Wealth in Families, by Charles Collier
Wealth in Families, by Charles Collier, is not a typical self-help book. Self-help books are for people who struggle with habits, or relationships, or business. Wealth in Families is by definition not for people who are struggling with anything. Written in the early 2000’s, it is the final self-help book at the end of a road that most will never reach. It is 100 pages of advice for wealthy Harvard University donors on how best to distribute their money to their children and philanthropic ventures. It is quite comfortable in being, and candid in announcing, that it is not for everyone. The inside cover contains solely the title of the book and this jarring epigraph:
“This book has been produced by Harvard University. It is intended for the exclusive use of the Harvard Community.”
It is a rare book that so directly tells you not to read it. Apparently, there are simply things in this book that were not meant to be read by ordinary people. Collier, the Senior Philanthropic Advisor at Harvard University, needs to speak some plain truths to the wealthy among us and would rather get the filtering process done on page zero and start the real talk on page one. Consider some of this real talk:
“A number of wealthy families pay little estate tax. “How can that be?” you may ask. The answer is that they plan ahead, defining an appropriate financial inheritance for their children and grandchildren. They use sophisticated techniques to transfer the financial wealth early, thereby maximizing the growth of financial assets in succeeding generations. Finally, they typically leave the residual of their estates to their private family foundation or various charities.”
This is a remarkably clear-eyed and non-apologetic account of the purpose of charitable family foundations. The fact that this discussion occurs on page three of Wealth in Families shows immense boldness – or rather casualness. When you are wealthy (as Collier is) no one can ever make you feel ashamed of anything.
The best reason for existence that can be imagined for this work – straddling the awkward zone between a book and a pamphlet – is as a sort of advertising copy for the Harvard Department of Generous Gifts. When a donor was visiting the grounds of The Campus, Mr. Collier might slip the thin Crimson paperback of Wealth in Families into their deep pockets as a parting gift, just to impart that the donor-donee relationship is bidirectional. That is, you give us the cash, and we will help you decipher the meaning of it.
The Meaning of Wealth
We talk a lot about the meaning of life. Life is given without asking, and for the most part we have to make a serious and creative effort to convince ourselves to enjoy it in full. We think little about the meaning of wealth. That is because for most of us, the meaning of wealth is readily apparent. Wealth allows us continued food and shelter, and if we suddenly lost our ability to gain wealth we would eventually wither into nothingness. The target demographic of Wealth in Families thinks a great deal about the meaning of wealth, presumably because they have so much of it.
This book is for a specific kind of Harvard donor: the entrepreneurial new money who have recently vaulted to the top of the early 2000’s meritocracy. Case studies abound with stories of founders and leaders of “internet companies” who simply don’t know how to make sense of their money. To clarify, these people don’t need help with the quantitatives behind their investments or spending strategies. What they are looking for is the meaning hidden underneath all of that money. They have more than they could ever really want. Of course, they went out and hunted for it, in the same way that their prehistoric ancestors gleefully hunted for mammoth. But now they are standing over their kill, tusk and all, at an impasse. Now what? For the economics minded – the question is one that could be phrased so that an undergraduate could understand it. “How can I keep my marginal utility with respect to the United States Dollar from going to zero?”
Collier’s message – in 100 pages – is that you need to focus on transforming your wealth into social capital. That is, creating a legacy for yourself and your family that is going to outlast you many times over. And you are not going to get there by the same techniques that got you rich in the first place. Elegantly phrased in Wealth in Families,
“The newer “dot-com entrepreneurs” – need to be careful not to be so busy making the money that they don’t take the time to transmit some level of knowledge to their family members.”
Collier prescribes a pathway to transform yourself from new money to old money. In Collier’s thinking, the challenges that the wealthy encounter are entirely orthogonal to the challenges that the middle-class deal with, and middle-class values are incompatible with wealth. Staying sane at the top requires a new outlook - adopting the values of the WASPs, America’s old aristocracy. Collier, a WASP himself, is our guide to this world.
A note on the structure of the book: a large fraction is taken up with citing, promoting, and interviewing other practitioners in the domain of wealth management. Apparently, it is an industry standard in the field to write books with painfully dull titles and cite all of your friends. And a note on style – since Charles Collier is making the crucial assumption that you are a successful 2000’s business magnate, the book is written in bland corporatisms that should have never been exported from the world of PowerPoint. The excerpt below demonstrates both points:
“Most families are only aware that they have one form of capital: financial capital,” says James E. (Jay) Hughes, Jr., an estate planning lawyer and family governance specialist in New York, author of Family Wealth: Keeping it in the Family_. Hughes is a proponent of the four forms of family wealth: “A family must know whether all of their forms of capital are growing. Rarely in my experience do families measure their human, intellectual, and social capital. Frequently, members do not even recognize that they own these forms of capital.”_
Managing the Family
The meat of the book is spent on discussions of raising children. The readers of this book probably liked their childhoods. They might even hope to recreate that childhood for their own children. But deep down they understand that for all the freedom that money gives, it closes off that option. Your kids are never going to grow up normal. Consider the dilemma presented in an interview with Dr. Lee Hausner, author of Children of Paradise: Successful Parenting for Prosperous Families.
“__Collier: Entrepreneurial parents have said to me, ‘I have a seven-year-old child, and we’re flying in our private jet to Jackson Hole. I’m worried about the message I’m sending my child. How do I raise children with a balanced view of our family wealth?’ ”
This (especially striking) example is emblematic of a running theme of Wealth in Families. In a society that values individualism, personal achievement, and starting from humble beginnings, generational wealth is an immense burden to place on children. They will squirm under its weight and ask pointed questions. The preferred strategy from Dr. Hausner is a brutal form of honesty that dismisses middle class pseudo-egalitarianism.
“__Hausner: This is a big challenge. What the parents might say is, ‘We happen to be extremely fortunate, and we have this jet that we can use on special occasions. Most people are not able to use this airplane, and we do not talk about it because it will make people feel unhappy or jealous. This is a luxury item that is available because your mom or your dad worked very hard.’”
Tell your sons and daughters: You are not like the other children. That is simply the way the world is, and it makes little sense to question or worry why. It is best to see the wealth your parents have created as a gift that gives you the freedom in life that others lack. If you don’t want to have it, you can give it all away when you have the authority. That is what freedom is all about. For now, you are flying private to Jackson Hole and you are going to like it.
Variations of these parental anxieties pop up throughout Wealth in Families whenever the realities of immense wealth come in conflict with middle-class taboos on discussing finances. Collier directs readers to be open with your children about how much money you have, what you spend it on, and how much you will give them. Inheritance is of course a fraught topic for any family, but especially the wealthy ones, since they have so much more to hand down. There is a danger associated with raising children in wealthy families. Wealthy people don’t need to do anything, and as a result may lack the industriousness required to keep the family wealth from evaporating after one generation. In Collier’s view there is a fairly mechanical solution to this problem: slowly drip-feed a predefined inheritance to your children over the course of their lives. Not so much that they will never work, but not so little that they will resent you. The following table summarizes Collier’s financial recommendations on how much to bequeath.
| Publicly Traded Family Wealth | Amount to Give per Child |
|---|---|
| $15-30 million | $1-2 million |
| >$100 million | $10-15 million |
| “really substantial” | “more” |
Collier declines to prescribe exactly when to give your children this money, mostly because there is substantial academic disagreement between competing schools of thought. But beyond the mechanics of trusts, taxes, and generation skipping (which occupies a good chunk of Wealth in Families), Collier is seeking to impart a guiding philosophy for raising children in wealthy families.
In Collier’s view, a successful wealthy family has a stronger sense of collective identity than middle-class America typically allows for. A successful family only needs one trailblazing entrepreneur, but it needs everyone else to fall in line and see themselves as part of something larger than themselves. The most important aspect of this is making sure that your children see their inheritances not as theirs, but as the family’s, which they are merely responsible for safeguarding over the course of their lives. The problem is that money gives independence, and once each member of a family gets their share they are liable to scatter to the four winds and squander it. To combat this, in addition to the drip-feeding above, Collier outlines a set of “best practices” that include keeping inter-family connections strong, cultivating traditions within the family, and establishing mentor-like relationships. Ultimately these practices share one thing: they increase the social capital of the family.
A key message throughout Wealth in Families is that financial wealth is not the name of the game anymore. In short, a pathological obsession with money is what got you to this point, but it alone is not going to keep your family on top for more than a couple generations. If you want your descendants to pass on your gifts, you need to build a family that others respect and your children are proud to be a part of. You need a special set of values to maintain your family’s social capital and perpetuate your wealth and status after you are gone. And as a consequence, your family will need artists, socialites, and philanthropists to succeed just as much as it needs moneymakers.
Philanthropy
Philanthropy is not the same thing as charity. Charity is just giving away your money. The problem is that once you have given away your money, you don’t have it anymore. Philanthropy is the art of giving away your money while continuing to enjoy the gifts that wealth provides. If you give your money away slowly enough, it can become a lifelong vocation. After all, you can become a philanthropist, but you can’t become a charity-ist. To Collier, philanthropy is an elegant way of building social capital - instilling community in your family and transferring the right values to the next generation. In Collier’s writing, philanthropy is a communal activity that wealthy families partake in for a variety of reasons – with moral responsibility to your fellow man being just one of them. Collier advertises philanthropy with the kind of grab-bag language usually reserved for promoting youth debate teams:
“Family philanthropy… can be an effective parenting tool with many benefits. Including your children and grandchildren in charitable giving decisions – even with small amounts of money, can help them in developing the following skills: understanding financial concepts such as investment management, due diligence, and analytical evaluation; learning to work together, make joint decisions, and solve problems; and even public speaking.”
This kind of thinking – that philanthropy is just another sort of family game with the same stakes as croquet – is reflected in a series of candid and unapologetic case studies from Collier’s friends. Jennifer, an heiress and director of oncology at a local hospital, writes,
“Our family foundation gets us together and keeps us connected, even if only by speakerphone! … My siblings and I are trying to assess the effectiveness of the gifts to a variety of causes – from providing access to Outward Bound to funding research on Lou Gehrig’s disease. … We often disagree on the best strategy to leverage our family giving. Will a large gift to a charter school be effective? How does it help society?”
Another alumnus, Carl H. Pforzheimer III, writes,
“Our core giving has been to Harvard, the New York Public Library, and Mount Sinai Hospital, among others… Concert Artist Guild, Careers through Culinary Arts, the Dance Theater of Harlem, Pace University, Teach for America, the Henry Street Settlement, Horace Mann School, The Morgan Library, White Plains Hospital, and the South Street Seaport.”
Bob Barker (a Wall Street executive, not the famous one), is the one case study that commits wealth anywhere resembling the developing world:
“We’ve put up money to research specific problems in Central America, for example, to help preserve the rainforest in the Amazon Basin, and to start a telecommunications program in Eritrea.”
But ultimately it seems that this kind of giving is a small slice of a larger picture.
“Besides the colleges, schools, and museums we care about, we have, for example, supported the following: the North Atlantic Salmon Federation; Jackson Laboratories; Americares; Life Span Systems; Prep for Prep; the Vermont Land Trust; Tibetan U.S. Resettlement; and the original planning for modernizing Grand Central Terminal.”
From Andrea, Harvard alumnus:
“I give to Harvard, Winsor, East Side Prep, Sacred Heart, St. Joseph’s, San Francisco Opera, the Boys and Girls Club of San Francisco, and a number of health-related causes. Our focus is on education and children, but we give to a broad array of organizations. It’s very rewarding.”
Consider Gregory, tech entrepreneur and alumnus. Gregory’s main charitable venture was an $18 million gift to The JFK School of Government at Harvard.
“I care deeply about human rights, the environment, and the arts, and that is where I am going to make a difference… It’s great fun to be passionate about these areas and make something happen.”
And of course, there is Collier himself. By all accounts, he chose to become the Senior Philanthropic Advisor at Harvard not for the paycheck, but simply because he loves giving to Harvard so much.
The flow of Collier’s subject’s wealth seems to be biased toward prestigious institutions, local causes, and above all else, interesting sounding topics that are fun to talk about at parties. This is not happening because these philanthropists are soft minded. Collier’s case studies made their fortunes by being sharp at making distinctions of small degrees – both Wall Street executives and tech entrepreneurs are comfortable with thinking about the world in terms of fractions of percents. They are familiar with the concept of balancing costs and benefits. And they are very comfortable with the concept of maximizing benefits and minimizing losses.
In Collier’s writing, philanthropy is the process of exploring, defining, and spreading your values. The benefits of philanthropy in Wealth in Families are phrased in terms of what the act of philanthropy can do for you and your family’s social capital. From this perspective, giving to interesting, local, and already well-funded causes is an excellent move. It builds a reputation and network for your family that shipping your money across the ocean could never do. When alumnus John Keane set up a family foundation, he wrote a mission statement to guide future generations, including the command:
“In order to maximize the impact of its resources, the Foundation is limiting grants to youth in the communities in which we live.”
Pforzheimer III, from before, comments on his own philosophy:
“Our first priority is to give where foundation trustees and family members are deeply involved.”
These are smart people. And they know that giving to local, established, and interesting causes is the best way to strengthen the social capital of their families.
Conclusion
Lost in sneering, oft repeated, and somewhat misinformed discussions of the WASPs – their dullness, their love of strange hobbies, building connections and self-serving philanthropy, is that they were (and are) reasonable people doing the best they can to succeed in the world that they occupy. It’s just that the rules and currencies are different where they come from. Be careful in assuming that you could do better. The world of philanthropy that Collier describes is a cautionary tale for anyone interested in making charitable giving more efficient and effective. Philanthropy is subject to a perverse and cynical iron law – givers are often subtly incentivized to give toward causes that enhance their social capital within the societies they live in. The examples that Collier promotes are an extreme example of a philanthropic society left to its own devices over a long period of time. Collier’s friends wore the causes that they donated to not just as status symbols, but as expressions of their interests and personalities. Indeed, philanthropy as primarily an act of self-expression and social capital building is central to Collier’s description. Can we confidently say that we have moved on?