Paris Hilton, the Kardashians, Made in Chelsea… thanks to TV and social media, rich kids have gained a certain type of notoriety, but are they the exception or the rule?
The popular tv show Made in Chelsea has "graced" - is that the right word? - our screens in recent years, showing the lives and loves of the capital"s rich kids in the bars and cafes of West London.
The not-quite-reality reality TV show features a cast of good-looking well-off 20-somethings - among the fellas are Spencer Matthews and Jamie Laing (heir to the McVitie"s fortune) and among the ladies are Binky Felstead and Millie Mackintosh (of the Mackintosh Toffee clan) - quaffing champagne, jetting off to New York and generally having a nice time lavishly spending their mostly inherited cash.
It"s an irony not lost on many that Made in Chelsea and new social media sites such as "Rich Kids Of Instagram" (think well-off youngsters posting photos of themselves on private jets or lying on beds stuffed full of €500 notes) have emerged at the same time as most Brits and Europeans are struggling through one of the toughest ever recessions.
But the image of smug-faced public school "Hooray Henrys" puffing on expensive cigars and driving flash cars isn"t new. It"s been a staple of literature and film for many years.
But how truly reflective is this image of the latest generation of under-35 high-net-worth individuals (HNWIs)? Are they a bunch of trust-fund tearaways, showing off their wealth and thinking about no one but themselves, or are they more responsible with their money than you might think?
Steve Meiklejohn, Partner at law firm Ogier, says that Made in Chelsea is perhaps an unfair representation of the young rich. “I don"t think it"s indicative of young wealthy people,” he says. “I"m working with a family with three kids at the moment - worth around $8bn - and you couldn"t hope to meet a more modest bunch. I"m also seeing a trend of pooled family decisions, so older and younger generations, setting money aside for philanthropy.”
Lydia Essa, Senior Associate at Maurice Turnor Gardner, says she has rarely met the stereotypical Made in Chelsea character. “So much depends on upbringing and education, but the next generation can be as sophisticated - if not more so - than their parents when it comes to investment and trust matters,” she says.
All about the upbringing
Mentoring and developing the children is often regarded as the key to future successful transition of the family"s wealth. It"s not unusual for children to be groomed by their parents to succeed them in the family business, and they"re often encouraged to "learn the ropes" by spending hours on the shop floor or seek employment in the wider business world before returning to the family business. They"re also being given roles in asset-holding structures and family charitable foundations to help them develop their commercial acumen.
Maya Prabhu, Managing Director of Coutts Institute, which focuses on the governance of wealth, agrees that parental example and guidance, open communication and the preparation of heirs all play a vital part in ensuring the long-term survival of a family"s financial wealth. This is key, she says, because “around 80 per cent of wealth fails to go beyond the third generation”.
Families have different approaches to the issue. “One type see their children as custodians of family wealth, which is different from being beneficiaries,” says Prabhu. “Another category, who perhaps have made their own money as entrepreneurs, believe their kids have to learn the hard way like they did. Of course they will pay for their education or the deposit on a flat, but apart from that they insist that they make their own way.”
A third type is the "spender" - they think "I"ve made a lot of money and if my kids are having a great time then that"s great. That"s part of the reason I worked so hard". “This can cause the child to have no sense of purpose and create insecurities,” Prabhu says.
A final category are the philanthropists who believe their wealth might "ruin the kids" and so provide them with only a safety net.
“There"s no one single right way to approach wealth succession, as each family and the individuals within them are very different,” Prabhu says. “However, in our experience, all families need a plan as to how they wish to prepare their children for the opportunities and responsibilities that wealth brings. A plan for passing on values and not just valuables.”
Another parental concern is how and when to tell their children about the family"s wealth and the impact that this knowledge will have. “They worry that their children will immediately think about spending the money and that they will lose motivation,” Prabhu explains. “But when we conduct family wealth succession workshops and we explore this topic, we"ve often found that the next generation doesn"t wish to be profligate with money. Sometimes this is simply because they don"t wish to be different from their friends. One young woman was so embarrassed that she was travelling on her dad"s private jet on holiday that she told friends she was flying BA instead. They don"t want to be defined by their parent"s wealth.”
The new generation
Many of our commentators note that wealthy young people today are showing more social responsibility with their wealth and investments than a decade or so ago. “They"re more aware of the impact they can have on the world and want to help with issues such as climate change or human rights,” Prabhu says. “They"re being more conscious about the impact of their investment strategies on the world around them. They see their charitable work and investments equally reflecting their values, while their parent"s generation have mostly had a clear separation between their "investment hat " and their "charity-giving hat".”
Ogier"s Meiklejohn believes young HNWIs, perhaps as a result of government and media pressure, are also showing less willingness to take part in aggressive tax planning than previous generations.
Greg Davies, Behavioural Finance Specialist at Barclays, says the financial downturn may have made young HNWIs more responsible with their cash. “The financial crisis has focused people"s minds. We"re seeing a greater interest in social-impact investing than in previous generations. I"m wildly speculating, but it may be tapping into a broader cultural thing where drinking, smoking and drugs is on the decline relative to the past,” he says.
Essa says a new development has been the emergence of young tech entrepreneurs earning their first million in their early 20s. Do they behave differently?
“Again it depends on the personalities involved, but you often find that since they have built their wealth themselves, there is a real determination there to succeed and, importantly, to preserve any wealth that has been generated,” Essa says.
There may also be cultural differences. One expert told BL that there"s a “concern about some young Middle Eastern males who have a certain sense of entitlement”. And that “in countries like Russia, the wealth has come quickly and there has been little time for families to prepare for that change.”
In conclusion, it"s difficult to generalise. Even some of the Made in Chelsea brigade have been on TV shows highlighting food poverty and running the London Marathon for good causes.
Young rich people will, like their less well-off peers, go out drinking and occasionally make fools of themselves. They just do it in more luxurious bars and end up staggering back home in a limousine rather than on a night bus. But it seems this generation of HNWIs are different to their parents" generation. There appears to be a shift towards social responsibility. And that"s something we can all toast with a nice glass of bubbly.
Case study
Ben Way started his business career as a 15-year-old in his bedroom in Bath. By the age of 17, he was a millionaire and had moved to a penthouse flat looking over St Helier Bay in Jersey.
“From sleeping on a mattress to a four-poster bed - it was a real "pinch-me" experience,” the now-34-year-old California-resident remembers.
Way was one of the original tech entrepreneur millionaires after creating search technology Waysearch, which later became business-to-business product Pulsar. When he was 19, an investment company paid £25 million for the rights to his technology ideas.
He says handling wealth at such a young age was challenging. “You get caught up in the lifestyle. You have the champagne and the girls next to you in a nightclub and you feel arrogant, too big for your boots,” he says. “I was never too lavish - I didn"t have a Ferrari or a Lamborghini - but it was fun.”
Way had a rollercoaster early business career, making a fortune, losing it and then regaining it through a series of tech ventures. He is now boss of innovation and incubation firm The Rainmakers.
He has also dedicated himself to philanthropy after an epiphany in his mid-20s. “I became a more rounded person. I felt that having great wealth had become empty and that helping humanity was so much more important,” he says. “Money was no longer the centre of my world.”
His charity work includes supporting the Pedro Club, a youth club in Hackney, and Social Firms, an organisation dedicated to helping people with disabilities gain employment.
“Young people with money will continue to annoy everyone,” he says. “But when they grow up, from my experience of my friends, they will show a lot more social responsibility. I think it"s far more important to this young generation than it was 10 years ago.”