The challenges of growing up with wealth

Jessica McGawley is the founder of Dallington, a London-based consultancy that supports wealthy multigenerational families, both the rising generation and their parents, as they navigate the psychological complexities that accompany growing up and parenting in the context of significant wealth.

For this conversation, we sat down with Jessica and Honora Ducatillon, Head of Family Advisory at Pictet Wealth Management, to discuss the challenges faced by parents and their children in these families and to explore some of the solutions and remedies that they have each found most successful in their long-term work with families.

Jessica, what was the problem or gap in the market you noticed, which led you to establish Dallington back in 2016?

Jessica McGawley: I was working for a family office advisory in London and had been recruited to help with a summer Next Gen programme. It was my job to ensure these next gens attended their financial education sessions and other courses. I was frustrated by the fact that this education was crammed into a week’s programme. If you were learning a language, you wouldn’t do a five-day intensive course; you’d practice conversation, talk to people who speak that language fluently, and learn that way. I realised that this had to be its own discipline and treated with more respect and commitment. I set up Dallington as a psychological consultancy that addresses the psychological implications of growing up with, or parenting with, significant wealth. We do this through three core programmes focusing on: young people entering early adulthood; parents with much younger children; and rising gen siblings and cousins in business-owning families.

What are some of the most common psychological challenges that you witness in young people who have grown up with significant wealth?

Jessica McGawley: There is a term in psychology called wealth shame. It’s tough for the younger generation, who haven’t earned the wealth, haven’t been on that journey of wealth creation, but instead have simply grown up with it. From a young age, they are told: “You have won the golden ticket. This is what everyone works for and you’ve just been given it.” They have a lot of internalised guilt. We should have more empathy for young people growing up with wealth. In many cases, they don’t just stand to inherit money or assets, but employees as well. I have a 17-year-old client who will inherit a business employing 40,000 people. That comes with a huge amount of responsibility and weight.

Growing up with significant wealth can also be a very isolating experience. A lot of these families move around a lot, and have businesses and homes in many countries, so they’re not always based in the same place. When you’re a child or teenager, you’re trying to root yourself and understand who you are through your friendships and relationships with peers. If those move constantly, you can end up not engaging and not making new friendships, which can be lonely and isolating.

Also, everybody talks about how young people need to “find their purpose”. But what 16- or 20-year-old really knows their purpose in life? There is added pressure on young people in wealthy families, because often their parents have found their purpose in building a business – and it’s a special and important purpose. These young people put huge pressure on themselves at a young age to find something similar; the outside world puts the same expectations on them. Living up to an exceptional parent is its own challenge.

Honora, at Pictet you work with families over many generations. Where do generational differences show up most clearly in how families handle their wealth? And are those differences really as deep as they often seem initially?

Honora Ducatillon: Some differences are real, and formative experiences do leave a mark. But these differences are often less deep than they seem, especially if you look behind the words that are used. Take the phrase “investing responsibly,” for instance – for one generation, it might mean protecting what has been built, so that it is still there in 20 years. For another, it might mean putting capital behind a problem they care about. It seems like a big difference, but often, when you strip it right back, the underlying values are similar. In this instance, the value of stewardship is central for both. At the same time, often what families interpret as generational differences are better explained by other factors. For example, life stage is very important. An unmarried 20-year-old without children will probably want to invest differently from a 60-year-old preparing for a transition. When a family discussion turns a bit tense around the question of how we should invest, it is usually helpful to ask two questions. Are you disagreeing about a value, or about the way that value is expressed? And is this about two generations failing to understand each other, or about two different life stages? In my experience, the answer often lies in the expression and the life stage.

When it comes to transitions from one generation to the next, what are some of the challenges you see, which tend to be underappreciated by families and their advisers?

Honora Ducatillon: Families tend to overlook the fundamental question of whether they should keep the wealth together, and who should ultimately own it. There is a tendency to focus on who will manage the assets and to assume the current ownership model will carry over. For example, if in a family, one person took all of the decisions, the natural reaction is to think that in the next generation the same structure will apply. Often decision-making settles on the eldest sibling, almost by default, without anything being formally decided. The arrangement usually holds until succession. That is when the family discovers what was never actually discussed and tensions follow. In these cases, families think they have a relationship problem, when in fact they may have a design problem. It is worth putting the ownership options on the table and choosing between them explicitly.

Jessica, a lot of the common concerns that parents share revolve around the impact that wealth could have on their children’s motivation and ambition. To what extent is that justified?

Jessica McGawley: Money can kill motivation, that’s true, but only if you believe you have access to it and that it will solve all of your problems. In lots of wealthy multigenerational families, children will grow up surrounded by systems that have been set up so that things simply happen. I want a meal; it arrives. I want to travel; it is arranged. I therefore think it is essential that the younger generation has exposure to how things get done. Every young person, if it’s safe to do so, should have a public-facing job at some point, even if it’s just for one summer, whether at the golf club or the local pub or café. Working in a role where you are accountable to a manager, and responsible for serving other people can be very valuable. It gives you a much better appreciation for the people who make your own life run smoothly – which otherwise can become invisible.

These things also start young. Take pocket money, for example. Often people tell me that their children get pocket money for doing chores. They should do chores because they’re part of the household, not because they get money. That’s already instilling a negative dynamic. I know families who give the next generation USD 25,000 simply for attending a board meeting. You have to ask what message that sends about participation, and responsibility in a family.

To what extent can you design a transmission of wealth in such a way that it actually encourages ambition in the next generation?

Honora Ducatillon: You can design for it up to a point, and mostly by removing what gets in the way. When it comes to motivation, estate planning vehicles quite often work against the family’s own intentions. You may have heard of an incentive trust, where distributions depend on certain behaviours that the settlor would like to see in the beneficiary. The condition could be a diploma, a salary-matching mechanism, a marriage or a career milestone such as reaching an executive position. However, paying for a behaviour rarely produces the values behind it. Beneficiaries tend to comply with the letter of the condition just to get the reward associated with it. We reflect with our clients: What is this structure likely to produce in practice, given the way it has been designed? Sometimes that leads a family to reopen the discussion with their trustee and their advisers. Instead of asking what behaviour to reward, it is more useful to ask about what the beneficiary will need in order to take good decisions as an owner, and what would help them get there.

What about unspoken conditions? How can families distinguish between generosity and control, when there are unspoken expectations that accompany a gift?

Honora Ducatillon: This is a typical conversation we open with parents who are considering a gift to their children. Are there expectations attached to this gift? Are they explicit or implicit? Explicit expectations that are out in the open can be discussed, accepted, negotiated or declined. That kind of generosity, with a spoken condition, remains generosity. Control begins when expectations stay unspoken. The recipient will often sense that certain choices would disappoint their parents, without really knowing which ones. This can be a corrosive pattern, and it tends to feed itself. Adult children stay passive and get little practice in deciding. Parents then read that passivity as confirmation that they are not ready to decide. The practical discipline is to put into words whatever you expect from a gift, and say it before you make it.

Communication and transparency are clearly very important, but often we see that conversations remain focused on technical questions, without delving into these more emotional matters. In your experience, what can make these discussions easier for families to have?

Honora Ducatillon: Families and their advisors often focus on their companies or on tax and legal implications, and that focus is rarely accidental. Technical questions offer safe ground, where nothing personal has to be said and nothing emotional has to be shared. Part of our role is to widen that frame, diplomatically and in stages. A few things help. The first is to separate the conversations from the decisions. Parents are often afraid that once we start talking, everything will suddenly be open for discussion. At this early stage nothing is being decided. We are only talking. The second is a structured setting with a third party present. That changes what gets said, particularly across generations. Without someone to facilitate, the same people will talk, and the same people will listen. The third is patience. This is a muscle and it takes time to build. It’s gratifying to see one of the quieter members of the family become more active by the second or third meeting. The first conversation may feel awkward, but it does get easier.

Let’s discuss resilience. To what extent should parents actively try to place their children in situations where they will struggle?

Jessica McGawley: Far more than they do. We don’t want our kids to suffer, but struggling is very important. If you look at the people who have successfully created, preserved or grown wealth across generations, very few will have done so without encountering periods of real challenge. But, of course, it’s hard, in particular for successful business leaders. A parent who is exceptional in business is by their nature really good at fixing problems, sorting out crises and reacting quickly. Unfortunately, as a parent, what you need to do most of the time is step back and help your child fix the problem for themself. We cannot expect young people to build their resilience, if we solve all their problems for them. As parents, we sometimes need to say: “I’m here if they really need me, but I’m going to give them the space to figure this one out for themselves.”

Honora Ducatillon: Wealthy families have an entire network of advisors and structures around them, designed to prevent things going wrong. That makes it hard for competence to be built. I often ask whether there is any space where the rising family members can take a real decision with real consequences. At a cost and a scale the family can afford, but with concrete consequences all the same. If no such space exists, protection has probably gone further than anyone intended.

Jessica McGawley: I would go even further. There needs to be an acceptance that, at some point, something will go wrong and some money may be lost. The important thing is to decide deliberately where the family is comfortable allowing that risk to sit – at a scale where the consequences are real, but not damaging. This is the only way the rising generation will learn. We can explain and theorise risk and judgement all we like; but we know that until you have made a decision yourself, lived with the consequences and reflected on what you would do differently next time – it will not land.

Another psychological challenge with regard to the rising generation is a sense of entrapment. How often do you encounter young people who feel that their future is already mapped out and that they don’t have any freedom to choose their own destiny?

Honora Ducatillon: My experience with young people in these families is that the decision doesn’t have to be binary: join the family business or the family office or stay out of them. Many go through an early phase of building their own identity. They go abroad, work in other businesses, and take on projects of their own. What changes is their view of the family system. They often come back to it later with what they have learned elsewhere, see it as somewhere they can have real influence over time and build their vision over time. Some rising generation members even alternate between positions in and out of the family system during their professional careers.