The psychology of wealth

The psychology of wealth

Raising children to have a responsible, resilient, and well-adjusted attitude to money is a challenge. Wealthy parents have their work cut out to impart drive, ambition, and a healthy attitude to money.

Society says success is synonymous with money. But if you’re born pre-packaged “successful”, scope for growth can seem constrained. Children of wealthy families can struggle with motivation, trust, and a sense of agency. Providing a positive financial education relies on parents themselves having a healthy relationship with money. But it also depends on establishing a responsible family culture, a clear direction for the family wealth, its roles and its limits, as well as the family’s own interpretation of success.

On average, families wait until their children reach the age of 25 before divulging information about their wealth. But this approach can be a gamble. Studies indicate that children who grow up in safe and privileged environments often perceive themselves as special and entitled. In the belief that reality may be too much for children to understand, parents may inadvertently encourage a sense that “what we have is what you have”.1

Parents’ instinctive desire to protect can have unintended effects. They know the daunting complexities of managing significant resources. But children and young adults exposed suddenly to significant wealth can struggle with anxiety, depression, and a distorted sense of self-worth. There’s also the fact that wealth, particularly when acquired or discovered abruptly, can change children’s relationships with others, and their perceptions of themselves. This has been discussed by academics including Dr. Paul Hokemeyer: “[children] who learn about their family wealth late risk experiencing a fractured sense of identity”.2 Creating and preserving a home environment where lifestyle is somehow removed from money is unrealistic. And in the digital age, keeping children blissfully ignorant of their family’s wealth can be difficult. Ultimately, “preparing the family is ultimately more impactful than protecting it”.Understandably, there’s a tension between protection and preparation – but you can’t learn to ride a bike if the stabilisers are never removed.

You can’t learn to ride a bike if the stabilisers are never removed.

There is an art to revealing family wealth to the rising generation without making them feel isolated, entitled, or directionless. Research suggests that early disclosure of wealth in a gradual and age- appropriate manner – the “dimmer switch” approach – can empower, engage, and help children. It offers time to develop a healthy relationship with money, understand responsibilities, and become financially literate from an early age. 

To be successful inheritors of wealth, children need education in finance and money management, as well as freedom to evolve their identity and self-perception. Kristin Keffeler, author of The Myth of the Silver Spoon: Navigating Family Wealth & Creating an Impactful Life (Wiley, 2022), suggests that parents should aim to ground their own decisions in strong values and align choices with their idea of what it means to thrive. They are then better able to set and hold limits that help their children build important life skills.

Defining core values and establishing a family mission statement or governance structure can provide a clear, coherent frame for educating children about family wealth – and holds to account the current custodians. If the family doesn’t already have one, the process of creating a statement can provide a way of including children in defining the family’s identity – and the purpose of its wealth. Even young children can contribute, through simple exercises such as naming a handful of values that they think best describe the family. From these, parents and children can create a value statement together. For example, if a small child names “kindness” as something that matters, parents can show them how this translates into a family commitment to philanthropy. Converting principles into actions helps foster a sense of responsibility to the wider world, and an awareness that wealth can be used for doing good, not just material gain.

The amount of financial help parents will give, and for how long, needs to be communicated clearly. Parents may think they’re being supportive, but an unlimited financial safety net can be stifling – even debilitating – to a child’s development. Children need to experiment, make mistakes, and think their way out of financial difficulty – even if that difficulty is artificial. A good steward of wealth must be financially competent and understand that resources are never unlimited. Letting children and young people fail can be hugely valuable in their development of financial accountability and experience, as well as teaching fundamental life lessons.

For all we might hope to tell our children, research shows that habits are caught, not taught. “Simply stated, children imitate what they see, and forget what they are told: there should not be a disconnect between what the parents say, and the way they behave.” (Brown & Jaffe). Positive role- modelling can be the most effective way to show that work is required to earn money, and that saving and spending are processes that need thought. Parents can set a good example by being productive in front of their children, whether through paid work or volunteering.

Parents may think they’re being supportive, but an unlimited financial safety net can be stifling – even debilitating.

In today’s digitised, smartphone- centric world, financial tasks and responsibilities such as paying bills are no longer visible to our children. But this needn’t stop them being involved. “One effective positive role-modelling practice is to make transparent things you do to learn, grow, stretch every day, but that your kids may not see.” (Keffeler, 2022). Drawing parallels between your own work and your child’s experiences of school or daily life can also help make helpful connections. “Sharing stories of struggle, problem-solving and perseverance – and asking your kids to share the same kinds of stories from their days – normalises and elevates important traits such as hard work, grit and growth mindset.” (Keffeler).

Of course, parents know their children best. Where children fit within the family structure, and how they consider the family wealth, are both tinted by cultural context and influenced by globalisation and socio- economic change. But within their family’s version of the world, children need time to understand the wealth that will one day be under their stewardship. To do so, they need to be supported – through being taught family values, seeing how to lead a balanced lifestyle, as well as being given chances to use money appropriately – and make mistakes. With these tools, the rising generation can develop the confidence, self- esteem, and financial skills to be successful in managing their wealth.

[1] “Overcoming Entitlement and Raising Responsible Next Generation Family Members”, Brown, F.H. and Jaffe, D.T. (2011), The Journal of Wealth Management, 13(4), pp.28–33
[2] Paul Hokemeyer, Fragile Power: Why Having Everything Is Never Enough (Hazelden 2019)
[3] “Wealth 3.0 in Practice: Harnessing the Power of Positive Attention”, James Grubman, Dennis T. Jaffe and Kristin Keffeler, Trusts and Estates, February 2023
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