– Robert FrankÂ –
Rich kids, we hear, have it all. Money. Connections. Top educations. Cars and clothes. For those who are part of what Warren Buffett calls â€œthe Lucky Sperm Club,â€ life is supposedly one long shopping trip with an no-limits ATM card.
But what if itâ€™s not?
What if growing up rich actually has disadvantages? And what if rich kidsâ€™ penchant for spending â€” and their lack of experience at earning â€” catches up with them, and that unlimited ATM machine winds up empty? (Not to feel sorry for these people, just to point out a reality.)
Thatâ€™s the premise behind my article in the Los Angeles Times today, which profiles a wealth-education camp designed to teach todayâ€™s rich kids how to manage their money. My conclusion is that despite all their supposed advantages, todayâ€™s rich kids have grown up in such bubbles of privilege that theyâ€™re not prepared for todayâ€™s increasingly competitive job market. They donâ€™t make good investors, they donâ€™t compete well for the top jobs, and theyâ€™re not hungry for success like kids who grow up in middle-class homes can be.
Eventually, I argue, their money will run out. And much of the inherited wealth in America will flow back to people who actually earn it â€” as it has throughout history. This is what makes wealth in America dynamic, rather than dynastic.
Some readers disagreed. One sent me a thoughtful email arguing that â€œthe ultrawealthy are not stupid. They know their children. Some just fork over hundreds of millions to willing yet untrained hands, but I think most set up foundations or other mechanisms that will keep their name and children in the pink for generations to come. The very smartest and most family-oriented probably even invest in training their children to take the reins.â€
In other words, rich parents donâ€™t give their money to irresponsible kids. Iâ€™m sure this is true for some families. But in my experience, rich parents canâ€™t help themselves when it comes to spoiling their kids, no matter how irresponsible those kids are with money. And those kids usually wind up squandering their money through bad investments, bad relationships or lavish shopping sprees.
Since there are no reliable data on this, we have to go by experience. What do you think? Will todayâ€™s rich kids stay rich, or wind up leaving the bulk of their fortunes to the rest of us?