Layve Rabinowitz. Supplied
Layve Rabinowitz. Supplied

OPINION: The burden of wealth brings its challenges

By Layve Rabinowitz Time of article published Jul 31, 2019

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The everyday challenges faced by South African families in bringing up children can be further complicated by the presence of substantial wealth.

In South Africa, a country with the highest Gini co-efficient in the world, being born into privilege can potentially signify a mark of shame. The Gini co-efficient measures income inequality, ranging from 0 to 1, and South Africa's latest figure is 0.63 (2015).

While there is no typical ultra-high net worth family, the South African Next Gen have a decision to make as to how they embrace or deny their wealth in a South African context. There are three common family approaches to wealth.

Certain families embrace their wealth as an opportunity to do good. They see a chance to embrace change and put family money to good use.

On the opposite side of the spectrum are families where the next generation has become dislocated from the realities on the ground. These children don't understand what it means to live in South Africa and are content to exist in their wealth bubble, with little comprehension of the value of money or the idea of limited resources.

In the middle of these extremes lie families who are unsure of what to do with the burden of their own wealth. As a result, they may even deny it. In this context, Stonehage Fleming has encountered children who are completely oblivious to the extent of their family wealth.

The challenges of expectation

The main expectations from children of wealthy families surround inheritance and the future role and status of each child in the family. Where there is an opportunity for children to follow their parents into a leadership role within a family business, most families in more stable geographies can look longer term. South Africans, on the other hand, are prone to build a business and sell it prematurely in order to realise liquidity. This enables the family to move assets offshore to diversify currency exposure and political risk.

This trend will continue for the foreseeable future, due to low South African business confidence and ongoing political uncertainty. What this means for the next generation is that many children inherit cash assets without having to go through a traditional "start at the bottom" tutelage before taking the helm at the head of the family business.

Managing expectations

While there are many options on how to deal with expectations and intergenerational wealth transfer, the one most commonly adopted in South Africa is the most self-destructive. That is, the ostrich "head in the sand" approach, where the patriarch/matriarch denies the issue or insists that the next generation will figure it out. It is almost assumed that if wealth is not talked about, there will be a natural progression.

However, experience confirms that not making a decision is in effect a decision in itself and has knock-on consequences.

The inevitable deduction is that while wealth brings many benefits, it adds complexity to the already demanding role of being a parent. The management of expectations plays a critical role in avoiding the most obvious pitfalls.

Layve Rabinowitz is a partner in the South African family office division, Stonehage Fleming.


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