Keeping Wealth in the Family
Our nation has a mixed view on the morality of keeping wealth in the family. Most of us want our children and grandchildren to have a better life than we do, yet many Americans turn up their noses at the uber rich trust fund babies – people with third generation (or more) wealth.
Some believe that to keep America being the ‘land of opportunity’, it is necessary to strip the wealthy of money and make it available to those less fortunate. Some even want big government to enforce that view – with programs to address things like ‘income inequality’.
Very few of us want to see a caste system develop here, where your birth family determines your station in life. No matter the reality, we want to believe that each new baby has a chance to become a Bill Gates, Warren Buffett or a US president.
Maybe it is a good thing, then, that most wealth is dispersed before the end of the 3rd generation of the creator. Riches to rags in three generations or shirtsleeves to shirtsleeves in three generations – there are a number of popular expressions that attest to the commonality of the condition.
What if, though, a family could continually grow and thrive, with wealth creators in each generation. Doesn’t building a base of financial and personal assets in each family generation make sense in support of providing increasing opportunities, not only to family members, but to the ever widening circle of associates, partners, shareholders and employees around them?
Personally, I love rags to riches stories – and they abound in our literature. But what of those families, like mine, that work hard, save well and build wealth over time? One generation continually provides a step up for the next. The story isn’t one of a single shooting star, but of multiple family members earning and growing resources which they share with the next generation. How do they do it? What is the secret to their legacy of wealth building across generations?
Each generation learns to save from their parents. Hard work and self-sufficiency are concrete expectations. Saving is rewarded, borrowing is questioned. Spending mistakes are made early in life when less expensive. Family members are expected to live within their incomes, and have enough to handle their own emergencies, wants and needs.
They grow the financial assets.
As the generations begin to amass some wealth, they learn that some ways to keep the money are more lucrative, safer and more interesting than stuffing it under a mattress or putting it in a low interest account. The parents pass along the information, knowledge gained from success and failure and the tradition of investing assets in various ways. They demonstrate that success in these methods is possible and give their young practical experience with some or all of them. This not only allows each succeeding generation to start from a larger base of financial assets but also provides a wider foundation of personal knowledge and experience from which to draw.
They teach hard lessons to the next gen.
Bad health, physical disability, poor economic conditions in society or bad weather impacts us all. Those parents that let their children see them suffer and ultimately overcome the suffering in some fashion are teaching their kids the hard lessons of life. Letting their young suffer the consequences of the child’s inevitable mistakes and poor choices, instead of bailing them out, lets the next gen learn first hand the tough lessons life can teach.
Children must be shown and taught the facts of their financial lives – and they must learn that not all wealth is financial! Successful wealthy families develop their next generations intentionally, through information and experience in multiple dimensions such as asset management, leadership, philanthropy and more.
At least one next gen family member buys into the family legacy.
Not every family member is destined to grow wealth and pass it along. Some have no descendants. Some rebel and pursue a different life’s course. But in families with a legacy of wealth building across generations, at least one member of each generation living at the same time (children or grandchildren) see the benefit in carrying the torch to the future.
They cover their risks, and have a bit of luck.
Disasters, bad decision making, and plan old bad luck can effectively wipe out the efforts of one or more generations. Families which give each generation lessons and practice in decision making, allowing members to experience the consequence of bad and good decisions in their youth, suffer fewer losses as the young members mature. Families who take precautions against disasters (such as choice of occupation, geographic location and insurance) and teach youngsters to consider those things, stand a better chance of avoiding or mitigating disasters. Families who teach their young that most luck is made – bad or good – help their kids and grand-kids to make their own luck and deal with unfortunate circumstances creatively.
They plan to pass the legacy.
Through stories, family traditions, meetings and specific events these families pass along their family history and expectations of future family members. Through discussion, official documents and consultation with family advisors, these families thoughtfully plan how to pass the assets to the next generations.
What are your thoughts on keeping wealth in family across generations?