An article in Money magazine tells of the difficulty of holding on to wealth in the second generation.
Stephen Lovell, a financial planner, describes going to his grandfather’s house and being impressed by their house, cars, boats and all their “toys.” His grandfather’s estimated net worth was $70 million dollars. But the next generation squandered it.
Money magazine cites the Williams Group consultancy group for their study that 70% of wealthy families will lose their wealth in the second generation and 90% by the third generation. Two troubling statistics stand out:
- 78% feel the next generation is not equipped to handle an inheritance;
- yet 64% have disclosed little to nothing about their wealth to the next generation.
These statistics speak of the age-old tradition of not talking about wealth, estates, and money to kids. Speaking about wealth is like religion and politics—it doesn’t happen. As a result, many 2nd generation children are not prepared to handle it.
In my own practice, I’ve literally seen hundreds of millions be dropped upon unsuspecting heirs at great emotional and psychological cost.
Breaking the cycle
What’s the best advice to greater success? First, talk early and often about wealth—how to handle it, how to use it, what it means? And of course, wealth is far more than money. It’s emotional, social, intellectual, spiritual and financial wealth.
Second, discuss the estate plan so that everyone knows what is coming. Open communication is key to discuss what matters, not just finances.
And third, plan for an enduring legacy. It takes work to be successful into the third and fourth generation and beyond. What is the heritage you want to pass on? The stories you need to tell? The guiding principles that should be timeless for your family in ages to come?