Money, money, money… when there appears to be an abundance of it, consumption grows and it can very quickly slip away. But what fun is money if you can’t spend it?
How do families allocate capital for consumption, separate to family office investments, whilst ensuring it’s used for the highest and best use?
To reference Hughes Jr.‘s seminal book, Family Wealth
, how is the Financial capital being utilised to support the Human and Intellectual Capital of the Family? Tying the family’s vision and values to the way capital is allocated for consumption.
Buckets of Capital
Many would be familiar with the concept of allocating capital to a Family Office to invest and grow the family’s wealth or perhaps setting aside money in an education fund for this generation and the next generation.
I offer some interesting examples below of additional ways in which families plan and allocate funds:
Education funds - may provision for private or public schooling, university or college, higher education and graduate school, vocational education and technical roles. Families may also choose to support higher learning in hobbies or areas of interest such as languages, culinary school or self improvement.
Health & Wellbeing Funds - allocate money to everything from private health insurance, life insurance and medical procedures to proactive wellness investments such as personal trainers, yoga retreats, athletic coaching, competitive event registrations and physiotherapy.
Experience Funds - “life is a collection of experiences” and wealth and unlock some incredible experiences. Families who allocate to experience funds usually have adventure and travel in their core values. I seen things funded such as climbing Mt Kilimanjaro, diving with whale sharks off the coast of South Africa, hiking Machu Picchu or Performance Ice Driving in Mongolia.
Impact Funds - it is common to see very wealthy families setup or fund private foundations, charitable organisations and fund philanthropic endeavours that align with their mission and values. It’s often in the Impact Fund area where we see children of wealth grow an appreciation for what they have and the responsibility they carry to impact lives and communities around them.
Art & Culture Funds - many families steward incredible art collections and even private museums over generations. It’s beyond a passion and often overlaps with financial investments, impact investments and charitable giving. For families who greatly value fine art and collectibles, it’s common to see an allocation of funds specifically set aside to acquire special pieces or support emerging artists in the region.
Financial Capital & Family Offices - almost all wealthy families have some sort of financial plan and allocate to various investments designed to preserve and grow the family’s capital for generations. Some manage their own money, some outsource to wealth advisors and portfolio managers, others setup and manage Multi-Family Offices with other families or a Single Family Office if their investment pool is large enough.
Spending Money! This one is not as common to see in formal family documents and meetings but it does occur. I have seen funds specifically set aside for the occasional blow out shopping spree, consistently growing the super car collection and even acquiring Hermès Birkin handbags… If you can afford it and those things are important to you… why not!?