Britain was recently given an insight into the home life of Nigella Lawson, a celebrity cook, and her husband, Charles Saatchi, an art collector and former advertising magnate. One subject that spurs them to argument, Ms Lawson revealed in an interview, is inheritance. Mr Saatchi believes that children should inherit their parents’ money. Ms Lawson insists that children should never grow up feeling that they are financially secure.

It’s a familiar theme in many well-off households – and if it isn’t, it should be. Wealthy people who don’t think hard about what to leave their children, when to do it, and how, are not taking seriously the immense responsibility that wealth confers on them.

So who’s right – Mr or Mrs Saatchi? The answer is complex. It’s not even clear whether being rich – either self-made or inherited – makes people happy. Up to a moderate level, happiness and money seem to be reasonably well correlated. According to research by the Pew Research Centre, a quarter of Americans with incomes under US$30,000 said they were very happy, while half of those with incomes above US$100,000 did. But beyond that, it’s hard to say. Data about the very rich is sparse. One of the few studies on happiness looked at a group of people on the Fortune 400 list and a group of Masai herders from East Africa and found that they were about as happy as each other.

Anyway, inherited wealth is a different currency to self-made money. Mrs Saatchi’s argument against it is that it undermines the motivation to work and there’s some evidence to support her view. “The Carnegie Conjecture”, for instance, an academic paper written by a group of economists in 1992, examined Andrew Carnegie’s claim that “the parent who leaves his son enormous wealth, generally deadens the talents and energies of the son and tempts him to lead a less useful and less worthy life than he otherwise would.” The study looked at a group of people who had inherited money. Of those who then inherited US$25,000, only 5% were out of the labour force within three years, while a fifth of those who inherited US$100,000 were. And while more than half of those who inherited up to US$25,000 and were out of the labour force when they received their legacy were back at work three years later, only 16% of those who inherited US$100,000 or more went back.

It’s not just the obvious disasters – the drunks, the drug-addicts, the layabouts. It’s the damage money can do to young people’s ability to get going in life. Establishing yourself in a career is a difficult business. You need to make calls to people who don’t want to take them. You need to get out of bed on cold mornings, even when you have a hangover. You need to push yourself through the doldrums that becalm all careers at some point. It’s a lot harder if you have the comfortable knowledge that there will always be a cushion of money to fall back on. And although money is a spur to working, work delivers much more than money: it allows people to find out what they are good at and who they really are.

Tony Weller, a psychotherapist who specialises in working with the very rich, explains that financial insecurity gives people something to aspire to. If people have money already, there’s no point in struggling. “The rich,” he says, “end up losing hope. The poorer person has the hope of becoming wealthy – and then they’ll be happy. The rich already have wealth, so they’ve nothing left to hope for. I’m doing a lot of work with the children of rock stars and I’m getting a lot of lack of ambition. There’s no rive. There’s hopelessness.”

Mr Weller also worries about the damage that money can do to relationships. “I know so many heiresses who’ve had three or four husbands. They’ve been paid off one after the other,” he says.

Sigrid Rausing, one of the heiresses to the Tetrapak fortune, says that the very rich are in danger of being isolated. “We live in a society which largely determines value by money – therefore, if you have either much less than the average or much more than the average, you are, by definition, a minority. Coming from a background of wealth can be isolating for children and teenagers, who tend to want to be like everyone else.”

And yet there is much on Mr Saatchi’s side of the argument too. Money can be liberating as well as burdensome. That’s the point of Warren Buffett’s much-quoted dictum that you should leave your children enough to do anything but not enough to do nothing. While some children of the rich fritter away their cash, others use it to subsidise careers – in teaching, academia, social work, NGOs or the arts, typically – that, in the absence of inherited wealth, might deprive them of comfort and material freedom.

Others use the cash as a springboard to entrepreneurship. Johnnie Boden got an unexpected legacy when he was 27. “I’d tried every job in the City and realised that I was no good at any of them. I made a lot of mistakes with some of it. But at the same time I met a girl who became my wife, who told me to get on with it.” He used it to build a mail-order clothing business which now employs 700 people. Merryn Somerset-Webb, editor of MoneyWeek, maintains that he is the rule, not the exception: “the great majority of entrepreneurs we write about have some money somewhere behind them.”

David Goodhart, a former Financial Times journalist, inherited US$1m, which allowed him to found Prospect, a highbrow current-affairs magazine. “The money has done its duty. It allowed me to start an enterprise.” Mr Goodhart would probably have been richer if he had kept his money in the bank and stuck with his job, but intellectual debate in Britain would have been poorer. There is no golden rule to ensure that your children use the money you leave them to make their lives, and the world, better rather than worse; but there are some useful guidelines.

Do not give them large sums when they are very young. Do not tell them exactly how much they are going to get and when.

Don’t leave them too much. A modest amount of money can offer industrious, creative people the freedom they would not otherwise have, while a very large sum increases the burden without enhancing the liberty. “The advantage of inheriting great wealth, I believe, is largely illusory,” says Sigrid Rausing, “and can become pathological – an illusory sense of being special and different, the assumption that one is interesting to other people only, or mainly, because of the money and subsequent isolation. The advantage of inheriting enough to not have to worry and enough to not limit one’s choices how to educate one’s children and grandchildren and enough for a standard of living which is aligned with the standard of living one grew up in, are obvious, and stabilising.”

Prepare your children for their wealth. Talk to them about it – for if you don’t, others will. Train them in how to manage it when they’re in their teens. Give them money for good causes and help them work out how best to do it. Give them money to invest and explain how the markets work. A little later, if they’re so inclined, give them money to start a small business. Most of all, teach them to respect their wealth. Money can do great good or great harm: it can make your children and it can break them.

Emma Duncan is the Deputy-Editor of the Economist

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