How Destructive is Normalcy Bias

Normalcy bias: “Underestimating the possibility of disasters occurring. This causes many to not adequately prepare or plan for the worst. Failing to plan will result in planning to fail.”

Normalcy bias can indeed contribute to the lack of foresight in establishing governance and communication systems. However, family wealth preservation challenges usually stem from a combination of factors, and while normalcy bias can be one of them, others often play more pronounced roles.

Here’s a breakdown:

Normalcy Bias: Families might assume that because conflicts or financial issues haven’t arisen in the past, they won’t in the future. This can lead to a lack of preparation or formal governance structures. They might think, “We’ve always managed without formal structures; why change now?”

Cultural or Familial Norms: In many cultures and families, discussing money or potential future conflicts is taboo. This can prevent open communication about wealth management and potential challenges.

Lack of Education or Awareness: Some families might not be aware of the importance of governance structures or how to implement them. This could be due to a lack of financial education or simply not being exposed to the concept.

Procrastination: Setting up governance and communication systems requires effort, time, and sometimes financial resources. Families might keep postponing these critical decisions, thinking there’s always time in the future.

Fear of Conflict: Introducing formal structures might be seen as a sign of distrust or could unearth underlying tensions. Some family leaders might avoid this to maintain a semblance of peace.

Overconfidence: Particularly successful families might believe they’re immune to the challenges other families face. This overconfidence can lead to neglecting crucial protective measures.

Reliance on External Management: Some wealthy families might believe that because they have financial advisors, accountants, and lawyers, they don’t need to have internal governance structures. They might think that external experts will handle everything.

While the normalcy bias does contribute to the neglect of establishing governance and communication systems in some families, the multi-faceted nature of family dynamics, beliefs, values, and external influences means multiple factors usually play a role. Awareness, education, and proactive planning are essential to address these challenges effectively.