Can You Help Your Children Too Much?

You spend 20 or 30 years building wealth partly to give your children a better life. Then, if you're successful enough, you face an uncomfortable question: could giving them too much actually make their lives worse?

A few years ago, I was talking with a founder who’d recently sold his business for a life-changing sum. I asked him the question I often ask people in that position: what's the plan for the kids?

He didn't hesitate.

"I don't want to give them too much. It would rob them of their own ambition."

I've heard versions of this from countless successful entrepreneurs. You want to give your children opportunities you didn't have. But there's a paradox: the struggle you're trying to save them from may be part of what made you successful in the first place.

At what point does a head start become the removal of the need to run the race?

It turns out there's some fascinating research on this.

The puzzle of the missing billionaires

I put this question to Victor Haghani when he joined me on the BulletProof Entrepreneur podcast. Victor co-founded Long-Term Capital Management — the hedge fund whose 1998 collapse nearly took the global financial system with it — so he knows something about watching large sums of money disappear!

After LTCM, he wrote a fascinating book called The Missing Billionaires. The title comes from a simple question: where did all the old money go?

The 1900 US census recorded around 4,000 millionaire households. Haghani modelled what would have happened if just a quarter of those families had done the sensible, boring things for the next century — diversified their investments, spent reasonably, paid their taxes, and avoided catastrophic mistakes.

Their conclusion: we should have something like 16,000 billionaire households today descended from those original fortunes.

And yet, Forbes counted only 735 billion-dollar fortunes in the US in 2022. Almost none of them trace back to old money — the overwhelming majority were built from scratch, in a single generation.

One family provides a spectacular example of what happened to the rest:

The Vanderbilt fortune

When Cornelius Vanderbilt died in 1877, he was the richest man in the world, worth around $100 million — an almost unimaginable sum at the time and more than the entire US Treasury.

He left roughly 95% of it to one son, with almost no guidance about what should happen to it afterwards.

The subsequent generations spent lavishly: mansions, parties, yachts, horses, and a society lifestyle built for permanence. Slowly, one of the greatest fortunes in history disappeared.

In 1973, 120 Vanderbilt descendants gathered for a family reunion. Not one was a millionaire.

Haghani calculated that if the heirs had simply invested sensibly, paid their taxes, and spent around 2% of their wealth each year, each living descendant could have been worth billions.

The problem wasn't earning the fortune. It was keeping it — and preparing the next generation to live with it.

For UK families, the scale of what's at stake is just as real: an estimated £5.5 trillion is expected to pass between generations here by 2047.

It's not the money. It's the family.

You may have heard the often-quoted statistic that 70% of wealthy families lose their wealth by the second generation and 90% by the third.

Those numbers come from research by Roy Williams and Vic Preisser, who studied more than 3,000 wealthy families. There’s an important caveat: they weren’t simply measuring whether the children blew the family fortune. Their definition of failure was broader — including families losing control of their assets or suffering a breakdown in family unity. So I’d treat the 70% and 90% as illustrative rather than gospel.

But here’s what I think’s more interesting. When they looked at why wealth transfers failed, poor investment, tax, and estate planning accounted for less than 5% of failures.

The overwhelming causes were breakdowns in family communication and trust, heirs who hadn’t been properly prepared, and the absence of a shared sense of purpose.

In other words, the biggest risk to your family’s wealth probably isn’t the stock market, the taxman, or choosing the wrong investment manager.

It’s raising children who aren’t ready for the money.

Rockefeller versus Vanderbilt

The contrast in family fortunes I find fascinating is Rockefeller versus Vanderbilt — same era, similarly enormous fortunes, very different outcomes.

The Rockefellers built structures around their wealth: a family office in the 19th century, education for each generation, and traditions around stewardship and philanthropy.

The family developed structures designed to preserve human and social capital as well as financial capital.

Six generations later, the family remains wealthy and influential.

Closer to home, Warburtons — five generations into a Bolton bakery business, with a sixth now joining the board — has a simple rule: no one walks into a senior role.

Anyone wanting in does their stint on the bakery floor, then goes and gets outside experience first.

Opportunity is provided. Entitlement isn't.

We may be solving the wrong problem

After more than 20 years advising wealthy families, I've come to think our profession spends too much time on how to transfer the money and nowhere near enough on how to transfer the judgement that created it.

Inheritance tax and trusts matter, but the harder questions are: do your children understand how the money was created? Can they make sensible decisions when nobody's watching over them? Have they experienced failure or learned to delay gratification?

You can't put values into a trust deed.

Three things worth doing now

1. Tell them the story before you tell them the number.

The risks, the mistakes, the years things nearly went wrong, the sacrifices, the luck, the people who helped you. The story behind the wealth may ultimately matter more than the wealth itself.

2. Decide what the money is for.

Education, a first home, philanthropy, security for future generations — write it down. Not a legal document. One page on what your family believes money is for and what it isn't.

3. Create responsibility before entitlement.

Matched savings rather than unlimited handouts. A summer job. Investing their own money. Working outside the family business before joining it. Money they've worked for feels very different to money that simply appeared.

Perhaps we're asking the wrong question

Most wealthy parents eventually ask, "How much should I leave my children? I'm increasingly convinced there's a better question: who do I want my children to become — and will this money help or hinder that?

A couple of weeks after my first child was born, I was having lunch with a veteran entrepreneur client. After congratulating me, he gave me advice that’s stayed with me to this day:

“Give your children the best education you can afford and a lot of love. The rest is up to them."

Warren Buffett captured the balance well: leave your children enough that they can do anything, but not so much that they can do nothing.

Security without removing hunger. Opportunity without entitlement.

We regularly host family board-style meetings and educational sessions for the next generation of our client families. If you want to learn more, hit reply.

Until next time

Alan

PS - To hear my conversation with Victor Hagani, click the link Apple/Spotify ​

PPS I created a simple workbook to help facilitate the family value/wealth conversation. You can access it here.

(Please make a copy before using it)