Could a lack of financial education cost a fortune?

19 June 2017Jamey Lipschitz, Sanlam Private Wealth
Jamey Lipschitz, Head of Wealth Management at Sanlam Private Wealth.

Jamey Lipschitz, Head of Wealth Management at Sanlam Private Wealth.

While it used to take two generations to lose a fortune, now it takes just one. This is according to a PwC 2016 Billionaires Insights report that showed that globally, 70% of inheritances are squandered in under five years.

In a compelling real life simulation, Sanlam Private Wealth decided to put this to the test. It ‘locked’ five wealthy South African kids in a bank vault with their full inheritance laid out in R200 notes. Following voice prompts, the youths took away piles of money, variously, for taxes, estates duties, cars, houses, dreams and plans. Minutes later a small fraction of their inheritance remained.

Jamey Lipschitz, Head of Wealth Management at Sanlam Private Wealth, says the exercise has shown that financial education is critical at every socioeconomic level, including among the privileged few who are set to inherit a fortune.

“With the largest ever intergenerational transfer of wealth set to take place in the next 20 years - 500 super-rich families will transfer about USD 2.1 trillion to the next generation - knowledge of how to manage money is critical,” he says.

Lipschitz says that dwindling fortunes don’t only impact immediate families – there are broader social and economic ramifications for the country as a whole should the affluent cease to contribute to employment creation, philanthropy, and profitable businesses and investment ventures.

“Instead of just ‘lecturing’, we set up an experiential learning environment to show heirs what could happen if their wealth wasn’t carefully managed.”

He says that most South African children are not exposed to formal financial education at school or at home – and many are being influenced by external factors such as social media. “Regardless of income level, the aspirational lifestyles glorified on social media platforms can exacerbate money management difficulties.”

Lipschitz continues, “Children are learning, actively and passively, all the time. If their sense of self-worth is externalised on social media, then destructive spending habits can develop.”

He says one of the key reasons for poor money management is a lack of open discussion about money, “PwC reports that 60% of family fortunes are lost because of poor communication and a lack of trust between family members. Through this initiative, we hope to kick-start these crucial conversations that are applicable to all families, not just the super-rich.”

Marteen Michau, Head of Fiduciary and Tax at Sanlam Private Wealth, recommends that different generations hold a round-table discussion to share stories, values and long-term goals. “They should create a family manifesto and clear wealth plan. In addition, heirs need to be well-versed in managing investments, fiduciary and estate planning and executing business plans in an open, transparent manner with the assistance of trusted professionals.”

The ‘bank vault’ simulation is available to view online. It forms part of an education initiative which includes digital tools to allow individuals to re-enact the experience relating to their own inheritance. Individuals can enter the vault and see their family fortune laid out on the table, then find out how much will have to be allocated to estate duty and capital gains tax, for starters. Expert guidance from a team of multidisciplinary professionals is also available online to help ensure that wealth can become a lasting legacy rather than a fleeting entitlement.

Visit to view the simulation and witness the future of your own family fortune.

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