Building Legacy Through Generosity

"It is more difficult to give away money intelligently than to earn it in the first place," observed Andrew Carnegie, a 19th century Scottish-American steel magnate and one of history's most successful entrepreneurs and philanthropists.

This insight might surprise, and it certainly doesn’t detract from the old saying your first million is the hardest million to make.  Yet for families who have achieved financial success, the thoughtful distribution of wealth can prove more complex than its accumulation.

In our previous article on intergenerational wealth, we explored how true family wealth extends far beyond financial capital - https://loricapartners.com.au/insights/how-family-shapes-our-financial-futures-1. We introduced Dr. Dennis Jaffe's framework of six wealth dimensions for effective legacy transfer, which includes "Societal Capital" – how families engage with and contribute to the broader world. Today, we'll explore how structured giving not only builds this societal capital but can strengthen several other dimensions of family wealth simultaneously.

A Unique Learning Laboratory

One of the most overlooked benefits of structured giving is its effectiveness as an educational platform. When families engage in philanthropic activities, which can include formal structures like trusts or foundations, they create an ideal environment for the next generation to develop their financial acumen.

Philanthropy can allow young family members to learn about investment management, financial statements, and governance without the complicated emotions that often accompany personal inheritance.

This "emotional distance" is invaluable. They can make decisions, learn from mistakes, and develop their judgment in a context that's meaningful but not personally threatening to their development or ambition.

The family who owns Mars Inc – one of the richest families in America – asks family members to start participating in the family foundation once they turn 18. It’s never too early to start honing your financial skills.

Recalibrating the Value of Money

In today's world of relative affluence, it can be challenging to maintain a grounded perspective on the value of money. Structured giving can provide an antidote to this challenge. When families engage in philanthropy, they may encounter stark contrasts between their personal spending choices and the impact their money can have in the philanthropic sphere.

Consider this: the cost of a luxury vehicle might fund a clean water project serving an entire village, or a vacation home's annual maintenance budget could fund multiple college scholarships. These comparisons aren't meant to induce guilt but rather provide valuable context and perspective that can inform both philanthropic and personal financial decisions. Or at least help create gratitude.

Creating Lasting Impact

The reality is few family business endeavours survive multiple generations with their impact intact. Philanthropy, on the other hand, offers a different pathway to lasting influence. Even modest charitable investments, when directed toward high-impact programs, can create ripple effects that transform lives across generations.

Whether it's funding educational initiatives, supporting medical research, or backing innovative social enterprises, philanthropic capital can achieve the kind of multigenerational impact that most business ventures can only dream of. This permanence of positive change offers a profound sense of purpose and legacy that pure wealth accumulation rarely does.

Beyond Wealth Accumulation

Some might find it surprising that a wealth management firm would actively encourage giving money away. However, this perspective misses the broader picture of what true wealth management entails. Our role isn't simply to help clients accumulate and preserve wealth—it's to help them integrate their financial success into a life of purpose and meaning.

The book Die With Zero by Bill Perkins highlights the idea of maximising life experiences rather than simply accumulating wealth. Perkins talks about the importance of being intentional with how you give money away, whether through gifts to loved ones or through charitable donations. He encourages readers to think about the impact their money can have on others’ lives while they’re still around to witness it.

Research consistently shows that financial success alone doesn't correlate strongly with life satisfaction. However, when wealth is aligned with purpose and used as a tool for positive change, it becomes a source of profound fulfillment. Structured giving provides a framework for this alignment, helping families find greater meaning in their financial success while creating positive change in the world.

Do I have enough wealth to be philanthropic?

You don’t need $1 million to create a meaningful philanthropic impact. In fact, you don’t even need 1% of this amount.

Whilst we do have clients who are able to establish family foundations, any family can create their own structured giving plan.

It can start with a family discussion around the causes you care about and how much you can reasonably commit to giving each month or year.

For children, you may encourage them to allocate a small portion of their allowance to donate to a cause of their choice.  Or rather than money, you could offer time and effort to causes that can have a significant impact. Volunteering as a family can foster a sense of shared purpose and create meaningful experiences.

Conclusion

The benefits of structured giving extend far beyond the immediate impact of charitable donations. It serves as an educational platform for future generations, provides crucial perspective on the value of money, creates lasting positive change, and helps align wealth with purpose.

The fascinating paradox is that the preservation of family wealth often depends on the wisdom to give it away. History shows that families who avoid the challenge of effective generosity often fall prey to more insidious threats to their wealth. Without the grounding influence of philanthropic engagement, wealth holders can become increasingly insular and disconnected from the broader world. This isolation frequently leads to dysfunction that can erode family wealth more effectively than any market downturn.

Encouraging a family member to mindfully donate 1% of their money to a meaningful cause can help them better manage the 99% of the wealth they retain.

In our previous article, we asked, "What do you want to leave your kids in non-financial terms?" Structured giving offers a powerful answer to this question. Through philanthropic engagement, families can pass down values, financial acumen, and a legacy of positive impact – addressing multiple dimensions of wealth transfer simultaneously. As Carnegie understood, the intelligent distribution of wealth may be our greatest challenge, but it's also our greatest opportunity. Not just for lasting impact, but for the very preservation of the family wealth itself.

Author: Brendon Vade