FAMILY OFFICE INSIGHTS

Generational wealth education and the modern family office

Helping children understand their responsibilities regarding wealth.

Properly educating the next generation 

It’s a common quandary among wealthy parents—perhaps a universal one, “What do we tell the kids about our wealth, and when?” As with many tough questions, the answer is, “It depends.” At an early age, some children are ready to understand the challenges they will face as future stewards of significant wealth and begin to behave accordingly. Others may never achieve such an understanding. Each family’s financial situation varies, as does the maturity and capacity of each child. Laying it all out at once may overwhelm them. That’s why the answer is usually, “It depends.” 

The important question is not just, “What do our children know about the family’s wealth?” The knowledge does not accomplish anything and has no behavioral implications. It is more advantageous for children to know about their wealth as well as understand their responsibility, expectations and the values within the family regarding its use.  

Young inheritors should know what is expected of them and be engaged in discussions regarding their commitment, willingness and ability to abide by the family’s rules and values. These sessions are more effective if structured as discussions and not lectures. The family should offer information regarding the family’s wealth and conduct values discussions that create expectations and rules regarding family member behavior. After these sessions, each young person will learn their role as a steward of wealth, rather than simply a passive beneficiary. 

Family financial particulars aside, virtually every young person can begin to learn the responsibility and stewardship that comes with wealth. Will the children be prepared? The answer to that question depends on their parents. However, the family office can and should be expected to help.1 

Recognizing wealth acquisition paths 

People come into wealth essentially two ways: they acquire it during their lifetime through effort or chance, or they inherit it from someone else. The way by which a person comes into wealth is an important determinant of how wealth affects their personality and character. There are a number of stages in the development of an individual’s wealth identity, ranging from innocence about the power and pain of wealth, to a level of conflict over their own wealth, to the achievement of a sense of reconciliation and integration of the wealth.2 

Acquired vs. inherited wealth: What’s the difference? 

Acquired wealth can be defined as a significant rise in socioeconomic level within one generation. A hallmark of acquired wealth is the psychological and sociological sensation of transition. The individual achieving wealth status travels not across distance, but rather across socioeconomic class, setting out from a blue-collar or middle-class culture toward the promised land of wealth. 

A second fundamental point is that acquirers come, in most cases, to their new status having already developed much of their personal identity in the common culture of their birth. This is the significant factor: with acquired wealth, one’s identity is partly or wholly established before the wealth is acquired. 

Inherited wealth, by contrast, describes those of the multigenerational wealth class who are born into their upper socioeconomic level. Compared to the transition in socioeconomic class that acquirers experience, multigenerational wealth is a maintenance of one’s existing class. This gives rise to many of the stresses and anxieties reported by heirs. Inheritors may be fortunate enough to improve their wealth status by their own efforts, thereby achieving that rare combination of being both inheritors and acquirers. 

How the family office can help 

Family offices can help principals prepare their children for adulthood as well as the responsibilities of their wealth. While this must be done with the active involvement, or at least tacit approval of the parents, it is an important role for the family office. Indeed, the daily work of a family office, as well as the utilization of various governance structures in conducting this work, can be a valuable training ground for children of the appropriate age. 

It is critical for family office executives to anticipate this need and to look for ways to include children, particularly if some of the issues discussed earlier 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.  

This material is an excerpt from The Family Office, A Comprehensive Guide for Advisers, Practitioners, and Students. Now available where books are sold. 

Adapted from The Family Office by William I. Woodson and Edward V. Marshall. Copyright © 2021 Rybat Advisors, LLC. Used by arrangement with the Publisher. All rights reserved. 

Our experienced family office team can provide the resources and expertise needed to effectively address the issues and challenges you face. For more information regarding our capabilities, visit our family office services webpage. 

1The authors would like to thank Dennis Jaffe for his review of this chapter.

2 Dennis T. Jaffe and James A. Grubman, “Acquirers’ and Inheritors’ Dilemma: Discovering Life Purpose and Building Personal Identity in the Presence of Wealth,” 2007, https://dennisjaffe.com/download/acquirers-and-inheritors-dilemma-discovering-life-purpose-in-the-presence-of-wealth/.

Bill Woodson

Bill Woodson is the head of Strategic Wealth Advisory and Family Enterprise Services at Silicon Valley Bank.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank and SVB Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein