Success in generational wealth transfer is a challenge for many families. Statistics show that 7 out of 10 families will lose their wealth by the second generation, with 9 out of 10 losing it by the third. This staggering number has a significant impact on the well-being of existing and unborn family members, as well as on the society that will lose the potential developmental benefits of well-utilized wealth.

Traditionally, families have focused on financial strategies to preserve wealth. However, research reveals that financial strategies are insufficient to prevent wealth failure. Less than 15% of wealth failure is due to poor investment decisions.

The real enemy of multigenerational wealth is unregulated human behaviour. The decisions, habits, and attitudes of individuals within a family can either nurture the growth and preservation of wealth or lead it to dissolution. Understanding this influential relationship empowers families to proactively manage human behaviour and secure multigenerational wealth.

The foundation of wealth creation is the best of human behaviour expressed in attributes such as hard work, staying power, grit, endurance, and delayed gratification. However, many successful entrepreneurs struggle to instil these attributes in their children. This may be due to the changing times, a desire to shield children from difficulty, or guilt about being absent due to the demands of wealth creation. As a result, the next generation may be more susceptible to unregulated behaviour, which can threaten the family’s success.

The following behavioural threats can gradually erode a family’s wealth:

1. Overspending and Lifestyle Inflation:

The allure of a luxurious lifestyle can be overwhelming, particularly for those who have inherited wealth. However, without the right values and perspective, succumbing to overspending can lead to a steady erosion of wealth over time.

2. Lack of Financial Literacy:

If children will naturally learn financial management by observation or at some undefined point in the future is a common misconception among wealthy families. However, without a solid understanding of financial concepts, individuals are at risk of making poor decisions that can undermine the family’s financial well-being.

3. Entitlement and Dependence:

When all needs are effortlessly met, it becomes easy to develop a sense of entitlement. This entitlement can lead to a lack of motivation, and responsibility, and a dangerous dependence on family wealth, ultimately eroding the family’s financial position.

4. Lack of Communication and Conflict Resolution:

Poor communication, especially across different generations, can create significant problems for managing wealth. When viewpoints are not adequately expressed and conflicts are left unresolved, mismanagement, poor decision-making, and the potential division of assets can emerge. These factors can ultimately destroy both the family’s wealth and its unity.

To counter the destructive impact of unregulated human behaviour, families must acknowledge its importance as a strategic priority for wealth preservation. This means understanding the needs of the next generation and developing a deliberate, patient strategy to harness their highest potential. It is also important to be open to new solutions, while still respecting the tested old methods.

Here are strategies that families can use to effectively manage human behaviour to secure multigenerational wealth.

1. Communication and Goal Alignment

Every member’s voice must be heard and valued, regardless of their age. Creating a space for regular check-ins where family members can openly discuss financial matters, set clear expectations, and share their opinions and concerns is essential. Constructive conflict resolution should be encouraged to maintain family unity and preserve wealth. This communication strategy should align with the family’s priorities, values, and wealth preservation objectives.

2. Long-Term Vision and Patience

Preserving and growing wealth requires a long-term commitment that spans generations. It’s important to instil in family members a deep understanding of the value of patience and the ability to resist short-term temptations and impulsive decision-making. Providing training and support to younger family members is crucial, offering mentorship opportunities that empower them to learn about wealth management, decision-making, and entrepreneurship. Cultivating a culture of delayed gratification, responsibility, and accountability is key. This approach ensures the next generation is prepared to fulfil their role in preserving and growing the family’s wealth, guided by the wisdom and experience of older family members.

3. Education and Awareness

Family members need to go beyond obtaining academic degrees and develop a comprehensive understanding of their family’s wealth, including its history, challenges, and successes. Regardless of their field of expertise, family members should have a solid grasp of financial concepts, investment strategies, risk management, and asset allocation. Starting at an early age, conversations about financial literacy, responsible spending, and long-term investment should be introduced gradually to children, ensuring they have a solid foundation of knowledge and avoiding overwhelming them when they confront the realities of wealth or impulsive spending habits.

4. Professional Guidance

Seeking professional guidance from qualified experts, such as family wealth advisors, wealth managers, and legacy specialists, is essential for navigating the complexities of wealth over time. These professionals offer objective insights into the family’s circumstances and ensure the consistent and effective execution of wealth management strategies. Engaging professionals who are dedicated to the family’s well-being and possess a deep understanding of managing the family’s entire wealth is crucial. Family Offices, which specialise in managing wealth and handling associated complexities, can be particularly beneficial in this regard. With the right mindset and commitment, families can harness behaviour for their benefit. Past mistakes can serve as valuable lessons, guiding the next generation towards lasting prosperity.