Children who grow up with every advantage can miss out on something essential: the experience of limits and earning something for themselves. Andrew Carnegie understood this risk well. Psychology helps explain why that concern still resonates today.
Andrew Carnegie arrived in the United States as a Scottish immigrant and at 13, began working in a cotton mill for USD 1.20 a week. He went on to build one of the great fortunes of the industrial age. Yet one of the reasons he remains relevant today lies not in his rise from poverty or in his philanthropic legacy, but in what he understood about wealth itself: that when it is handed down too easily, it can weaken the very people it is meant to benefit.
Carnegie was deeply sceptical of large inheritances. When he saw wealthy families passing vast fortunes on to their children, he did not see it as a sensible way of preserving wealth. He saw a danger of raising heirs with money, but no real reason to push themselves - a dynamic he believed would ultimately erode the family fortune.
In "The Gospel of Wealth," published in 1889, Carnegie wrote that a parent who leaves a child enormous wealth will often stifle that child’s talents and ambition.
True to those convictions, Carnegie gave away most of his fortune during his lifetime rather than preserving it for future generations. He was determined not to create a dynasty of inherited comfort. As he put it: "The man who dies rich, dies disgraced." Today, his legacy lives on in a different form: Carnegie Hall in New York, and thousands of libraries around the world.
But more than a century later, the question Carnegie grappled with remains highly relevant: how do you raise children to want something, work for something and find satisfaction in what they achieve when wealth has made so much come easily?
The following psychological models help explain why that can be so difficult.
In 1908, psychologists Robert Yerkes and John Dodson showed that people need a certain amount of pressure in order to perform at their best. Too little challenge leads to boredom and disengagement. Too much leads to anxiety and overload. Somewhere between lies the zone in which people are most alert, motivated and capable.
This matters in families with substantial wealth because money removes pressure. It cushions setbacks, smooths out obstacles and makes everyday frustrations disappear. But wealth can also mean that children grow up shielded from the kinds of demands that build resilience, initiative and self-conviction.
Parents want to make life easier for their children. Yet if everything is too easy, children may never develop the inner drive that usually comes from having to stretch, strive and cope.
One reason wealth can lose its motivating force is that people get used to it. In 1971, psychologists Philip Brickman and Donald Campbell described what later became known as the hedonic treadmill: the tendency to return to a personal baseline, even after positive experiences or major improvements in circumstances.
In simple terms, what feels special at first soon starts to feel normal. A luxury that once seemed extraordinary becomes part of everyday life. The same is true of comfort and convenience. They stop registering as privileges and start to feel like the natural order of things. For children who grow up surrounded by abundance, this can have a numbing effect.
That is why wealth on its own does not create lasting satisfaction. In many cases, it simply shifts expectations upwards. What once felt like a reward comes to feel normal. What once felt normal starts to feel like deprivation.
People tend to value things more when they have worked for them. In 2011, behavioural economists led by Michael Norton described this as the IKEA effect: the tendency to place a higher value on something because we had a hand in making or earning it.
The point goes beyond flat-pack furniture. Effort creates a sense of attachment. What we have to work for often feels more meaningful because it is tied to our time, our energy and our sense of competence.
For children from wealthy families, that insight matters. Money given automatically may provide comfort and security, but it does not necessarily instil pride, commitment or identity. Earning something for oneself does. A first salary, a hard-won result or even a modest success achieved independently can carry far more psychological weight than a large sum received without effort.
Many wealthy families understand this problem intuitively. The real challenge is not recognising it, but doing something about it. That is why some families have developed ways of introducing structure, discipline and even a degree of scarcity into lives that would otherwise be shaped by comfort and abundance.
John D. Rockefeller Jr put that principle into practice. The same mindset that led his father to record every cent in meticulous accounts also shaped the next generation of Rockefellers. Pocket money was deliberately limited, and any additional spending had to be justified through effort. If young Nelson Rockefeller, who later became Vice-President of the United States, wanted more money, he had to work for it, whether by growing vegetables or selling rabbits.
Money removes pressure. It cushions setbacks, smooths out obstacles and makes everyday frustrations disappear.
The principle was simple: wealth should not remove the link between effort and reward. Even in a family of immense means, children were meant to experience that money had to be earned, choices had consequences and self-discipline mattered.
The Liechtenstein family provides one of the longest-standing examples of how that can be put into practice. Mentioning this in LGT’s magazine may sound self-serving, but historians of family wealth point to the Princely Family for good reason: it demonstrates how substantial assets can be preserved across generations without turning them into a source of personal entitlement.
The principle is straightforward. Rather than being divided among individual heirs, the estate was designed to remain intact. The indivisibility of the family’s estate was legally enshrined in the 17th century. Today, the entire estate belongs to the Prince of Liechtenstein Foundation rather than to individual family members, with Prince Hans-Adam II effectively overseeing it as a kind of trustee for the Princely House as a whole.
Just as important as the structure itself is the thinking behind it. Wealth is not treated primarily as private spending power, but as something to be preserved, managed and passed on responsibly. That changes the role of the individual family member. Princes and princesses may grow up within a prominent family, but they are not free to treat the family assets as their own wealth. Personal achievement still matters. Work still matters.
Another way of keeping expectations in check is to make clear that being part of a family does not guarantee inheritance or leadership. In some traditional Japanese family businesses, this principle has long been taken seriously. The priority in these cases is not sentiment or even bloodline, but continuity: preserving the business comes first.
This is where the practice of mukoyoshi comes in, the adoption of an adult successor when no suitable heir is available within the immediate family. If the next generation lacks the ability, discipline or judgement to lead, the family may choose someone else instead.
That sends a clear message. Succession is not an automatic right; it has to be earned. For those born into wealth or into a family business, few things are more likely to sharpen ambition than the knowledge that they could one day be passed over.
Andrew Carnegie understood something that many wealthy families are still grappling with today: money solves some problems, but it can also create new ones. For parents, the challenge is not simply preserving wealth, but raising children who can live with wealth without being defined by it.
Every obstacle that parents remove from their children’s path robs them of that crucial triumph over themselves. In modern family offices, "wealth parenting" is therefore no longer merely a matter of education, but a strategic necessity. It is the art of setting limits where the bank balance does not - of viewing wealth not as a destination, but as a mission.
Carnegie might not have applauded. But he would probably have nodded in satisfaction.
When faced with complex asset and family structures, it makes sense for families to do comprehensive and long-term wealth planning. This is especially important in cases where, for example, certain family members live abroad, assets are partly tied up in the family business or income is derived from several sources in different countries.
