The Lessons from Downton Abbey

Flamboyant English playwright Sir Noel Coward penned a song titled ‘Children of the Ritz’.

The downfall of the English aristocracy inspired the song.

Many had lost their estates and fortunes.

To keep up appearances, some of the bankrupt lords and ladies would stay at The Ritz, courtesy of their well-heeled chums.

The first verse captures the Aristocracy’s fall from grace…

Children of the Ritz

Children of the Ritz

Sleek and civilized — fretfully surprised,

Though Mr. Molyneux has gowned us

The world is tumbling around us,

Without a sou

What can we do?

We’ll soon be begging for a crust

We can’t survive

And keep alive

Without the darling Banker’s Trust,

In the lovely gay

Years before the crash

Mr. Cartier

Never asked for cash,

Now shops we patronized are serving us with writs,

What’s going to happen to the Children of the Ritz?

Confession time. I’m a bit of a Downton Abbey fan. The series piqued my interest…personally and professionally.

Fortunes and misfortunes

The fortunes and misfortunes of the English aristocracy is an excellent case study of generational wealth.

On a personal level, I loved the richness of the dialogue in Downton Abbey.

The ability to agree to disagree so eloquently is an art form that’s rapidly being lost in our more combative world. Today, more people voice their opinions with anonymity from behind a keyboard.

Recently I read an excellent article in The New York Times titled ‘The Dying Art of Disagreement’…it’s worth a read.

When it comes to family relationships, we need to know how to disagree respectfully. Pistols at 40 paces are ruinous to the spirit of co-operation.

Watching the dinner table conversations — in the grand dining room or in the servants’ hall — reminded me of a time when there were no electronic distractions and people communicated with each other.

Debating topical issues or sharing news of the day, or discussing day-to-day business matters.

As I’ve mentioned before (repeatedly), honest and open communication is the core ingredient for generational wealth. Without trust, you have nothing to build on. Without an abiding belief in ‘we’re all on the same page’, then there is no going forward.

Making better decisions

Provided you have an open mind and a healthy self-esteem, that’s how you gather knowledge and grow. In theory, this should contribute to us making better decisions.

Better decisions on…

  • Who you want to share your life with.
  • What you put into your body.
  • Where to invest your capital.
  • Treating people compassionately and respectfully.
  • Where you source your information from.
  • Whom you listen to.
  • Career choices.
  • Allocation of resources.

Our lives are the sum total of the decisions we make. The better the decisions, the better the outcomes.

For those not familiar with Downton Abbey, it covers the period pre and post the First World War.

In the pre-war years, the landed gentry lead very privilege lives…completely divorced from reality. To quote from the UK Telegraph:

…their [the aristocracy’s pre-war] pleasures included house parties, the copious consumption of alcohol, dancing, gambling and flirtations, plus … the field sports of hunting and shooting.”’

Inherited wealth and privilege passed down through the centuries had created a culture of ‘to the manor born’. Work was the dirtiest of four lettered words.

Extrapolation — projecting a trend indefinitely into the future — is an investors’ worst enemy. It is also a fatal flaw for families. Being lulled into believing ‘that what has been will continue to be so’ is the product of lazy minds.

The aristocracy’s immense wealth was generated thanks to the British Empire’s economic dominance from the 16th Century to the late 19th Century.

This accords with Minsky’s theory of ‘stability breeds instability’.

Three centuries of wealth being passed from one generation to the next bred an extreme level of complacency.

The First World War threw a spanner in the works.

The enlistment of farm workers and servants meant a withdrawal of labour from the estates. The loss of tenant farmers resulted in declining farm rentals.

In addition to the human cost of war, there was also a financial one.

According to the UK Telegraph:

David Lloyd-George’s government, struggling to cope with the cost of paying for the war and meeting the demands of returning heroes for homes and jobs, was forced to raise revenue through increased taxation.

On the Earl of Pembroke’s Wilton estate income tax took more than a quarter of the estate’s income from rents in 1919, compared to just four per cent in 1914.

Overall the burden of direct taxation on country estates, including land tax, rates and income tax, rose from nine to 30 per cent of income.

For several landowners the only option was to sell parts if not all of their estates.

Remain vigilant

The lesson for us is to remain vigilant to change.

Governments — in need of revenue — may re-introduce some form of death duties, attack Family Trusts, continue to erode the tax effectiveness of superannuation or even impose a ‘wealth’ tax based on levels of net worth.

These may all be manifestations of my fertile and untrusting imagination.

But if wages remain stagnant and the increasing adoption of automation results in higher levels of unemployment, then Government is going to become creative in raising tax revenues. Especially as the entitlement side of the budget continues to expand.

For our family wealth to survive, we need to remain alert to the winds of change.

In addition to the post First World War higher taxation levels, the grand English estates were under threat from new industries.

Manufacturing, retail and newspapers offered aspiration to people who previously felt trapped by a life of serfdom.

Who were the landed gentry forced to sell to?

The buyers were not only those who had previously been tenant farmers on the land, but also the new rich — the businessmen who had profited from the war and sought to acquire the social status that accompanied ownership of extensive tracts of British countryside.

The UK Telegraph

Hard working tenant farmers saw the opportunity to own their small slice of freehold.

However, the big tracts of land went to the new breed of businessmen.

The industrious ‘new money’ displaced the complacent ‘old money’.

The story behind Downton Abbey is a timely reminder that we can never rest on our laurels. Times change and there is no room for complacency.

This is a lesson we must pass on to the next generation and the one after that.

Take nothing for granted and remain alert to the changing investment, geopolitical and economic environment. Be aware of the threats and opportunities.

If we’re to succeed in transitioning wealth through the generations, the ‘to the manor born’ mentality must be avoided at all costs.

The legacy we’re striving for, to paraphrase Sir Noel Coward’s song, is ‘Children with the wits’.

Regards

Vern Gowdie,
Editor, The Gowdie Letter


Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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