Generational Wealth Isn’t a Free Ride

“The finest inheritance you can give to a child is to allow it to make its own way, completely on its own feet.”  — Isadora Duncan

As current or future parents, you may be working hard to build up a nest egg just like your parents did before you. Not only to afford the essentials, but to cover things such as trips, vehicles, colleges, and the eventual passing on of assets when you leave this world. Any person should take pride in the wealth they have built over the course of their life. The problem comes when you look at generational wealth and realize it usually doesn’t last long.

It’s an unfortunate truth: 70% of rich families lose their wealth by the 2nd generation¹. That is a depressingly large number. Surprisingly, studies found that around 68% of those with a net worth of $30 million or more made it themselves. A follow-up study clarified that 88% of all millionaires are self-made, meaning they did not inherit their wealth². That can be rounded to a staggering 9 out of 10 millionaires having built their own wealth. This goes inline with our earlier post around becoming a millionaire. These numbers translate to billionaires as well; when looking at the Forbes 400 list, 69% of billionaires on the list in 2011 started their own business³.

Honestly, we at ETS were pretty surprised by the above stats. We figured trust fund babies had it made for themselves and future generations, but in fact, that isn’t true. Our quick take away is that self-made millionaires developed the self control, plan, and drive to implement how to build (and keep) their own wealth. Their subsequent generation is without these tools, and therefore loses the wealth passed onto them. This can be a parents’ nightmare.

There are a few things you can do to stop this. Teach your children good financial sense early and enforce those lessons as they mature⁴. If you aren’t savvy yourself, there are tons of online courses. Be open and honest with them about your financial strategy for while you are alive and for after your passing. Impart your lessons on how you built your wealth and help them form a strategy to build theirs¹. If you are the offspring, don’t just have dollar signs in your eyes while looking at your parents’ pile. Learn from them. Always be looking for ways to earn, save, invest, and grow your own assets. Be the 30% who increase what your parents worked hard to give you.

Action: As a parent, put together a plan on how to teach your children good financial sense. As offspring, learn the plan from your parents and develop your own with their (and professional) guidance.

Further Reading:

1. The #1 Reason Why 70% of Wealthy Families Lose All Their Money
2. How Most Millionaires Got Rich
3. Most Billionaires Are Self-Made, Not Heirs
4. Teaching Children About Money Now, Pays Dividends Later