The Rockefellers, the Vanderbilts, the Gettys - all famous families known for their success in building and maintaining generational wealth. And while they’ve successfully passed down millions and billions of dollars to loved ones, the idea of successfully maintaining generational wealth is still considered hard to achieve today. Why? It may be due, in part, to the fact that there are assumptions people make about family wealth, some of which are not always true.
Below we’re breaking down common myths regarding the family wealth and the truth about generational wealth planning that every family should hear.
Myth #1: Wealth Lasts Many Generations
It can be easy to assume that a wealthy family has always been wealthy and will always be wealthy. But the truth is, around 70 percent of wealthy families lose their wealth by the second generation. More-so, around 90 percent of families lose wealth by the third generation.1
There are many reasons why wealthy families are likely to lose their wealth over time. Parents may not wish to discuss money with their kids, second- or third-generation heirs don’t understand the value of money or families may neglect to set a plan for preserving their wealth in place. Whatever the case may be, it’s important to understand that having family wealth and preserving family wealth are two very different things, and the latter often requires careful and considerate planning.
Myth #2: All Family Members Are Smart About Money
Inheriting or obtaining a large amount of wealth does not mean one suddenly gains total financial literacy. What it does mean, however, is that a lack of financial knowledge can lead to decisions with a greater impact. This myth can be a dangerous one, as it may make some family members feel embarrassed or reluctant to admit their lack of financial knowledge.
And for those who are not financially savvy, the burden of caring for and protecting the family wealth can be a great source of stress. For those who find themselves in this position, working with a trusted financial professional should be a top priority. Your financial advisor isn’t there to judge or scoff at your lack of financial knowledge. Instead, he or she is there to educate, guide and strategize on your behalf.
Myth #3: Parents Talk to Their Kids About Money
While communication has increased in recent years, it’s likely some parents or grandparents are uncomfortable talking about money with their children or grandchildren. But with wealthy families, it’s easy to assume money and wealth is a common topic of conversation. In reality, it’s possible children may receive an inheritance with very little understanding of how much they have or what to do with it.
This, in turn, can cause a lack of financial knowledge (which we discussed above) and lead to poor spending habits or loss of wealth over time. This is why a crucial component of preserving family wealth is open communication and transparency between family members.
Myth #4: Kids Are Lazy & Don’t Work
We’ve all seen rich, young socialites on television, which may bring a few choice words to mind - arrogant, lazy, privileged, etc.
And while some wealthy second- or third-generation heirs may choose to spend away their inheritance, others will choose to continue working hard throughout their lifetime. Those who work may understand the importance of preserving wealth, typically because these values have been discussed at length already. They know that while several millions of dollars sounds like a lot, it can slip away fast when serving as one’s only source of income.
Myth #5: Most Millionaires Inherited Their Wealth
Remember, only about 30 percent of wealthy families maintain their wealth beyond two generations and only 10 percent beyond three generations.1 That means that the majority of millionaires today didn’t actually inherit their wealth at all - or may have only inherited a modest amount. Instead, they followed a plan, invested wisely and worked hard to accumulate their wealth.
You don’t have to be a Rockefeller to make a generational wealth plan. If you have a sizeable amount of assets you wish to preserve for generations to come, you’re in need of a generational wealth plan. Working with a trusted financial professional who can help you make a plan, educate family members and see your plan through after your passing.