They then had a few children including me, and now I'm the only child left "standing" because my sisters turned into classic "Southern Belles" and once the cash flow stopped from the folks they quit coming around. My brother turned to booze and the bottle, thinking partying is the only true answer. It's just depressing that out of the 4 children who had the same education and upbringing, I'm pretty much the only one in the generation that "gets" the concept of finance and money.
My sisters and brother? Literally no work ethic. They are literally proud to scrape by, avoid holding a job, and avoid helping our aging parents. But the sisters demanded the most lavish things and weddings, and the brother expected that my father and I would have infinite resources to keep bailing his ass out of trouble.
It is no surprise that I've maintained a healthy relationship with my parents and family, while they've continued to seek the next quick buck in their lives.
Financially it would make most sense to pass money early (invested in ETFs) and ensure that children can step on the property ladder early on, but this requires parents to pass a lot of wealth in their mid-40ies to mid-50ies.
* Regression to the mean. [0] Humans try very hard to avoid "dumb-luck" in any story even if it's the best available explanation.
* Inheritance split to more than one heir.
For the heir-scenario, imagine that Generation 1 is a single family living off the interest of $12m. They have three kids, who marry equivalently-wealthy spouses. Now Generation 2's average wealth is $8m. That's a decrease, and we haven't even begun to talk about factors like "raised with good habits" or "work" etc.
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[0] https://en.m.wikipedia.org/wiki/Regression_toward_the_mean
My favorite example is the humble coin toss. Yet many people joyfully fall into faux-explanations of "hot streaks" or "overdue" outcomes etc., and retain them no matter what statistical evidence you provide.
Even those who consciously reject those ideas still have to bat the intrusive thoughts away, and that's for one of the most well-studied statistically characterizable things out there.
If a child inherits $1 million from their parents (after taxes), they may feel rich, and they may try really hard to hold onto that money by saving and buying appreciating assets. In 10 years time that money might grow to $2 million. However, the buying power of $2 million is approximately equal to $1.5 million (3% inflation over 10 years). Couple that with a 20% tax on capital gains, and their real wealth increased by only 300K over 10 years after inflation. So while their nominal wealth seems to have doubled, their real wealth was only increasing by a modest 30K per year.
And this is all assuming that the person isn't spending any of that money. A different person might spend + invest and still have $1 million in their bank 10 years later... But this isn't the same $1 million they had 10 years ago --- adjusted for inflation they are 250K more poor
Average life span of the parent is 76. Average age for the parent to have had a child 25.
The "child" inherits $1 million at the age of 51. At that stage behaviours are pretty well established.
This means that heirs of wealthy families are receiving portions of their inheritance often in their late 20s/early 30s.
I don't think it is a matter of education, at least for me it is instinctual. If I get a large amount of money, I am going to invest most of it and it would never occur to me to do otherwise. When I get a paycheck, I am going to invest part of that paycheck first before I spend any of it, and it would never occur to me to do otherwise. I did that when I was making minimum wage.
This wasn't taught, my parents did not do that and my siblings do not do that. I don't think it is inherited. The collector gene is, my father and grandfather had that gene and I think it is related, but the investor trait is something additional. I don't know where I came up with that. It has made things in my life hard in the short run sometimes and very easy in the long run.
You can educate people all you want, but when they get money, most of them are going to decide well I need this and I need that so I can't save any money this time. Maybe next paycheck. That's what my family did, my friends, my girlfriends.
There's a Bukowski poem he wrote about his father's investment advice:
"I can pay for this house in my lifetime,
then it's mine.
when I die I pass it on to you.
now in your lifetime you can acquire a house
and then you'll have two houses
and you'll pass those two houses on to your
son, and in his lifetime he acquires a house,
then when he dies, his son -
I get it, I said."
What did he do?
"I gambled and drank away the money."
With respect to education around money systems, I am referring more to (a) knowing that investing is necessary but insufficient and (b) understanding the main drivers (besides spending) of wealth loss: inflation and taxation.
It's hard (even for successful, intelligent people) to wrap their head around the fact that their $1m house that ballooned up to $2m over the last 25 years has in fact, lost value.
Not to mention the initial $1M increase, which you conveniently did not. And that's $30K/year they did not have to work for and that they would not have otherwise, so what's disappointing about that?
You can avoid a lot of needless drama by simply stating that the real rate of return, after inflation, would be about 4%/year.
And your tax argument is weak. Just as the parents left tax-free money to them, they too can leave tax free money to heirs simply by dying. There is no need to pay any capital gains taxes while they are still alive, if they simply leave the money invested. Even if they need some of it for expenses, the tax hit is much, much lower if withdrawn in smaller annual amounts than in one giant lump sum after ten years.
The point I was making is that most heirs might not fully understand tax implications, inflation, and that increases in nominal wealth != increases in real wealth. This all leads to generational wealth dying out, as well as for reasons mentioned by others in the thread.
1. Spend it. In some cases that might be a fair direction. It's easy to spend 1 million. It's very hard to spend 1 billion though.
2. Seriously learn about money and investing. Really it's not impossible! But of course it's a field full of hype, hype vendors, counter-intuitive ideas, non-obvious ideas, "math" - some simple some seriously not, and nowadays very counter-narrative directions, etc... So that new fantastic books are still being written on the subject (by people who actually know what they are doing, as opposed to banking on a potential best seller.) Basically, that becomes a serious endeavor - which few people are ready for.
Inflation is necessary, and a low, predictable inflation rate is good for the economy. But it's still a wealth tax of the worst kind -- it's essentially a flat tax on everyone regardless of their level of wealth.
Remember, a government with $35T in debt can't possibly raise that much money from taxes; 3 out of every 4 dollars we pay in income taxes already goes to interest payments on that debt alone. The government will instead inflate the debt away by paying it back with future dollars that are worth less.
Many high net worth individuals are aware of this fact, but blindly giving heirs millions of dollars and not educating them about the money system will inevitably lead to poor outcomes.
Doing a thing is a different skillset than teaching how to do that thing. Nothing more to it.
If there was a self reinforcing loop where greatness begat greatness, it would be everywhere: every sport, every politician, every martial art, every resource, every industry - for centuries, millenia.
Greatness and teaching greatsness are merely correlated in the best case, and are just as often counterfactual.
In one of your threads, there is the mention that there are still tons of these "old money" families around. Yes. But hardly any of them is in the Forbes list range of billion dollar wealth. When mechanically, most of them might still be somewhere around there, had money been managed better.
But I can’t find an article in a quick check on er website.
There are some mentions on their website about how splitting the family fortune dilutes it and causes families to lose money.
There are families in Europe that pass the bulk of the family fortune to the oldest son. That son does what they can to help the rest of the family live comfortably, but the rest certainly aren’t rich. So, this statistic may only be applicable to American families or places where it’s common to successively divide the fortune up.
https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-...
The original source was a study in the 1980s examining 200 family businesses in manufacturing in Illinois, and since then a collection of financial advisors and estate planners have cited it (often without attribution).
Edit: As an aside, I understand that different industries have different standards - but it seems insane to me that any professional piece, let alone a well known brand like Nasdaq, would drop a statistic like that without any kind of attribution.
Their observation is counter to the usual cliché narrative that the rich have only one way. Up, can't lose.
Indeed if you consider that, starting with, say, one billion, I would be able to invest not too conservative, not too aggressive and still draw out insane amounts of money to "live on". Meaning that in theory, starting with a billion, there is only one way, up. Meaning that a billion dollar wealth, invested, should own the world after a few generations.
But this is obviously not what's happening. The Forbes list is full of relatively new wealth. Ancient wealth (more than 3 generations) stands out in the list. It's not common. And the highest wealth is first generation! And that's even though magazines tend to list the wealth of an entire family on one line - never mind that it's dozens of people.
So even a 50% inheritance tax, erm, "haircut", should be recovered in 10 years and clearly beaten after that by the next generation.
IF that was the only issue. It's not the only issue.
Having made this perfectly valid point, the article seems to ignore it from that point on. Yes,that is the problem but can you fix it?
Inherited wealth does not encourage frugality, nor does the third generation generally find working hard to be as fulfilling as the first did. You see a lot of artists and lifestyle businesses in the third generation coupled with a fairly plush lifestyle
Even those families who somehow manage to build up wealth likely to lose it within two generations. Meanwhile the ultra-wealthy are able to continue being ultra-wealthy from one generation to the next regardless of how competent that generation is.
The article is an infomercial.
