Growing and preserving wealth across multiple generations is a long-term journey that, if successful, would continue beyond those who started it. However, many families never begin the journey to multigenerational wealth for various reasons. We will explore these misconceptions below:
Multigenerational wealth is only for the ultra-wealthy
Many believe that multigenerational wealth is something that only the extremely rich can achieve and that it’s worth considering once you’ve reached a certain level of financial success. However, this view is flawed for two reasons. First, this perspective assumes that multigenerational wealth is only about money and that the more money you have, the more critical it becomes. It overlooks the reality that intangible aspects of wealth are just as important as financial resources and must be passed down from generation to generation to prepare them to manage the burden of wealth adequately.
Second, this view neglects the role of time in wealth growth and preservation. Preserving multigenerational is not a one-time event but a series of strategic decisions that will enhance a family’s ability to remain prosperous and resilient over time. Making these decisions before gaining significant financial wealth has several benefits and can help the family establish its values, priorities, and sense of identity early on. It is most advantageous to begin the journey to multigenerational wealth well before the complexities of managing large fortunes arise.
It is a concern for only older people
The misconception that multigenerational wealth is solely a concern for older individuals is a common yet flawed sentiment. Planning a sustainable legacy should start early in life. Waiting until later is detrimental because it limits the potential benefits of compounding and course-correcting before the stakes become too high.
An early start on the multigenerational wealth journey allows you to leverage the invaluable asset of time. This allows the family to adapt and refine its wealth strategies as circumstances change, economic conditions evolve, and family dynamics shift. In addition, starting early allows families to transfer the right lessons and instil the required values in younger family members. Young minds are more receptive, making cultivating essential values, discipline, and a sense of responsibility easier.
Families should continually adapt and refine their financial strategies to align with changing circumstances, economic conditions, and family dynamics. Recognising that multigenerational wealth is an ongoing process rather than a concern limited to the later stages of life allows families to proactively address challenges, seize opportunities, and build a robust financial legacy that can endure for generations.
Inherited wealth causes more harm than good
The idea that inherited wealth causes more harm than good is not without justification. We see instances where the inheritors of significant wealth cannot sustain the wealth-creating ability of the preceding generation. Other times, there is the tendency to spend the resources lavishly without a sound management plan, leading to its dissipation. Again, there is the concern that inherited wealth breeds infighting, rivalry among family members and bitter disputes that often end in court.
However, the ultimate effect of inherited wealth depends mainly on the decisions and priorities of the wealth-creating generation. Did they plan for life post-inheritance? Did they encourage responsible living and incentivise it over harmful behaviour? Did they prepare the children for the effects of this wealth on their lives, decisions, and values? Did they build the capacity for sound decision-making, innovation, and careful living in the succeeding generation? Did they set an example of successful living for them?
Inherited wealth can be a tool for great good when managed responsibly and purposefully. Fostering a strong sense of identity and a culture of financial literacy, values-based decision-making, and social responsibility within the family is essential to achieve a positive outcome. Rather than demonising inherited wealth, a nuanced perspective acknowledges its potential benefits when managed with intentionality.
It is equal to a life of endless luxury
The misconception that inherited wealth equals a life of endless luxury oversimplifies the complex reality of managing substantial resources. While inheriting wealth can undoubtedly provide financial comfort and opportunities, assuming it guarantees perpetual luxury is misleading.
In reality, managing inherited wealth comes with its own set of challenges and responsibilities. Successful wealth preservation requires strategic financial planning, intelligent investments, and a keen awareness of economic fluctuations. The misconception of an uninterrupted life of luxury ignores the potential stresses, decision-making pressures, and societal expectations accompanying significant wealth.
Moreover, individuals who inherit wealth often face personal and relational challenges. The assumption that inherited wealth automatically leads to happiness and fulfilment neglects the importance of purpose, personal development, and meaningful connections. Without a sense of purpose and responsible stewardship, inherited wealth can become a source of stress rather than a ticket to perpetual luxury.
A more accurate understanding of inherited wealth recognises it as a tool that can provide opportunities for personal and financial growth and positive societal contributions when managed wisely and with intention.
It provides immunity from economic challenges
While inheriting wealth can undoubtedly provide a degree of financial cushioning, it does not guarantee immunity from economic fluctuations, recessions, or unforeseen challenges.
Inherited wealth, like any financial asset, is subject to the dynamics of the economy. Economic downturns, inflation, and shifts in market conditions can impact the value and sustainability of inherited assets. Those who rely solely on inherited wealth without diversifying their investments or adapting to changing economic circumstances may be vulnerable to financial setbacks.
Furthermore, the misconception overlooks the importance of financial literacy and responsible financial management. Even individuals with substantial inherited wealth must make informed decisions, budget effectively, and plan for the long term. Failing to do so can lead to wealth erosion over time, challenging the assumption that inherited wealth automatically shields individuals from economic hardships.
A more accurate perspective recognises that while inherited wealth can provide financial security, true immunity from economic challenges requires proactive financial planning, adaptability, and a comprehensive understanding of economic factors. By fostering financial literacy and adopting a strategic approach to wealth management, individuals with inherited wealth can better navigate economic uncertainties and build a more resilient financial foundation.
Ojenike is a family wealth adviser at the Meristem Family Office.
