Wednesday, July 29, 2009

Maintaining a 'sense of entitlement'.

Greetings good citizen,

Once again we need not scrutinize the graphs of the market indexes to note yet another near vertical climb occur right at the end of the trading day. It makes you wonder what these boneheads are thinking, that most people will only ‘hear’ the numbers and not look up the charts?

Those big spikes at the end of the day aren’t ‘normal’ although this time only the Nasdaq made it into ‘positive’ territory. Yet today, like yesterday, there was an ‘identical’ spike across all three indexes.

In fact, these last minute rallies are all characterized by near identical spikes across all indexes on the end of the day’s tape…which makes it appear that much more suspicious.

Not that this has much to do with anything; it is merely a ‘curiosity’.

That said, tonight’s offering touches upon an even more disturbing phenomenon, that known as the ‘imprecision of speech’.

From the ‘top down’ there are only three ‘classes’, the rich, the middle class and the poor. From the bottom up another class squeezes its way into the mix.

In the opposite direction we have the ‘poor, the working class, the middle class and the rich.

Tonight’s offering introduces a term seldom used by the average pundit nor is it particularly well-defined.

Understand good citizen that most of us use the fact that our mail finds us regularly as ‘proof’ that we’re ‘middle class’. Where do you suppose the line is drawn between the ‘merely wealthy’ and those with ‘ultra high net worth’?

I mean there are zeroes good citizen and there are zeroes with ‘lineage’, as it is often the ‘age’ of your fortune that is far more impressive than its actual size.

But enough of this nonsense, let us proceed to tonight’s offering with its curious choice of title…

Teaching the Entitled Young the Financial Facts of Life

Published: July 24, 2009

This is the summer of reviling the rich. The financiers at Goldman Sachs got a populist drubbing after the bank reported record quarterly earnings and analysts began predicting average bonuses of $700,000 an employee at the firm this year. Now, Congress is debating whether high earners should be hit with a surtax to pay for health care reform. In states like New York and California, that could mean that top earners are paying more than 50 percent of their income in taxes. [Cry me a river, they used to pay 90%]

But the rich and the not-so-rich do have something in common this summer: worrying about their children’s financial future. This may come as a shock to those middle-class Americans who imagine wealthy parents sunning themselves by their infinity pools, confident that their children, having been given every opportunity, are on their way to productive lives. [Surely, he is using the term ‘productive’ in its loosest possible sense!]

In truth, the image is fairly rare at this point. What is more common among the wealthy is their fear that the lives their children have known, and the futures they expected, may be gone.

“The notion that you’re entitled to goodies has to be dispelled,” said Fredda Herz Brown, a partner at Relative Solutions, a consultant who works with family businesses. “They really do think life is going to continue as it has. But most of them are not getting jobs, no matter what their parents do.”

While the wealthy are in a better position to help their children financially, having money doesn’t guarantee that their child will be responsible and productive.

So that leads to the question: How can parents help children with a healthy sense of entitlement adjust to the new economic reality?

EMOTIONAL REASSURANCE The first thought that pops into many parents’ heads when they worry about their children is bailing them out. But the best thing many parents can do, particularly those with children who are not asking for money,[Apparently ‘alien children’] is to set the right example.

While children may be idle this summer, many parents are out of work, too, and casting about for ways to pay the bills. If they mope around, their children are going to pick that up. If, on the other hand, they discussed what has happened over the last year, their children will be better equipped to make their own financial decisions. [Wait a minute Slim…aren’t these people the possessors of ‘ultra high net worth’? What kind of BLOCKHEAD works for a living and even entertains the idea they possess ‘ultra high net worth’? Let’s get this straight, if you work for somebody else, there’s no way in hell you have anything even remotely resembling ‘ultra high net worth’.]

“The patriarch can say, ‘This is the risk I took, this is how I felt, these are the lessons here,’ ” said Evan Roth, founding partner of BBR Partners, an adviser to ultra-high-net-worth clients. “It’s, ‘Look at how I’m handling this; I’m teaching you a valuable a lesson here.’ ”

That lesson is often the need to work hard. Ms. Herz Brown tells the story of a financial services client who traveled a lot on business. When his role at work was reduced, he started spending less time on jets and more time at home with his teenagers.

“He had a sense that too much came to them,” she said. “It came from a basic belief that what he had created for his kids was this sense that everything comes to you.” [What a ‘shock’ eh? Kids ‘know what they live’, if they have to look up the definition of the word ‘no’ then who’s to blame?]

So he made them look for summer jobs. And when they couldn’t find any, he made them take odd jobs to earn money. He also gave them a budget for school clothes and other incidentals and made it clear that if they budgeted poorly, they were not getting more money.

The point was that he recognized he was enabling his children’s sense of entitlement, she said. While his children will probably never want for money, he realized his actions had been just as indulgent as a parent who gives in to his child’s every request for fast food. [There’s that ‘disconnect’ again…his kids ‘will probably’ never want for money coupled with the notion that ‘dad’ worked for someone else! At the very minimum here our ‘hypothetical overachiever’ is an officer/principal in a big time concern. We’re talking not the Fortune 500 but one of the top five people in a Fortune 100 company.]

FINANCIAL PLANNING There are, of course, many reasons to give money to your children. A popular one during the bull market was estate planning — the more you could pass on while you were alive, the less subject to estate tax later.

One of the most popular structures during the bull market was a grantor retained annuity trust. This arcane-sounding trust was predicated on assets going up. The idea was that parents could put an asset they thought would appreciate into the trust for a set period of time, usually two to 10 years. At the end of that period, their child would get the appreciated value tax-free, less a small interest payment paid to their parents.

Now that most asset values have gone down, these trusts look as if they have failed. But there is a chance to salvage them. The grantor can swap out the original asset for one of equal value without penalty and start another trust with the original asset, if he believes it unfairly lost value.

Rich Kohan, partner at PricewaterhouseCoopers Private Company Services practice, said people who set up the trusts should take advantage of the opportunity. “If the asset has dropped in value, it’s likely not to leave anything for the benefit of children,” he said.

Then there are trusts set up for reasons other than tax savings. Joan Crain, senior director of wealth management strategies at Bank of New York Mellon, said she had seen an increase in clients setting up trusts for their adult children.

“Their children are in their late 30s to 50s, and they’re not good stewards with money,” she said. “Parents want to protect them from creditors but also ex-spouses, even if the children are happily married or not married.”

Money in trust is doled out to the beneficiaries and kept from creditors, but it is not shielded from estate taxes. That people are employing this strategy, though, should be a stark lesson to parents: teach money management skills to your children when they are young.

PRACTICAL SUPPORT In tough times, parents may need to set aside their estate plan and bail out their child.

One way parents or grandparents can help without seeming intrusive is to cover all medical and education costs for their children and grandchildren. If they pay the hospital or school directly, they will not incur gift tax.

Separately, if a husband and wife pool their annual gift exclusions, they can give up to $52,000 a year to a child and his spouse to help make up for a lost job.

“Parents worry it’s humiliating,” Mr. Roth said. “But paying their mortgage is not a direct handout. It’s the same thing, but if you don’t see it, it doesn’t affect them as much.”

On the positive side, this may be the right time to finance a child’s entrepreneurial idea.

“The consensus is the fortunes of tomorrow are going to be made today in this downturn,” said Mary Duke, head of private wealth solutions for the Americas at HSBC Private Bank. [And it will all go to Goldman Sachs, so the rest can just forget about it!]

The key is not to give your child a handout. Ms. Duke suggests setting up a board of advisers to look over the plan and provide assistance with framing and carrying out the idea. This takes the child’s request out of the realm of asking Mom and Dad for money and into the arena of an actual business plan.

“It’s important kids understand budgeting,” she said. “Everyone is more focused on living within their reduced means.”

If a parent can instill that discipline in a child, the rest may just fall into place.

One can only wonder if this piece was ‘dumbed down’ for general consumption or if the rich really are morons?

I have stated repeatedly that wealth is totally unrelated to intelligence. Rich by no stretch of the imagination even implies ‘smart’.

Conversely, it appears you can’t go wrong being a financial advisor to the ‘ultra high net worth’ crowd.

As we ‘clarified’ at the beginning of this piece, there is indeed a ‘Brahmin’ class over these lesser ‘ultra high net worth’ types that doesn’t work at all and lives (quite nicely) off of their dividend checks.

Amongst these Brahmin the definition of ‘hard work’ is cuddling up to granny to insure you and yours aren’t the ones cut out of the will to preserve the family ‘nest egg’ for future generations.

While Bill Gates’ kids (and their kids) will probably ‘never want for money’, not every ‘storefront’ is Microsoft.

Worse, this entire article addresses a rather rarified stratum of society, only the top five officers at Fortune 100 companies and maybe not all of them. We could be down to the Fortune 50 at this stage of the game.

This is not to infer that there’s not an equal number of people in the public sector with ‘access’ to this kind of compensation.

But we’re still only talking a relative handful out of a global population numbering in the billions.

Um, I think it’s worth pointing out that the stock market is what keeps this sort of shit humming through the generations.

This sort of redefines the term ‘do the work once and get paid forever’…

Thanks for letting me inside your head,


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