Many high net-worth families lose a lot of their wealth when it is administered by the generation that follows them. By the time the third generation takes the financial helm, the picture gets even worse: 90% of the wealth is lost forever.
Standard Bank’s chief executive of private clients, Margaret Nienaber, says that research has shown that around 70% of families lose their wealth when it’s passed down to the next generation.
The estimated wealth to be transferred between generations over the next few decades stands at $41 trillion. It is the biggest transfer of wealth the world has ever seen.
“It is vital that the younger generation is equipped with the correct financial knowledge to enable them to safeguard their inherited assets for future generations,” says Nienaber.
She notes that the statistics and wealth on the continent is still fairly unknown and that the potential is much bigger than originally estimated.
“If we look at the culture of wealth and growth of wealth in Africa, it’s quite amazing to see that Africa will have 81 percent more billionaires by 2018,” she says.
The latest US Trust Insight on Wealth and Worth report shows that six out of 10 parents in the United States showed concern that their children would not be able to control their inherited assets.
“Ensuring that wealth is preserved, passed on and increased over multiple generations requires a joint effort by the parents as well as the financial institutions they partner with,” says Nienaber.
In Africa, only a few of these family-controlled businesses enjoy longevity. The survival rate of most of these beyond the founders’ generation is extremely low. An example is that of the late Nigerian business mogul Moshood Kashimawo Olawale Abiola, who at one point was one of the wealthiest men in Africa. He successfully built one of Nigeria’s biggest business empires consisting of an airline, a chain of newspapers, real estate, fisheries and retail. After his death in 1998, his businesses crumbled. None of them exist today.
More than half of wealthy parents are not fully confident their children will be well-prepared to handle a financial inheritance. Younger parents are more confident in the next generations’ ability. Some believe children can’t handle wealth until the age of 25 when they’re mature enough.
The report shows that the most difficult part of fulfilling the responsibilities is having sufficient legal or financial knowledge. The best way to solve this is through financial education.
“The issue is the same in Africa as it is with the rest of the world. What we have picked up is there’s no real opportunity where these high net families, who are very busy by nature, can send their kids to get a valid view to these things that are important,” she says.