transfer or the legacy they will leave behind. But these may become compelling concerns for their offspring, who are responsible for protecting what they've received and making sure that it's used prudently and appropriately - for their families, their employees, their philanthropic beneficiaries and their own heirs. Inherited wealth is not theirs to squander.

If it smells wrong, it is wrong.
Wealthy individuals are sometimes privy to opportunities to turn a quick profit through ethically questionable means, such as insider trading or unauthorized use of tax shelters. The assurance that "no one will know" and that there is little risk of public censure or legal sanctions may sweeten the temptation. But wrong is wrong. Children can be taught from an early age to walk away from situations that don't pass the "smell test" and to avoid even seemingly "innocent" lapses, such as buying canned term papers on the Internet or bribing someone to jump a line.

There is no shame in being wealthy.
When he was in third grade, one of our clients recalled his teacher asked the students to bring in their parents to talk about their jobs. Over the next few weeks, a procession of firefighters, lawyers, auto mechanics and others visited the class, but the boy felt he couldn't invite his father because "his father didn't do anything." Years later, he learned that his father had had an active and highly successful career as a venture capitalist and philanthropist. But his parents had never talked openly to the boy about what they did for a living, nor had they ever acknowledged to him that they were wealthy.

That was a mistake. There is nothing to be gained by keeping children in the dark about family wealth under the pretext of giving them a "normal" childhood. Rather, early discussions should deal candidly with the responsibilities of wealth and the rewards of giving. Wealth is not a disease. Nor is it a guarantee of perfect health. Like so many things in life, good habits for wealth need to be nurtured from an early age.

Melissa Babb is managing director with JPMorgan Private Bank.

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Raising Ethical Children

Helping children understand that wealth means more than having credit cards

by Melissa Babb

November 1, 2006