The reality of wealth and your kids

By Dennis T. Jaffe

With privilege comes responsibilities

A great deal of misfortune comes from unintended consequences of well-intentioned actions. Wealth advisers want to serve their family clients well, but their work can lead to the opposite outcome.

Here is a common scenario. The wealth creators want to protect their family from harm they fear can come from irresponsible use of the family’s assets. They also want to take care of their growing families. To do this they create a “family office” with advisers whose job is to take care of investing, managing and sharing the family’s assets. Because the assets are considerable, these professionals handle taxes, household expenses, education, health care, housing, transportation and everything the young family members need. The wealthiest families have larger staffs whose desire to be helpful leads to more services taken care of. By managing these things, the advisers, following the wishes of the wealth creator, are also acting to “protect” the growing family members from harm and misuse of their inheritances. The young family members do not have contact with their wealth; they seem to grow up but remain in a state of innocence, protected from making mistakes.

Now come the unintended consequences. First, setting up an office and having all these tasks done by professionals does not have a sunset clause. At some point, professional services prevent young people from learning how to manage their assets. They absorb a message from the advisers — you don't have to spend your time with these financial details; we will take care of it. 

Some families try to prevent this by offering educational programs that teach financial literacy. But if everything is taken care of, what would motivate young people to pay attention or use what they learn? Young people have taken the message that this is unnecessary, and they don't see why they need to learn.

Young people from wealthy families too often are innocent and naïve about the reality of their wealth. They have no idea about where their money comes from or how it works. They live in a bubble with other young people who are also protected from the need to take care of themselves. They live in a culture of affluence without a sense of responsibility. If they were left on their own, they could not survive. In some way, they know this and, while feeling comfortable, they are also anxious and even depressed about not having any agency. They express themselves through consuming because that is the only path they know to build their identity. They live in eternal childhood because there is not pressure to grow up.

Often the family gives them messages that reinforce this. While they are told to be responsible, they are not shown the path to do this. With advisers who take care of them, and elder family leaders serving as trustees and holding leadership roles in the family business, what can the do anyway? They see no clear path forward; experiencing what positive psychology pioneer Martin Seligman calls “learned helplessness.”

Protecting your children is fine when they are young, but as they grow up, in a family with significant assets and wealth, they need to learn that with their privilege comes responsibilities that they are expected to fulfill. Rather than being taken care of, they should be trusted and expected to begin to use their assets to take care of themselves They should be asked to take meaningful roles in the family’s enterprise, and a roadmap should be provided. Since they are using the family assets, these obligations need not be optional. They are chores. They should be expected to come to meetings, to learn about the assets, to use what they have wisely, to take a role in serving the family and to be part of the family’s philanthropic activities. Like good citizenship, the benefits of wealth come with responsibilities. The family elders, in turn, have their own responsibility: to share information, engage their children, develop opportunities and pathways to reach them and lay out how the rising generation will be expected to take their own turn in stewarding the family wealth. None of this can be optional or postponed. The cliché must become real: “With great wealth comes great responsibilities.” 

Dennis Jaffe is Senior Research Fellow at BanyonGlobal Family Advisors. 

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