Fam­ily one

The Star Early Edition - - OPINION & ANALYSIS -

AMER­ICA’S Van­der­bilt fam­ily could have been the rich­est fam­ily in the world to­day. At the time of his death in 1877, pa­tri­arch Cor­nelius Van­der­bilt had amassed a US$100 mil­lion for­tune (about US$215 bil­lion to­day) from rail­roads and ship­ping. The money was in­her­ited by his son, Wil­liam Henry Van­der­bilt, who dou­bled the wealth be­fore dy­ing nine years later and leav­ing the fam­ily for­tune to his wife and eight chil­dren. By 1973, just two gen­er­a­tions later, there was not a sin­gle millionaire left in the fam­ily. The for­tune was all gone.

Sadly, the Van­der­bilts are far from the ex­cep­tion. Be­ing ‘to the manor born’ no longer guar­an­tees life-long af­flu­ence. A global study by The Wil­liams Group among 2000 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 3250 fam­i­lies who had lost their for­tune. They found that less than 3% said poor plan­ning and in­vest­ments caused their mis­for­tune. 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 coopted two self-made wealthy South African fam­i­lies, each with a crop of lively, well-to-do kids, to help them un­der­stand first-hand what was go­ing on in th­ese fam­i­lies. 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.

“We’ve def­i­nitely shel­tered our chil­dren from our fi­nances. They were never aware of the dif­fi­cult times. They live a lux­u­ri­ous life­style, they may earn salaries but we cover ev­ery­thing else such as food, rent and phones among oth­ers. I’ve learned all my fi­nan­cial lessons first hand and the hard way, it’s time my chil­dren did the same.” Ma­tri­arch Nom­fundo is an en­trepreneur who has 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 is wor­ried that her chil­dren don’t value money as she does.

“My chil­dren have no un­der­stand­ing of the value of money. The big­gest fights we have in the house are about clean­li­ness and money… The kids know how to sweet talk me into giv­ing them money. I rarely say no, and they know it,” Nom­fundo said.

Rather dra­mat­i­cally, the fam­i­lies agreed to ‘lock’ their young in a bank vault with their full in­her­i­tance in R200 bank notes. Rows and rows of bank notes 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 that 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 liv­ing 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 is 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 dis­in­ter­ested in go­ing the hard yards,” said Jamey Lip­s­chitz, Head of Wealth Man­age­ment at San­lam Pri­vate Wealth.

He said the re­al­ity is that es­tate plan­ning, while a vi­tal process in the trans­fer of wealth from one gen­er­a­tion to an­other, does not 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 An­gela Hough-Maxwell, a psy­chol­o­gist, said it is 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 that is as­so­ci­ated with money and work. But that it is 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 is worth­while tak­ing your child to your place of

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