fbpx

Wealth is often a hard thing to obtain, but it can be even more difficult to sustain.

So what’s the reason behind this major issue? Many financial experts attribute the disappearance of wealth to a lack of knowledge and preparation of the younger generations.

Most of us are familiar with the Biblical story of the Prodigal Son, where a child squanders his father’s wealth, but is then welcomed back with open arms. Fast forward 2,000 years, and not much has changed. The younger generations are continuing to misspend family wealth, yet few of their elders are doing much to change such behaviors.

The Vanderbilt family is one of the most well-known modern examples of such an unfortunate scenario. Cornelius Vanderbilt, an industrial tycoon, amassed a fortune of more than $100 billion in today’s dollars from investments in railroads and shipping during the mid-1800s.

His children and grandchildren subsequently spent that money via extravagant lifestyles and failed to preserve his wealth, however, and in the 1970s, there were no millionaires among them. The Vanderbilt family fortune had essentially vanished just two generations after the death of its patriarch.

Financial experts noted about 60% of the time, family fortunes are squandered by the children of the person who created the wealth, and in 90% of the cases it’s completely disappeared by the time the grandchildren pass away.

Often when the person that builds the wealth has had to fight long and hard to earn it, they don’t want to see their children and grandchildren endure their same struggles. And so, unintentionally, they create a sense of entitlement and lack of work ethic among the younger generations by catering to their every want and need.

Or, sometimes the lack of financial education for the younger generation comes from the wealth creator’s desire to maintain control. If being in control becomes more of a priority than sharing practical financial knowledge, ideas and desires with children and grandchildren on how to handle and distribute one’s money, there could be troubles ahead. More often than not, a lack of education of wealth distribution leads to bitter quarrels among surviving family members, and an eventual loss of fortune as a result.

It may seem like a simple process–just distribute all the assets equally. In reality, however, it’s much more difficult to successfully communicate detailed wishes for how one’s money should divvied up and preserved.

So how can we change this? One way is to include detailed instructions for how you would like your money to be used when making a substantial bequest. Should a portion be designated for entrepreneurial ventures? Education of family members? Specific charities? Don’t assume your family will know what you would want them to do with the money.

One good option is to set up a philanthropic organization so the family can become involved in collaborating and decision making without having a personal stake in the cash. The skills the family learns through that organization can then be applied to preserving their own wealth.

The bottom line: Don’t wait to educate your family about how to sustain your wealth. You worked hard to earn it, so your family should work hard to preserve it.

Ron L. Brown, CFP®

Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and president of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®

Leave a Reply