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Too Much Inheritance and Other Problems of the 1% Club

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How much is too much inheritance? A recent poll of the 1% club said $63 million was too much, but $26 million was just right. Is there really a difference?

You know the problem…your Bentley breaks down and you need to take it into the shop leaving you only with your Beamer to drive.

Or, when you have to decide between the $100 million dollar mansion and the $200 million dollar one.

Or, when your country club runs out of your favorite type of Beluga caviar and you have to eat the salty mainstream stuff.

Or, God forbid, your humble yacht is no longer considered a “super yacht” and you have to upgrade to avoid embarrassment and shame.

The above list is not just my attempt to imagine what annoyances plague the wealthiest 1% of world citizens, but is completely tongue-in-cheek. Though I must admit, those were the thoughts that ran through my mind as I read this study on how much inheritance is too much.

How Much Inheritance is Too Much?

 

This Merrill Lynch study asked those considered wealthy a very important question – “What world problem will you tackle this year?” No. Sadly, that is not what they were asked. Rather the all-important question facing this elite group of respondents was, “How much is too much inheritance?”

Most reports I’ve read list the top 1% as having somewhere around $500,000 in annual household income. The number given to indicate too much inheritance was a staggering $63 million ($26 million was considered too little, by the way).

For most, those numbers are going to be way out of reach in terms of what to pass on to their chosen heirs. In fact, CNN reported at the end of 2013 that the average inheritance left was $177,000. There could be a lot of things to be said about the difference in those numbers, but that’s not really the point of the post. Those who worked hard for their wealth shouldn’t be ridiculed for what they have or want to pass on – they did earn it after all!

What I did find interesting however, was that the number one reason given as to why not to give too much inheritance was to encourage hard work. Forty-six percent of those polled indicated that was the number one reason not to give “too much.” The disparity in the numbers – the $63 and $26 million, in my opinion, only point out that the question of just how much inheritance is too much is largely a personal situation that is reflective of a variety of factors.

The Underlying Issue

 

Whether you’re a part of the 1% club, or you are considered low or middle class, the underlying issue I take out of this discussion, and the study, is the importance of teaching children about money. In a nutshell, it comes down to raising financially literate children.

Say you bathe yourself in cash. Aside from being the dirtiest person alive (if you don’t know how dirty money is just try working as a bank teller for a year), you’d be able to leave your children a nice inheritance of $50 million and set them up to never want for anything in life. But, if you did nothing over the course of your children’s’ lives to instill financial literacy in them, it’s possible they’d squander all that money you so carefully set aside for them. Compare that scenario against someone who leaves the average inheritance but whose children were raised in a financially literate home.

 

The latter is going to do far better in nearly every instance. It’s a guarantee in my opinion. Sure, the former might enjoy life for a while. They’ll be able to live in a certain state of luxury for an unknown period of time. However, there will be a point in time where money will run out.

The latter, with their financially literate habits, will find ways to make their money work for them and put them in a better long-term situation. They’re those who’ll be investing their money and finding ways to make it grow and using it to reach the kind of life they want instead of being caught up by the glitz of having a sudden influx of cash. Basically, it goes back to the point of not mattering how much you make but how you manage it that matters.

 

How much do you think is too much when it comes to an inheritance? What is one thing, other than providing a disincentive that would hold you back from giving your child too much inheritance? Do you ever speak with your family about the inheritance that you or they might leave?

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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.