Sadly, the Vanderbilts are far from the exception. Being ‘to the manor born’ no longer guarantees lifelong affluence. A global study by The Williams Group among 2 000 wealthy families found that 70% of family fortunes were squandered by the second generation of heirs – and 90% were gone by the third.
Why are so many wealthy families having to trade their Ferraris for Fords? Roy Williams and Vic Preisser, authors of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, collected data from more than 3 250 families who’d lost their fortune. They found that less than 3% said poor planning and investments caused their misfortune. A total of 25% said heirs were unprepared, and a high 60% said lack of communication and trust in the family had led to their downfall.
DON’T BANK ON IT
Astonished by these findings, Sanlam Private Wealth (SPW) co-opted two self-made wealthy South African families, each with a crop of lively, well-to-do kids, to help them understand first-hand the financial dynamics within these families.
Family One: Patriarch Stanley is a classic example of an entrepreneur who grew his business from scratch and made a success of it. He has three daughters, Chrisley (24), Sheri (22) and Lieneke (14), who aren’t used to hearing the word no. He has yet to share his financial vision with them and believes social media has changed his daughters’ expectations and desires in life.
Family Two: Matriarch Nomfundo is an entrepreneur who’s dedicated her life to growing her wealth to the benefit of her two children. Her boys, Lwazi (18) and Kwanda (13), are living the dream in Jozi, a life of luxury and opulence. Nomfundo has painstakingly built her wealth and provided a comfortable lifestyle for her kids but she’s worried her children don’t value money as she does.
Rather dramatically, the two families agreed to ‘lock’ their young in a bank vault with their full inheritance in R200 banknotes. Rows and rows of banknotes were quickly reduced when the kids followed prompts to take amounts away for taxes, obligated expenses as well as for their dreams.
Kwanda put away stacks of cash for his coveted Bentley, Chrisley realised she’d exhausted her cash without providing a home for herself, and Lwazi found that he’d forgotten to include food in his equations. Within minutes, they were left with a fraction of their inheritance after estate duties, start-up costs for business ventures, buying cars, houses, clothes and travel were accounted for.
Deflated by the prospect of having a far more modest lifestyle, the children were, hopefully, left with a more realistic idea of how to manage their future.
‘When someone builds up a fortune with the hopes of giving his family a better life, there’s often the expectation that the efforts will be noticed and appreciated by the children. However, being born into privilege often inhibits vital values from developing and can leave children uninterested in doing the hard yards,’ says Jamey Lipschitz, Head of Wealth Management at Sanlam Private Wealth.
He says the reality is that estate planning, while a vital process in the transfer of wealth from one generation to another, doesn’t always result in the transfer of values across generations. ‘At the core of this disjuncture is often the reality that family finances remain an unpopular topic of discussion, more so when parents are concerned that family wealth might spoil their children. That said, it remains the responsibility of parents to ensure the correct values are instilled in their children from an early age.’
MONEY TALKS
Angela Hough-Maxwell, a psychologist, says it’s difficult for parents and children to speak about money, for a number of reasons. ‘Often they want to protect their children from the difficulty, anxiety and stress associated with money and work. But it’s important to engage children on such topics.
‘Children of a certain age should be included in family discussions about money, not yet making the decisions, but hearing the discussion. It’s worthwhile taking your child to your place of work. It may also be valuable to engage children in discussions about how you’ve divided wealth and how investments work,’ she adds.
Marteen Michau, Head of Fiduciary and Tax at Sanlam Private Wealth, says the challenge for parents is preparing their children adequately to manage, sustain and grow family wealth. ‘There’s a need for different generations to hold a round-table discussion sharing stories, and agreeing on values and long-term goals in order to create a family manifesto so there’s a clear wealth plan in place.’
Click here to meet Stanley, Nomfundo and their heirs, watch their bank vault experience and use an online tool to track your or your heirs’ own inheritance.
This article has been adapted from a piece by journalist Kabelo Khumalo that appeared in Business Report earlier this week.
