Doing this with your family can save your family business

The old adage "Shirtsleeves to shirtsleeves in three generations" plays out all too often, but with some planning, families can boost the chance of avoiding a similar fate.

In many cases, an older generation starts with nothing, works hard and amasses wealth. However, their progeny have no success in managing that wealth and, by the time their great-grandchildren are in charge, the family is back at square one, with nothing to show.

Typically, the more distant in the past the person who created the wealth, the more likely his or her descendants will lose it. In fact, according to studies by the Harvard Business Review and Family Business Institute, only 30 percent of family-owned businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent operate into the fourth generation and beyond.

There are countless ways to destroy wealth. Examples would include overspending on luxury goods, expensive divorces — the national divorce rate is, after all, 50 percent — not having proper asset-protection plans in place and "financially enabling" next-generation family members well into adulthood.

I see financially enabling families a lot, but at the same time, I also witness great examples of families taking strides to educate future generations and instill in them a work ethic, drive and financial savviness.

One of the most important lessons that a family can bestow on its offspring is the importance of financial literacy. Such families are intentional in their actions in teaching their children the value of a dollar.

Summer jobs and savings

One example is a successful entrepreneur in his mid-50s who has built and sold many profitable businesses, ranging from restaurants to grocery and apparel stores. He wanted to instill in his four kids the importance of working hard for their money.

Each summer while his kids were in college, he made them get jobs, either working at one of his businesses or at others around town. These were tedious jobs far away from the "C-suite." This, he believed, would teach them the value of being paid for their hard work.

The money earned each summer was their spending money for college the next year, so they were less likely to "blow it" on unnecessary items. If they ran out of money, it was no problem. They could work for him during Christmas or spring break — or do without.

Another approach is different but equally effective. This example is a family who amassed their fortune in the oil-and-gas industry. They took their company public and eventually sold their interests.

This husband and wife are enjoying the fruits of their hard work and trying to impart good, solid values in their two daughters.

Not wanting their children to go to college without a basic understanding of "how to balance their checkbooks" — an antiquated notion these days, so the 2016 version involves using — the couple enlisted the help of their financial advisor to educate their kids on topics such as budgeting, saving and spending wisely.

Teaching generosity

The advisor has also taught Dave Ramsey's Foundations in Personal Finance financial literacy course to these children. This next generation is now learning that poor financial decisions come with consequences and that bad choices can not only affect them but also their entire family.

Not all children of a family-owned business are going to run that particular enterprise or even work in the corporate world. For another ultrahigh net worth family, the financial advisor is working with their children on the importance of philanthropy, stewardship and giving back to the community.

The advisor helps these children set up charitable accounts and then works with them on deciding which charities they want to give to. After a brainstorming session, they pick three charities.

They volunteer at each of the charities during their summer break so that they can see how their money is being used and how the charity is run. Ultimately, the hope would be to find the one charitable mission they are most passionate about and then concentrate their time and money on it.

All of these examples highlight that the best means of implanting the importance of financial literacy is through experiences. Whether it's working at the family business during the summer, creating and maintaining a personal budget or giving your own time and money to a charity, these all aid in imparting important family values.

By beginning financial literacy education at a young age, these high-net worth families and their advisors hope that future generations will maintain and build their inherited wealth and thereby permanently outdate the old shirtsleeves adage.