On a portfolio level, immigrants sometimes struggle making the mental switch from wealth accumulation to wealth preservation
A lot of people think “the wealthy” are a homogenous bloc – a bunch of people who act the same, think the same and live the same. But where your wealth comes from can make a big difference to who you are.
I recently came across some interesting research by James Grubman (a psychologist) and Dennis T. Jaffe (a sociologist) that affirms this observation. The research proposes the wealthy can be categorized in three broad groups. “Immigrants” are newly arrived to wealth, while “natives” were brought up in a wealthy environment. “Blended” families are a combination of the two.
There will be a lot of people who come into wealth in the next decade or so as the baby boomers receive the largest inheritance in history. Not every one of those transfers is going to involve millions of dollars, but I think we’re likely to see a lot of new “immigrants” to wealth over the next several years. The children of those immigrants may end up being “natives” to wealth. What are some of the challenges those new immigrants are likely to face? How will their “native” children and grandchildren deal with wealth?
These are important social questions, and the answers can have broader implications on our economy and our society as a whole.
Immigrants
Most high-net-worth individuals earn their wealth, either through business ownership or by being highly paid professionals. Most of these people “immigrate” to wealth from a different class or lifestyle. They typically espouse the values of frugality and hard work and tend to resist the personal transformation and lifestyle changes brought on by wealth.
Immigrants often struggle with ensuring children and grandchildren remain motivated to work in the face of material abundance, and they worry whether their kids will grow up materialistic or self-absorbed.
On a portfolio level, immigrants sometimes struggle making the mental switch from wealth accumulation to wealth preservation.
Natives
These are individuals who were brought up in an environment of affluence. While they might not be wealthy themselves, they will almost certainly be affected by the wealth that has been part of their lives.
Natives can have a hard time establishing independence (financial or personal) because of the dominant role wealth has had shaping their identity. Some natives struggle with trying to live up to the lofty expectations of highly successful parents.
When it comes to investing, natives tend to value stability and security, and tend to think of risk in terms of danger instead of opportunity. Because they often have less experience in creating wealth, they often put the bulk of their assets into “safe” investments, sometimes to the detriment of long-term goals.
Blended families
Families that bring together the wealth immigrant and the wealth native are “blended” families. Such pairings often experience unique stresses and pressures.
The combination of distinctly different attitudes and identities into a single family unit can cause significant friction. The immigrant can sometimes feel like an “imposter” in the wealthy world, while the native can sometimes feel uncomfortable making financial and lifestyle compromises.
Financially, blended families face a number of challenges. One partner might have radically different spending habits from the other; one may have established advisory relationships while the other may have never discussed money with a professional. All of these might end up creating conflict if left unaddressed. •
