90% of Wealthy Families Lose Their Wealth Within Three Generations. What are you doing?

An interesting thought I had lately. Most of our wealthy peers in school and life stand out because they lived a very comfortable life as a result of the work of their parent's/grandparent's. They live in a large home, have a nice car, and nice clothes, likely go to a top university, and have a lot going for them due to their connections on Wall Street/Law/Government, etc. This might fit the description of a lot of people on WSO.

I grew up in the lower middle class, and while my parents didn't buy me a car or other luxuries, I feel pretty good about where I stand. I never felt poor, and I always knew I was capable of reaching for the stars (hence why I'm in IB). I do not despise wealthy people because, for most people, wealth came as a product of the hard work done by an ancestor. They too came from a humble background, and they studied their ass in school, made an invention/business, or entered high finance so they can create that prosperity.

However, it's more common than not to see their descendants not having the same ethics as theirs. While the parent had to create their professional network through work/cold emailing, the children are brought into it automatically. Plenty of more perks show up as a result. Being spoiled becomes more common too. When the ancestor dies, the wealth is split between the children, and rivalries are inevitably formed. Long-story short, we don't talk often enough about wealth being very fragile. 70% of wealthy families don't last 2 generations. 90% don't last 3.

Speaking to my more wealthy peers, some very disciplined like their parents and others very spoiled, I hear very interesting stories (will change some detail to keep anon). Peer #1 is a flashy dude with his foreign car, designer clothes, etc... does not do well in school since parents are super rich in their home country. Peer #1's father grew up lower middle class, and eventually struck gold with a business model... he is in his 70s. Peer #2 also bloated thanks to grandfather's business, but tells me he hates his family due to lots of infightings to be the grandfather's favorite (presumably when he dies, they get more hold of the wealth). Peer #4 also flashy, grandfather (dead) did IB and was one of the heads... found out about IB recruiting too late and is struggling,... rumored that parents home was foreclosed and now are living through airbnbs. Peer #5, great-great grandfather was part of an aristocracy... kids now is dirt poor due to family gambling/drinking/sex. The stories go on and on, but the point is that the wealthy kids are at different stages of this phenomenon, and personally I think it's good that it exists or else we have a permanent aristocracy.

For the readers who may despise some trust fund kid, realize that something big is at play that takes time (decades) to occur. They have to hope that the kid is spending responsibly so the well will dry up for the next generation. For the wealthier readers on WSO, I'm interested in hearing your thoughts on your family's financial situation, if they're spending like there is no tomorrow, or the walls are starting to crack, or if family/yourself are the 10% exception and manage to preserve that wealth, or anything else. For that last one, I'm interested in hearing how you're doing it, since many of us are interested in fostering a culture in which our new/current wealth can be preserved. 

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Comments (28)

2mo
WSO Monkey Bot, what's your opinion? Comment below:
[Comment removed by mod team]
2mo
Arroz con Pollo, what's your opinion? Comment below:

Well off but nothing crazy. Have wealthy relatives (Texas oil money) who have nice stuff but don't spend crazy. Also have immigrant relatives who are loaded but don't show off. Sure, 10k sq ft house on 10+ acres with nice cars, but that's about it.

I have an uncle who always talks about money at family gatherings. Always funny watching him talk to my other relatives who have multiples of his net worth but keep it very understated.

My dad worked hard and started making more money as I grew older. This resulted in some nice things (I got a luxury SUV before I even had my license), but it's not like I spend money a lot. It's nice knowing I can go buy a $100k car, but I know that's not the financially responsible decision.

I really don't know anyone worth $10M+ that flexes their wealth besides the son of a rapper who went to my friend's private school growing up.

2mo
Arroz con Pollo, what's your opinion? Comment below:

I forgot the whole point of my comment lol. Several generations ago, a side of my family were nobles in England. Of course dude blows the fortune in 3 generations and the family goes broke and sells the 2 castles. Castle still has the family name but yeah nobody in my family ever saw that money

2mo
NewIndustryHorizon, what's your opinion? Comment below:

Not in my family at least after moving to the states. Every subsequent generation was wealthier than the last. Some of my cousins have done very well for themselves through entrepreneurial ventures/joining risky startups+early stage companies that paid off big time.

I have been told that our family was very wealthy before a major conflict where they lost it all. We owned a ton of land and a huge home. My parents grew up middle class in their home country before moving to the US. I grew up upper middle class after my dad's business took off/was a stable income.

2mo
famejranc, what's your opinion? Comment below:

I will most likely not have kids - so there will be no lineage to worry about.

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2mo
i.can.make.it, what's your opinion? Comment below:

https://www.wallstreetoasis.com/comment/2848032#comment-2848032

I've said this story on here before, but my dad grew up poor became rich and blew it all up in one generation and now i'm rebuilding my own personal wealth, which is why I'm glad i got into IB. I want to use him as a cautionary tale to my kids when i have them and hope they teach their descendants too. I had all the trappings of a rich kid before, had nice cars, we had an affinity for bentleys, multiple homes, would rent boats in the Mediterranean etc

He is a classic boomer who made his money without lifting a finger long story short getting a job at a large company in the 80s because he had the "drive" to simply hand in his resume at the reception and got the whole company impressed and then climbing the Corporate ladder from the 80s through the 90s before investing in businesses like boutique hotels which were all successful so he quit and became a full time entrepreneur. 

I saw some of the money up until I was about 18ish years old then his "friends" and their own kids must've realized he was a dumbass and started recommending businesses to him that were clearly internet scams. Picture, "invest 100k and get 1m in 3 days!!", my dad never really learnt how to use a computer so he takes everything he sees online as law. I never really understood how unwise he was until i became a man and looked back at his business career. It was mainly boomer luck no thought behind any of it. 

They would pull these scams over and over again then it got to the point we started loosing assets and cash and my brothers and i tried to intervene, only to be shot down by his friends saying "we are too young to understand the internet" and my dad would agree and shut us up whenever we confronted him.

We lost every thing, i mean everything, i now take care of my sibblings with my salary and bonus and all we have is our main house. He still does not believe his friends stole from him despite all the proof that even a 10 year old and can see. Our family became the topic of gossip and ridicule to many families around us. 

None of my siblings ever wanted to work and have a career except me so they're basically unemployable, even with my dads wealth i always wanted to be a banker so I was already on the right track. 

Also, before this, his friends were not rich in any way, my dad was basically the one bankrolling the group, today some of their kids are flexing Pateks online.

I really want to go into more detail, so you can feel how frustrating it was for my family, watching this slow and EXTREMELY AVOIDABLE train-wreck, but it'll take too long.

Just picture someone losing millions of dollars in the most retarded ways possible, while his kids begged him to stop and he refuses because he made his money effortlessly for decades.

I estimate he lost around $10m usd to this whole thing, in cash and another $10m usd in assets like the hotels and companies he partly owned that he signed away.

Remember we're not from a first world country so buying power was similar to $100m, which makes the loss much more stunning to people around us and our family.

2mo
thebrofessor, what's your opinion? Comment below:

I have zero desire to pass on life changing wealth to my kids. they will inherit discipline, work ethic, knowledge, US citizenship, my library, and hopefully the best genes between mrs brofessor & me, that's it. I'm trying for "die with zero," and having seen what wealth passed on can do, it's disgusting and I don't want it

2mo
IcedxTaro, what's your opinion? Comment below:

What do you mean by this?  

Can you do a new thread/post on this topic?  I am quite curious to know.  

2mo
Mighty Burrito, what's your opinion? Comment below:

Clogs to clogs in 3 generations is the British phrase.

Grandpa starts a company, the kids expand it, the grandkids blow all the money. Very common. Google the Stroh (as in beer) family. Quite impressive: https://www.forbes.com/sites/kerryadolan/2014/07/08/how-the-stroh-family-lost-the-largest-private-beer-fortune-in-the-u-s/

2mo
Peg Leg, what's your opinion? Comment below:

I made my own money, but I'll be the last grandkid standing inheritance wise. All my aunts/uncles blew the lot of it. Meanwhile my mom is still working on a stockpile of $20 sneakers she picked up at Kmart before they went out LOL. 

2mo
Ozymandia, what's your opinion? Comment below:
bawstin

However, it's more common than not to see their descendants not having the same ethics as theirs.

Sure.  Because to be wealthy, especially if you come from very little, you need to have an insane work ethic and sacrifice a lot in order to be successful.  Part of the motivation for that is so your kids don't have to do that, don't have to regret what they sacrificed to "make it," so that your kid who is an insanely talent saxophonist can do that instead of working 100 weeks at a bank.  Even the law of averages says that your kids are unlikely to end up with the same work ethic; the random chance that comes with the probability that your descendants have a mental or physical ailment that prevents them from being as successful as you is high, and that's without all the qualitative stuff.

While the parent had to create their professional network through work/cold emailing, the children are brought into it automatically. Plenty of more perks show up as a result. Being spoiled becomes more common too. When the ancestor dies, the wealth is split between the children, and rivalries are inevitably formed. Long-story short, we don't talk often enough about wealth being very fragile. 70% of wealthy families don't last 2 generations. 90% don't last 3.

Define "wealthy" and cite that statistic.  If I die with a million dollars in the bank, I'm certainly wealthy - but that's not the kind of generational wealth that I'd expect to be passed on for many generations.  If I die with $100mm in the bank that wouldn't be true - those cases might get lumped together but they are not the same.  This reminds of the The Millionaire Next Door, one of the worst books ever written on wealth or personal finance (or in general).

Speaking to my more wealthy peers, some very disciplined like their parents and others very spoiled, I hear very interesting stories (will change some detail to keep anon).

Right.  Because people are people.  Some spoil their kids, some don't.  Some kids are exposed to bad influences in a social circle.  Some kids are just dicks.  The number of variables here is so huge as to defy analysis.

For the readers who may despise some trust fund kid, realize that something big is at play that takes time (decades) to occur. They have to hope that the kid is spending responsibly so the well will dry up for the next generation.

There is no reason to despise a trust fund kid, or hate people with wealth, or anything like that.  We should absolutely look down on trust fund babies who pretend like they earned it themselves.  We should absolutely call out the people in this world who call themselves "self-made" except for the several million dollars they got from mom and dad.  Wealth in and of itself isn't bad, but we can and should judge the attitudes of people with wealth.

For the wealthier readers on WSO, I'm interested in hearing your thoughts on your family's financial situation, if they're spending like there is no tomorrow, or the walls are starting to crack, or if family/yourself are the 10% exception and manage to preserve that wealth, or anything else. For that last one, I'm interested in hearing how you're doing it, since many of us are interested in fostering a culture in which our new/current wealth can be preserved. 

Raise your kids to respect the value of money, to understand what it means to live within a budget (of any type), and to understand how they and their wealth relates to others.  If your child lives in a bubble of privilege, they won't respect what they have.  If my kids want to be artists, that's fine, and I'm happy to help them pay rent in a modest apartment and buy groceries, but I certainly would tell them that if they want to drive a BMW and drink Chateau Latour all day, they better be selling that art for top dollar.

2mo
IcedxTaro, what's your opinion? Comment below:

May I ask how come The Millionaire Next Door is a bad book?

What would you recc'd for books in Personal Finance?

2mo
Ozymandia, what's your opinion? Comment below:
IcedxTaro

May I ask how come The Millionaire Next Door is a bad book?

Because at no point does Mr Stanley address the giant, asthmatic elephant in the room - that his entire book is predicated on ignoring the concept of survivorship bias.  As I recall, the basic point the book makes is that the habits of millionaires can be boiled down to living below their means and owning their own business.  But the only people he actually interviews for this are wealthy wage earners and business owners!  

Essentially Mr Stanley is saying "I understand that only 1% of small business owners end up being millionaires, and those are the only people I'm going to interview."  Which sounds great on paper, because how else do you extrapolate behaviors that lead to accumulating wealth?  But by ignoring the vast majority of people who failed and now work low wage jobs because of it, you're warping the sample set.  It would be like interviewing only the CEOs of Fortune 500 companies and extrapolating about the habits of wage earners from that sample set.

What would you recc'd for books in Personal Finance?

I don't have any, honestly.  Personal finance seems pretty easy to me - have a budget, stay within it, invest in long term low fee financial products, and don't panic during downturns.

2mo
teddythebear, what's your opinion? Comment below:

Yup, its a common trend. First generations starts the business with very little, they tend not to be to lavish even after getting some wealth. Second generation experienced a taste of poverty and work hard to expand the business. Second generation becomes a bit more lavish. Though second generation are hard workers no doubt, they dont have that same grit of the 1st generation. However, second generation does a decent job expanding it. Third generation is now here. They have only tasted the full wealth and enjoyment of the second generation, they feel its easy to do nothing and that money has no value as they have plenty of it. They are essentially brainwashed into this.

The only way I can imagine wealth to surpass generations is through either a trust or some sort of common sense financial education provided by previous generations. Theres a family office I dealt with and they are on their 5th generation, all are wealthy industrial heirs, but super sharp, your talking Yale grads with PHDs, doctors, attorneys, etc. I actually brought this up to them and they are a rarity but how they have managed to be successful is to always talk about money problems with their children. This way children are not shielded from financial distress but rather they can understand the true value of money and that everything they buy requires them to work hard in order to earn it.

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2mo
AnalyzeANDchill, what's your opinion? Comment below:

I hear that the Rothchild's would always pick 1 person from the family to manage the majority of the wealth, whoever they thought was the most competent. 

2mo
Isaiah_53_5 💎🙌💎🙌💎, what's your opinion? Comment below:
bawstin

An interesting thought I had lately.

This an ancient Chinese saying - it is not some original thought of yours. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

2mo
Ozymandia, what's your opinion? Comment below:
Fast and Fiduciary

hard times make strong men. strong men make easy times. easy times make weak men. weak men make hard times. 

Goddamn dude, get this crap out of here.  Continuing to repeat it just gives it credence in the eyes of idiots and rubes.

2mo
lumber_cruncher, what's your opinion? Comment below:

My family history tells this story several times over. I count among my ancestors several Mayflower settlers and Virginia landed gentry, that wealth was lost fairly quickly. My great-great-grandfather was one of the largest shipowners in Connecticut during the 1800s, his sons were in the Social Register at turn of the century, and their sons and daughters went broke during the Depression. My grandparents' generation had to re-learn what a strong work ethic was, and thankfully they passed that down to my parents, who are very successful white-collar professionals. The family "wealth" of my parents and grandparents now is mainly in the land we own across the northeast, and in the community and connections they're a part of. I was raised in an upper-class community, but never had the glut of cash that many of my childhood friends did. I'll credit my parents with teaching me a strong moral compass and a respect for hard work that thankfully me and my siblings all possess, and I know that each of us are striving for even greater successes.

Hopefully when I have kids I will be able to teach them the same life lessons that my parents gave me, and even though I know they'll be raised with considerable privilege and a large inheritance, they can learn from our family's mistakes and ensure a successive, dynastic approach to money and life.

2mo
AnalyzeANDchill, what's your opinion? Comment below:

I would not classify us as rich but i grew up down south in US , my father has between 4-5 million. We had a middle class home and he never bought us new cars they were always used and less than 20k he also never told us he had money. He never dressed exceptionally and was not interested in showing off wealth at all. Was told at 23 how much money he has and that his goal was to pass on as much money as he could to his kids when he passed away. I think this worked well because we never thought we came from a well off family until we were already grown so we were working to earn our own money and simply viewed that as a nice bonus we would likely get in our late 30s or so. 

2mo
Moritz Mickelweiß, what's your opinion? Comment below:

My great-grandmother, an upper-middle-class antiques dealer, was featured in the society columns of the local newspapers back in the Thirties and Forties, and my grandfather would date debutantes early in his life. Papa (my grandfather) chose to follow his own way in life, working as a foreman for the Albert J. Welch Equipment Co. in Brighton, MA for many years. He was easily the hardest-working man at the company, and he was considered the go-to guy for the Welches. He always drove Cadillacs, owned a boat as a member of the Newton Yacht Club, and sent my godmother to Regis College and Harvard University. By the end of his life in 1999, I'm sure that he must've been worth a fair amount of money, but having never met my beloved Papa, I'm not quite sure how much there was or where it went. Still, I believe a portion of it may have been used to finance the construction of our house, which we built on the same property as my Nana and Papa's house in 2003.

Honestly, I wouldn't be surprised if my uncle ended up with some of it and blew it away. My family is now estranged from his side with good reason.

The mother of idiots is always pregnant.
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2mo
arbjunkie, what's your opinion? Comment below:

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2mo
Andrey Kolmogorov, what's your opinion? Comment below:

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