Children of wealth must overcome five key challenges to generate a sense of life purpose and a positive and facilitative emotional connection to their money.
Each challenge describes an important aspect of the psychological relationship to the saving, spending, and sharing of wealth. To develop a positive wealth identity, children must resolve conflicts and overcome their vulnerabilities in each area.
Challenge 1: Financial awareness
Many children avoid the issue of their wealth by using it unconsciously, without knowing anything about it. This challenge indicates the degree to which they have actively become aware of money matters: how much they have, how it is invested, and how it is spent and shared. Not knowing about money is a way of denying it or not being responsible for taking care of it. Success in this area indicates that they have a solid hold on their finances, characterised by the feeling of truly “owning” their money.
Challenge 2: Lifestyle management
The element of life-style management points to how children get pleasure from using their money, their spending habits, and the nature of their lives. Positive identity is seen in those who get genuine pleasure and satisfaction from spending their money, and who spend in ways that are not ultimately compulsive or self-destructive. They buy things that have meaning, and they also buy things for fun. However, they also practice values-based spending—balancing saving and sharing money with spending it.
Challenge 3: Stewardship
It is not enough for children with wealth to just consider their own personal satisfaction. Having wealth gives them the opportunity to influence and help others, and studies show that the greatest pleasure and life satisfaction come when one gives both to oneself and to others. A steward views wealth as a multidimensional resource that is preserved and shared for the benefit of both current and future generations. A healthy person wants to look around and think about what can be done for other people and for the future.
Challenge 4: Self-esteem/personal security
Money by itself does not make children feel personally secure or good about themselves. In fact, its presence may lead them to feel increased anxiety.
This element of self-esteem refers to how much their sense of personal value, self-respect, and personal identity is founded on wealth.
Specifically, it means how comfortable and secure they feel in their own skin, which includes their inheritance and the role that it has defined for their lives. Unless children have a strong sense of personal identity, the fear of losing money may lead them to feel continually vulnerable.
Strength in this element means that a child has a solid and coherent foundation of self-esteem and personal security that is not primarily dependent on net worth. They feel in charge of their lives, enjoying the advantages of money without feeling that it makes them a better or more worthwhile person—or an evil one either.
Challenge 5: Trust in relationships
A child’s willingness to trust others in a personal relationship is affected by wealth. The presence of money can make it hard to trust others, even as it attracts them. Wealthy children must learn how to select and trust other people in their interactions, or they will always feel that money undermines the nature of their relationships.
People can always wonder if someone likes them for their money or for who they are. A mature person will find ways to make friends who are genuine. When children find that personal comfort zone in handling the impact of money on personal relationships, they are able to trust other people and deal with money issues without poisoning or undermining their relationships.
How the family office can help
Family offices can assist principals in preparing their children for both growing up with and being responsible for their wealth. While this must be done with the active involvement or tacit approval of the parents, it is an important role of the family office. Indeed, the daily work of a family office, as well as the utilisation of various governance structures in conducting this work, can be a valuable training ground for children of appropriate age.
The key is for executives of the family office to anticipate this need and to look for ways to include children, particularly if some of the issues discussed previously manifest themselves. The family office can also develop, usually with the help of outside experts, a number of training programs for children across a range of ages.
A common practice among successful families is to hold regular family meetings. At the end of the day, the families themselves must come together to address many of the issues that come with substantial wealth. Family meetings are such a forum, and they provide a mechanism for sharing information, communicating and promoting important values, providing education and training, and developing mechanisms for conflict resolution.
The family office often plays an important role in scheduling and facilitating family meetings, including creating agendas, preparing and presenting information, answering questions, organising special events, and inviting speakers.
The family bank
Another mechanism commonly used by family offices that oversee the affairs of larger families with adult children across multiple generations is the family bank. This is a mechanism by which the family, typically through the assistance of the family office, can provide financial support to family members for things such as large personal expenditures or new business endeavours.
Benefits come from the formality and professionalism by which the family bank should operate. Families with multiple generations often have members whose financial requests and desired investments range considerably.
The family bank provides the family, and therefore the family office, with a way to address these needs in a manner that provides some level of equity with respect to how spending and investment decisions are made across family members. It also provides parents a forum through which they can impart their values and expectations, promote entrepreneurialism, and encourage related engagement among the children.
Adapted from The Family Office by William I Woodson and Edward V Marshall. Copyright (c) 2021 Rybat Advisors, LLC. Used by arrangement with the publisher. All rights reserved.