When you think about wealth in your family, are you only thinking about financial assets? Charlie Collier says there’s much more to the story. Charlie, a former senior philanthropic advisor at Harvard University for 25 years, is considered one of the world’s top experts on family wealth. Based on his extensive experience at one of the largest philanthropic organizations in the world, second only to the Vatican, he says it’s important to think past money when considering wealth.
Charlie Collier spent 25 years with Harvard’s wealthiest philanthropic families. He’s seen them flourish and flounder. He’s advised on and observed the most successful structures, strategies and value sets of wealthy families. Here’s how he inventories family assets:
1. Financial Capital
Traditional thinking about wealth starts and ends with a number, the sum of all financial assets. It deserves attention, of course. We want to protect, build and transfer wealth to benefit family members and others. That means, among other things, making tax-efficient decisions and setting investment allocations to reflect long-term, multigenerational goals. But there’s more. What are the other, less obvious, forms of capital?
2. Human Capital
Eventually, someone other than you is going to be the one who is responsible and in charge of the family wealth. That’s when human capital’s huge value becomes apparent.
How can you ensure that your successors treat financial capital the way you would, thoughtfully and carefully? The answer lies in values. The character, spirituality, passions, dreams and aspirations of your family members are the most important factors in a long-lasting family legacy. Find out what your family members are good at. Watch for talent. Invest in and nurture their passions and gifts. Involve your family in financial matters. Ask them what activities they think need the most backing. (For related reading, see: Don't Ignore the Importance of Human Capital.)
And keep building your human capital. What education can you invest in to help your children reach their potential? Can you invest in your kid’s entrepreneurial idea? Remember, even Olympians need the support of solid principles and continuous coaching. You can provide that for your kids by yourself or with the help of a coach. The goal of human capital, according to Charlie, is secure, autonomous children who lead their own lives while staying connected to the family. There’s a bonus here if they participate in open and equal discussions about the family’s goals and actions as a whole.
3. Intellectual Capital
Think of intellectual capital as the operating handbook for your family. How will you all work together to solve problems and manage conflict? Having discussions about this during good times prepares you for inevitable challenges down the road. Charlie says, “I have come to the conclusion that as adults we ought to strive to treat our children as our peers (perhaps) by age 25.” He also says to make decisions based on thinking rather than emotion, the same way you would a business. Reinforce this standard for all members of the family and you reinforce positive and collaborative decision-making.
We also want to prepare children to be responsible owners of money, whether they are artists, entrepreneurs or athletes. Often that involves teaching core competencies and skills to future generations. Share with them financial books for all levels, from "Federal Reserve Comic Books" to Peter Bernstein’s narrative of the history of calculating risk in "Against the Gods." High-level financial conversations are not all that valuable without a contextual background. (For related reading, see: Help Your Kids Understand Money.)
4. Social Capital
What is your level of civic engagement? Through giving your time, expertise and/or money, you can reinforce communities and form more bonds with those around you. True family wealth includes expanding the horizon of your self-interest to include caring for others. Leading by example through giving helps strengthen a sense of community and inspires others to do the same. For instance, giving your employees stock ownership in your company is a form of social capital that aligns incentives and facilitates community.
When you think about the legacy you will leave, remember that money is only a small piece of the greater whole. Think about how you can enhance and foster all four kinds of capital today and for generations ahead. (For more from this author, see: How to Stop Doing Nothing With Your Investments.)