Power Up Wealth podcast – Episode 89 – The Power of a 7th-Generation Mentality
James Derrick 0:00
Adopting a seventh generation mentality will benefit generations to come. Welcome, I’m James Derrick, and joining me today will be Mikal Aune to discuss the power of a seventh generation mentality.
Sharla Jessop 0:23
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.
James Derrick 0:46
Mikal, thank you for joining me today.
Mikal Aune 0:48
Glad to be here.
James Derrick 0:49
Mikal Aune is the Vice President of Wealth Management here at Smedley Financial. Today we’re talking about the power of seventh generation mentality. Mikal could you start out describing something that you talk about a lot, which is shirt sleeves to shirt sleeves.
Mikal Aune 1:04
Yeah, so there’s this proverb that’s called shirt sleeves to shirt sleeves in three generations. And what it is is the first generation rolls up their shirt sleeves and goes to work. They build wealth, usually, the second generation maintains it, but the third generation squanders it, and it’s gone. 90% of families in the United States follow that trajectory. So that’s an astounding amount of people or that lose their wealth over three generations. And this is not just unique to the United States. In Ireland, it’s called clogs to clogs in three generations. In China, it’s called rice paddy to rice paddy in three generations. So this is a worldwide phenomenon that happens.
James Derrick 1:43
That is actually really fascinating. But before we jump into some of the positives, could you describe? What is it about that third generation that gets it wrong? What do they do that is so bad?
Mikal Aune 1:55
Probably the best word, and it’s not always the best descriptor, is entitlement. They feel like I’m entitled to this wealth. I came into it, and so it’s mine. I get to spend it, and that’s where the shift has to take place, is changing people’s mindsets about the future, and that’s why we have to have a seventh generation mentality to say if you are receiving this inheritance, you’re receiving wealth from the prior generation, you need to learn how to become a steward of the money, and not just a consumer of the money. You know, one of the startling statistics that we always quote is that, on average, a new car is purchased within 72 hours of receiving inheritance, not days, but hours. So people are already expecting it, and they’ve already spent it in their mind. When they get the money, it’s gone right? So how do you change that mentality to say you need to become a steward of it, and you need to pass on to the next generation at least as much wealth of you as you have received.
James Derrick 2:51
Okay I can see right there. I mean, that’s a different mentality. So that is what it means to be a steward, is to think about how the wealth is going to grow over time.
Mikal Aune 3:00
Think about how the wealth is going to grow, but how is it going to help you so that you can grow it right? So part of it is you have to teach this the next generation to become wealth multipliers, so they’re not just looking at it like, hey, I received this much wealth from my family. I’m going to pass that much on. Well, that’s what the second generation usually does. Hey, my parents gave me this much. I give that much to my kids, that’s good. You should be doing that you were a steward over the money. But if you can become a wealth multiplier and think about it differently to where you’re like, how can I use this money so that I can improve my life and so that I can get ahead, and that if I get ahead, I have more money, and I can pass on more money to the next generation, and each successive generation improves their lives through the seventh generation.
James Derrick 3:43
So it’s about every generation repeating the first generation.
Mikal Aune 3:48
Uh huh.
James Derrick 3:48
So you’ve got seven generations in a row all acting as wealth multipliers. Why seven?
Mikal Aune 3:53
Seven is just to take a long-term approach, and if you’re like two generations, well, yeah, I passed it on to the next and they’re gonna squander whatever. If you take a long-term approach, you start thinking about, okay, this isn’t just for me and my kids, but it’s about their kids and their kids. And as you start thinking about it with that long-term mentality, you start educating your children differently about the money and how to handle it, and you start teaching them about finances earlier on to make sure that they use it wisely, and you do other things that help them see how money is used, and how can it impact others, too. So they aren’t just thinking, hey, at a certain age, I get this money and I get to spend it, and you know, I’m just waiting until that age so I can use it.
James Derrick 4:36
So much of this is about money, but you did talk a little bit about education. So I imagine there’s some other values that come into play here. Could we just deviate for a moment and talk about the non monetary considerations? It sounds like they’re critically important, but they also could be tricky.
Mikal Aune 4:54
It is tricky, but it is critically important, and I think that’s one of the first things that you need to do. And we’ve talked about it a little bit on other podcasts, is that you need to redefine how wealth is defined. Wealth shouldn’t just be defined as financial capital. It’s not just money, but it’s also your human capital and your intellectual capital. And so your human capital is your physical and emotional well being. Your intellectual capital is your knowledge skills and abilities. So if you are using financial capital, it should be to improve your human or your intellectual capital. It should be about doing good and improving your lives so that you can help improve the lives of others, or improving the lives of your children so that they can get ahead and so that they are better off to improve the lives of their children.
James Derrick 5:35
This sounds like something that you you really do need to start at a very early age then, communicating these values.
Mikal Aune 5:41
Yes and no, like, because I’ve seen some families where we we bring this in, and they’re like, wow, I wish I knew about this when my kids were young, because now they’re all adults, and now it’s hard to teach them. And I have grandkids, and it’s hard to teach them, you know, we bring in the whole family, and a lot of times we’ll bring in the kids and say, let’s teach you these principles so that you can start teaching the grandkids now, because the kids are the second generation, they’ve probably already learned some good habits and good values from their parents. And a lot of times, the parents haven’t institutionalized it like they haven’t formalized it to say, this is exactly what we want to teach them, but they’ve already taught them good principles over their lifespan. In some ways, it’s just formalizing it saying, hey, you’ve already talked about this. This has already been, you know, a family approach and things that we do, you know, this is how we do things in our family. And we can look at that and say, Hey, that dovetails right into what we teach. And we want to just take a seventh generation mentality and we’ll formalize it and call it that, so that we can think about the future. And how do we make things grow for the future?
James Derrick 5:41
So it’s never too late.
Mikal Aune 5:41
It’s never too late.
James Derrick 5:43
You need to be intentional.
Mikal Aune 5:46
Yes. And if you’re teaching young kids, it’s going to be different, because if you teach young kids, you’re not going to be like, okay, well, there’s financial capital, human capital and intellectual capital, like they don’t get that. You’re usually teaching them little basic things about how do you treat money? And with little kids, it’s more like you give them some money and say, all right, this is what you can spend, and when it’s spent, it’s gone. And a lot of times with little kids, you give them actual physical dollars, because when they see the money’s gone, like that is something that they comprehend more than if they use a credit card and that’s ethereal, like there’s something on this card and I swipe it and I get something they don’t really understand the value of it. So you’re going to teach the younger ones different than you are going to teach the older ones.
James Derrick 7:20
When it comes to being a steward, what are some of the mistakes that a steward might make different than just the consumer mistake? I think we all understand you know that rushing to spend all the money could be a big mistake, but what about the steward?
Mikal Aune 7:34
So the steward can be too cautious. Sometimes a steward might come in and say, oh, my parents gave me this much, and I got to be careful with it, and I got to make sure that I pass it on to the next generation. There’s a good balance to be found, because if they’re too cautious with it, they never multiply it, they never make it grow. And so yes, they are passing it on to the next generation, but it starts being divided. So let’s say the first generation has four kids, the next generation has four kids each. If they never make it grow, it’s actually being diminished by each generation, or each generation is receiving less. And so they have to learn to be wealth multipliers, where they’re thinking, okay, I need to make it grow for the future, and not just for passing on exactly what I got.
James Derrick 8:16
Incredible. I can totally see how that could happen.
Mikal Aune 8:18
Yes, part of it too, you have to look at it from that holistic standpoint of I have financial capital and human capital and intellectual capital. What do I do if I have one child that’s going to become a doctor and another that’s going to become a teacher? Those are both worthwhile pursuits, but one may has a better lifetime earning potential than the other. So how do you as a family try to regulate that or decide, well, this one, do we give more to this one or less to this one? But how do we define wealth and how do we kind of measure it for the future? Because there are different ways that somebody that’s a teacher, they might be able to pass on more human capital and intellectual capital and pass on less financial. So in a family, you kind of have to regulate that and figure out, okay, is this as valuable as what? Because it’s not just a pure dollars and cents decision when you’re saying, hey, we’re going to help out the teacher and the teacher, you know what? We’d like you to come back and teach some of the next generation things that you’ve learned, so that you’re using their human capital to still improve the next generation, even if it isn’t financial capital.
James Derrick 9:20
That’s interesting, because you might focus too much on the monetary, which is important, but it’s not perhaps the most important thing.
Mikal Aune 9:28
There’s a lot of different ways that you can do it. And some people are like, you know what I’m just going to teach each of my children, their responsibility is to teach each of their children. And we’re not going to try to use this to keep the family together, like we still want to have family unity and but each family line is responsible for their own family line. And I’ve seen others that are like, You know what? We want a tool to keep the family more together, and so that there is something that is cohesive, that keeps it through the seventh generation, and they do things more like a family bank, at least, that’s what we call it. It can be a trust. It can be an LLC, some type of corporation, and a lot of times, people will say, all right, from this family bank, you can get a loan for education or for buying a house. They can stipulate what things people can use it for. A person gets a loan, they repay it at a minimal interest rate, but it’s repaid to the family bank, and the family bank continues to grow over time. Now this becomes more institutional, and the family has to be like, okay, we want to be intentional about this. We want to create a family board. We want to have people involved from each of the family lines, so that there is something that ties people together, and there’s a blessing and a curse with it, as you can imagine, because there are things that it’s like, hey, it really does good in keeping people together, where they have to meet and they feel like part of a cohesive whole, but it can also create family conflict. So you have to be aware of that and realize that there are two sides of the coin, because some people are like, hey, I love that family bank idea. I want my kids to only be able to get loans and repay it, but they can use the money to be wealth multipliers, but they haven’t really thought through, okay, what are the ramifications if somebody gets a loan for this and they don’t repay it, then what? How does that happen? Or if somebody gets a bigger loan and they can repay it fast, and somebody else gets a small loan, but it takes them a long time to repay. Are you okay with that? Okay can they repay in other ways, like we talked about, you know, with a human capital or intellectual capital. So yes, there’s a lot of things that you need to think through that can be nuanced and complex.
James Derrick 9:39
Yeah, it sounds like it. I’d say, call your financial advisor.
Mikal Aune 11:33
Yeah so there’s trusted advisors, financial advisors, there’s attorneys that work specifically with this. So yes, there are places that you can use as resources to say, hey, how do I help teach my family about a seventh generation mentality so that we make sure that the wealth multiplies over time and doesn’t just dissipate.
James Derrick 11:51
Anything else you want to share about it.
Mikal Aune 11:54
When you really think about it and you take the time to be intentional about it, you start communicating differently with your family, and if you start communicating differently with your family, they start taking a different approach as well. And it doesn’t always have to be about the dollars and cents, right? There’s all the principles that you can teach your family to say, hey, we want you to think about it this way. Because a lot of people are like, hey, this money doesn’t or this doesn’t apply to me because I don’t have enough money. And I would say it’s not about the money. Can each successive generation be better than the last with both financial or all three financial, human and intellectual capital? And if each successive generation can be better, then you’re doing it. Even if you start out with $10,000 and the next generation has $20,000 and it’s improving, right? This doesn’t have to be millions and millions of dollars. As a general rule people that have millions and millions are the ones that are thinking about this, because they’re like, this is life changing money, and it can totally change, you know, the future of my kids. But I would still say that people that have $10,000 that could be life changing money to their kids too, if it’s used wisely.
James Derrick 13:00
Well said, and then it echoes for generations to come. It’s a wonderful thing. And as they become better and better, they will work out those other issues that come up.
Mikal Aune 13:10
Yes, and you can think about this as is the history of America, because you have poor immigrants coming over to America and settling in a new life and hoping to give their kids a better outcome for the future, and so the story of America is also the story of our individual families that hopefully we can help them become wealthier for each successive generation.
James Derrick 13:32
Wonderful, thank you, Mikal for coming in to talk to us about the power of seven generations.
Mikal Aune 13:38
Thank you.
Shane Thomas 13:44
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.
