Power Up Wealth podcast – How Should Wealth Be Defined? – Episode 73 transcript:
Sharla Jessop 0:00
Wealth means something different to everyone. But what does it really encompass? I’m Sharla Jessop, President of Smedley Financial Services, and today, my guest and colleague, Mikal Aune, is going to share some ideas about defining wealth.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Mikal, thank you for joining me today.
Mikal Aune 0:48
Glad to be here, Sharla.
Sharla Jessop 0:49
Mikal Aune is Vice President of Wealth Management for Smedley Financial Services, and also is a wealth management consultant. Mikal, you spend a lot of time in heritage planning. It’s one of your passions, I know, and has lots of different components, but today we’re going to talk about wealth. What exactly does wealth mean?
Mikal Aune 1:05
First off, it’s a very taboo subject that not a lot of people like to talk about. A lot of times you don’t talk about wealth with your neighbors, you know, you just avoid it like politics. You don’t talk about it with your kids, because you don’t want to ruin them if you if they know that you have wealth or you have money, and so people just avoid the subject altogether. And that’s kind of the wrong approach to take.
Sharla Jessop 1:26
What does wealth mean?
Mikal Aune 1:27
It depends on who you ask. So if you go out to the general populace, they did a survey, and they said, how much money do you need to be considered wealthy in the United States? And the number that they reached was $2.2 million. Now that changes over time, you know, because it probably used to be a million dollars, and in the future, it’s going to be 3 million or $5 million so that changes. But that’s what people in the United States at least define wealth as is $2.2 million. One of the ironies of wealth is, if you go and ask the people that have $2 million if they’re wealthy, they’ll be like, no, I’m not wealthy. It’s the guy next door, because he has $5 million. And you go and ask that guy, and he’s like, well, no, I’m not wealthy, because the guy next door has ten million and so he’s wealthy. So one of the ironies is that nobody feels wealthy, even though we can kind of define it and say, this is what it means financially.
Sharla Jessop 2:14
So what you’re saying is wealth doesn’t necessarily mean dollars.
Mikal Aune 2:18
It shouldn’t, and that’s what we have to do to think about things differently. Because if you just go to your kids and say, you get $2 million you know, after we’re gone, then it’s yours, and what are they going to do with it? We know from different research that there, there’s a proverb called shirt sleeves to shirt sleeves in three generations, usually the second generation does a decent job of maintaining it, but by the third generation, wealth is squandered. It’s gone. So if you just do nothing and don’t communicate anything to your kids, they’re going to take the money, and pretty soon, it’s going to be gone, whether it’s in their generation or the generation after that, you don’t have financial wealth anymore.
Sharla Jessop 2:54
Yeah. How do people prevent that from it only being about money?
Mikal Aune 2:58
We define wealth differently. We define wealth as financial capital, human capital and intellectual capital. So financial capital is just what you think about. It’s the money that you have, investments, real estate, anything that could be considered an asset. That’s your financial capital. Human capital is your physical and emotional well-being. It’s the connections that you have with your family and those in the community around you. Intellectual capital is your knowledge, skills and experience. So if you use financial capital, it should be used to improve human or intellectual capital. If kids inherit money and there’s no well, I think sometimes, even if there is instruction behind it, they still go out and buy a car. That’s I was always shocked by the statistic that a new car is purchased within 72 hours of receiving inheritance.
Sharla Jessop 3:47
That crazy.
Mikal Aune 3:48
Yeah, they’ve already spent the money in their head, and by the time they get the money, they go out and buy a new car. And if you’re the one that has saved a whole lifetime, and you have your nest egg, and you want to pass it on to your family, to your kids, and you want them to use it wisely? Do you want them to buy a new car?
Sharla Jessop 4:03
Probably not. I’m gonna guess no.
Mikal Aune 4:07
In some instances it may be wise, right? But for most people, it’s just an impulse buy. I have money. It wasn’t mine before. Now it’s mine. I and I can just go spend it. So they have to think about wealth differently, and you have to say, All right, what am I doing to improve my human or intellectual capital? Now, some places will add in a fourth one and call it social capital. But for me, human capital and social capital are entwined. To entwined to separate. Because if I have connections either in my family and I have social capital, or have connections in a community and I have social capital, well, that’s all entwined with my human capital. If I don’t have human capital, my physical and emotional well being, I can’t really have social capital. So that’s why we still just list three, and say financial, human and intellectual capital.
Sharla Jessop 4:53
So now that you’ve defined that, how do you pass that along? Because it’s easy to pass along money. It’s a tangible thing.
Mikal Aune 5:00
Right.
Sharla Jessop 5:00
But the other things are very intangible. How do you pass those along?
Mikal Aune 5:05
You think about it, whether you have kids that are older or younger, right? And there’s going to be different communication for the different ages. So if you have young kids, a lot of it is for you to start thinking about, if we do something for them, are we helping them to improve their human or intellectual capital, and if we are then it’s a good use of our money. You can teach your kids the same principles. A lot of times you talk human and intellectual capital and young kids is just way over the head. But you can start talking with your kids and be like, well, if you buy that, is it going to improve who you are, or is it going to improve your knowledge and skills? And if you have kids like mine, they’ll be like, well, yes, this video game is going to improve my skills with my thumbs. You’re like, no. So it’s a framework that you can use to help teach your kids and help you think about what you should do for your younger kids. When you have kids that are older, you know, a lot of times we have people that are thinking about, okay, I don’t have too much longer left on this planet, and who knows how much longer I have, and when my kids inherit it, how are they going to handle it? And if you haven’t already had that conversation, it’s kind of hard to bring it up with them and be like, okay, I want to talk about my money. And your kids are like, what? You know what are you trying to do? What are you they have no idea. And sometimes they’re like, sweet, mom and dad have money. We can just run and play. We don’t have to really do anything on our own. Sometimes they’ve formed that opinion, whether you communicate it with them or not, just by the manner in which you treat money, and if you spend money, and yes, if you have money going out the door quickly, the kids learn to expect that level of wealth, you know. And sometimes it’s difficult when they get married and they still expect the same level of wealth, and they’re living below that. And so there’s a lot of education that has to go along with it. Some people are like, well, how do you how do I even broach that subject with an older child? So a good framework is to use something like this that says, you know, I’ve never wanted to x, right? I’ve never wanted to make you feel entitled. I’ve never wanted you to feel worried. Whatever it is, whatever you feel I’ve never wanted to do x, therefore I haven’t communicated with you about finances, but I want to make sure that I communicate so you know what my thoughts and intents are, and so that you use the money wisely and to improve your human and intellectual capital. And if you can reframe it that way to where you’re not just talking about money, but then you’re talking about human and intellectual capital. Then people start thinking about money in a different way. It changes the conversations. It changes even just the thought process about it. So we just think about it differently than just money.
Sharla Jessop 7:39
That makes perfect sense, because the way that we talk to people is the way that they start to think about even if they’re not doing something, if we continue to talk to them in a certain way, they pick that up.
Mikal Aune 7:50
Yeah, they do. They totally pick it up. So if you can reframe the conversation so it’s talking about wealth totally and they understand that, then their perception of wealth changes, and what they see and picture doing with it changes. And that’s what you’re trying to do. You’re trying to get out of the cycle where it’s shirt sleeves to shirt sleeves in three generation. You want to be the 10% of the families that are able to maintain wealth for more than three generations, and having them be able to define wealth is just the beginning.
Sharla Jessop 8:18
And you know, a lot of that starts in the home when the kids are young, but a lot of times people are thinking about this now in their later years, when they have adult children who are on their own, doing their own thing and obviously running their own finances. How do they approach it?
Mikal Aune 8:33
First, don’t belittle yourself and worry like, gosh, I’ve never talked to my kids about this, and so they’re going to be totally off base. Well, a lot of it is they have seen you and what you have done. And so a lot of what you have taught has been by example. And so it’s still really good to go into them and open the door and say, hey, we want to talk about finances in general. A lot of times we don’t open the whole playbook right in the beginning and show them. These are all the the assets that mom and dad have. For the same reason, where people are worried about either kids feeling entitled, in that kids are going to waste the money, just like we’ve been talking about. So people either take an approach where they totally avoid it, or they try to control it. And those are the two extremes, because you can just avoid and be like, gosh, you know what? I don’t even want to talk about it with my kids, because I don’t want them to become entitled. And sometimes they become entitled anyway, and they feel like they deserve money just because you’re not talking about, you’re not communicating about it with them. On the other extreme, if you’re just like, you know what, I don’t want anything bad to happen to my family. You’re coming from a place of good intentions. You’re trying to help out your family. But if you try to control everything, we call it control from the grave. You create a trust that says, well, this money can only be used for XYZ, and you can only give this amount, you know, to this person at this time, and you can put a lot of those controls in, like a trust, and you can try to control from the grave, but if you try to control with or put too much control in, then people just resent it, and they rebel against it. So there’s a happy medium where it is the communication education that goes along with it. So if you have older children, don’t despair, don’t feel like, okay, it’s out the window. I’ve missed my opportunity. There’s still great opportunity to discuss it with them. We even do family meetings where we sit down with the whole family and we start teaching them about wealth. And you could just see the light bulbs click in people’s minds when they’re like, gosh, you know, I’ve been in the rat race for so long, where it’s just trying to stay one step ahead and, you know, take care of our kids and everything else. We’ve been so busy that we haven’t really thought about, well, you know, so they’re the children. They’re second generation in here, and they haven’t really thought about how they’re teaching the third generation, you know, how are they teaching their kids or the the first generation’s grandkids? And they step back and they’re like, wow, okay, we need to rethink this. And so family meetings are a great way to educate and illuminate and help people to understand what wealth really is.
Sharla Jessop 10:46
So what you’re saying is, regardless of where you’re at, it’s good to get started because you’re always affecting the following generations.
Mikal Aune 10:52
Yes, you’re always impacting them in ways that you cannot understand. And there are times when you feel like, gosh, well, I’ve already messed them up so bad, I don’t want to mess it up anymore, but the more that you can try to open the lines of communication, a lot of times, it’s a way to heal. And if you have relationships that are strained, you can say, I just want to talk and I want to work through this together, because we’re a team and we’re working through this.
Sharla Jessop 11:15
And I think also being open about finances versus closed makes a big difference to family members.
Mikal Aune 11:21
It does. Openness goes a long way, not just in finances, but in all areas of life, right? If you can be like, I’m communicating with you because I have your best interest at heart and I’m trying to help you, and let’s work through this together.
Sharla Jessop 11:34
Mikal, I think that’s fantastic information that every family can use, regardless of the stage that they’re at. Thank you so much.
Mikal Aune 11:40
Oh, you’re welcome.
Shane Thomas 11:46
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
How Should Wealth Be Defined?
