Article by Renée Sylvestre-Williams, featuring LT Wealth’s Terry Wright, for Canadian Family Offices: To read the original article, click here.

Teaching entrepreneurship and financial literacy can give the next gen a boost and help ensure family longevity.

You might think that financial smarts are baked into the DNA of wealthy business founders and their families. In truth, entrepreneurial skills and savvy don’t often come naturally.

“I spend a lot of time actually teaching people how their parents’ businesses work,” says Samantha Sykes, senior investment advisor with Raymond James Ltd. in Toronto. “Financial literacy comes way too late for a lot of these adult rich kids.”

No one wants to watch their family wealth dribble away. Instead, they want what the Mulliez family has. They are the wealthiest family in France, and their holding company, Association Familiale Mulliez (AFM), is the umbrella for multiple family businesses that sell toys, pizza, wine, clothing and food products. The family motto is Le tous dans tout, or, roughly, “all family in all businesses.”

How can an enterprising family build a strong financial foundation and help foster a sense of entrepreneurship so their children don’t just inherit wealth but create it as well? Families are taking on financial literacy education to make it happen.

Start as early as you can

If children are showing natural entrepreneurial drive, such as demonstrating problem-solving skills, start nurturing those instincts, Sykes advises. “You want to capitalize on that creativity rather than deny it,” she says.

That includes teaching children to recognize opportunities and showing them how to solve problems regardless of the situation. “You want to inspire resilience. You want to help them start enterprises and work through enterprises early in life, and show them it’s okay to fail.”

Even if the children aren’t showing interest in the family business or in creating their own businesses, it’s never too early to demystify money, says Jenny Chen, a former financial planner and now CEO of Catalais Consulting, a management consulting firm in Ottawa.

“Wealth should never be about money but about discipline. And so that can start any time,” she says. “Because it’s not about growing money, it’s about growing their mindsets, learning how to prioritize and also understanding that money is not a scary thing.”

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Instead, Chen adds, the conversation should approach money as a tool—it’s about building wisdom and knowledge around how finance works.

Connect them with mentors

One advantage of having a team of experts at your disposal is they can also act as mentors, says Terry Wright, advisor with LT Wealth Management Partners at Raymond James Ltd. in Vancouver.

“When you’re coming from a successful family, you don’t really need money,” he says. “The best job you can get is going to be working with someone or for someone who’s going to provide you with a little more insight into the reasoning for why you’re doing a job.”

Starting from the bottom is a cliché for a reason, says Sykes.

“A big part of being an entrepreneur is being a self-starter, learning through experience, gathering information and dealing with issues, like making their own flow charts,” says Sykes. This experience helps the next generation make informed decisions, and doing so in a group setting with trial and error builds curiosity, creativity and confidence.

Wright says this is the time to nurture your children’s entrepreneurial spirit so they can build something without tapping the bank of mom and dad. One way to teach them is to help them understand the process of asking for funds.

“They’d have to develop a business plan and lay out all of the pros and cons associated with every aspect of what it is they’re trying to build for a business,” he says. How would they present themselves to a financial institution?

“It’ll make the second- or third-generation entrepreneur really prove that they do have this interest [in building a business],” he adds, “and not doing it just for the sake of doing something exciting.”

Provide guardrails for experiments and failures

Canadian families can learn from the Mulliez family, which actively supports the businesses started by subsequent generations. Members of the second gen launched the supermarket chain Auchan in 1961 with the full support of the first generation after they conducted some market research. Once the second gen started developing businesses, the family put governance in place in 1967. Their mindset is, “Let the young wolves go on an adventure, but with a president and council to channel their energy.”

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Auchan lost money in the first four years of existence, but it’s still around and is 95 per cent owned by the family.

Sykes points out that parents can set up their children to fail in a controlled environment where they can experience disappointment, frustration and failure. It’s also a good space to encourage risk.

Friends and family are often the first options that a startup-type of entrepreneur will go to gather capital for a business venture, Wright says. While the bank of mom and dad can provide a backstop, it’s a good idea to put some structure in place before providing capital. That should include documentation.

This article was written by Canadian Family Offices with insights from LT Wealth’s Terry Wright.

To contact LT Wealth Management Partners, Click Here.