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I’ve been reading The Millionaire Next Door and surprisingly few descendants stay rich. By fourth generation the wealth is completely destroyed. Likely becaus

I’ve been reading The Millionaire Next Door and surprisingly few descendants stay rich. By fourth generation the wealth is completely destroyed. Likely because each generation didn’t have to work as hard and value the money. Of course there are exceptions, but this was what their data said. Also I think only 20% of millionaires in USA inherited it, which really surprised me.

TacticalCoder 5y ago
> By fourth generation the wealth is completely destroyed. It doesn't change the fact that free people, living in a free country, should be free to give their wealth to whomever they please, including their children.
- TheOtherHobbes 5y ago
  Not if there are social, political, and ecological costs to other people. What makes you think that "free" should only ever benefit you, and everyone else's "free" is irrelevant?
  - bdcravens 5y ago
    Very few things don't have a social, political, or ecological cost to others. How that money was earned to being with, purchasing choices, etc.
  - djbebs 5y ago
    Taking away that money also has such costs.
- CRConrad 5y ago
  > ...free people, living in a free country, should be free to give their wealth to whomever they please, including their children. Sure. And those children should be as free as anyone else to pay the appropriate tax rate on that category of income. (Given that it's a sudden unearned windfall, a pretty high rate seems quite equitable.)
numbers_guy 5y ago
That's just because the wealth is dilluted amongst the descendants. The growth of the business is not strong enough to compensate. And statistically speaking even if all grand-grandkids worked as hard as the founder, a lot of them will fail.
- tartoran 5y ago
  That is a part of the equation, but it’s undoubtedly true that descendats of wealth are weaker wealth makers since they have it on a plate. Some of them greatly benefit from the wealth inherited from their descendants but the majority of them squander it away, there are too many temptations out there..
- altusbrown 5y ago
  There is an element to that, but it is not only that. Most (but not all) sizable wealth builders I've met or done research on have been people with a combination of: - ability to cut through bullshit but play the game (so can generate bullshit when necessary, but aren't fooled or impeded by it) - work hard (yes - bill gates, bezos, etc. all worked their asses off during many important periods). - know the right things to work on (so avoid expending their effort on digging ditches when they can spend the effort negotiating better deals) - get in the right place at the right time (combination of luck, pragmatism, paying attention to wider trends). You can influence this, but never really control it. - ability to work with wildly different people effectively (often nicely, often not nicely depending on the group) to get what they needed done - ability to raise capital, and put it to use. (significant environmental, education, networking effects here) - don't give away the farm/give away too much of their own ownership or assets. - knows how to effectively address a market and deliver a useful product, or find and direct people who do. This is not a common set of qualities. If you spent all the money in the world on training, you'd be lucky if 1 in 10 people could pick those qualities up. With Genetics and personality traits (ignoring the nurture element), even if they cloned themselves I doubt you'd get better than 50/50 odds. If being a wealth builder is the result of a large confluence of events coming together just right, say: - right genetics & right influences in early childhood to produce the right world view and personality - right set of circumstances early on to connect useful people for capital, or circumstances later to connect them to capital - right skillset with understanding and being effective with others of widely different backgrounds - right exposure to the right potential market, and the right luck with with many things (all of which have elements of personally influenceable factors and external non-influencable factors) It shouldn't be too much of a surprise that what works in the first generation doesn't usually last very long. The circumstances are different, everything is different by the time generation #2 or #3 happen. With the right training, education, and circumstances you can improve the odds. But maybe a generation or two? There is a saying I've run across a bunch - first generation builds it, second generation spends it, third generation blows it. In large part because the environment each generation is in has fundamentally different pressures and environments 'by default', and a lot of our personality and approach to things is set in early childhood. It's also why you see societies with more stable traditions of wealth/nobility/etc focus so much on traditional ways of doing things, acting, etc. is to attempt to keep reinforcing what was necessary for prior success even when it's not obvious for the new generation. Because they do provide necessary coping skills and the like. Even still, a great many of them lose it all (statistically).
giantg2 5y ago
"Also I think only 20% of millionaires in USA inherited it, which really surprised me." $1M isn't as much as it used to be. You pretty much need that much or more to retire, so it makes sense that there is a large percentage making it.
trompetenaccoun 5y ago
https://en.wikipedia.org/wiki/Madeleine_Schickedanz https://en.wikipedia.org/wiki/Madeleine_Schickedanz Heiress of a multi-billion dollar online retail business in Germany. She was the 13th richest woman in the world at one point. Gave her entire wealth to a private bank to manage. The bank got involved in shady real estate deals and long story short she's lost practically everything.
- listenallyall 5y ago
  Anecdote. First generation, not 4th. External fraud, not laziness/entitlement/wastefulness. Irrelevant.
  - trompetenaccoun 5y ago
    Someone who doesn't understand finance and doesn't know how to invest is bound to lose the money sooner or later. There is always fraud, there's always wastefulness. How many generations it takes is irrelevant, that number four is just a meme that gets repeated because someone wrote this in an investment book once, and people think it sounds about right. It's not based on science. It's an extreme example. But you don't have to just look at billionaires, it's easy to observe this all around you with families that are worth much less. And it would be very concerning if it were any other way.
    - Viliam1234 5y ago
      > Someone who doesn't understand finance and doesn't know how to invest is bound to lose the money sooner or later. There is always fraud, there's always wastefulness. I agree; if you don't spend a lot of time researching how money works, you will almost certainly get scammed. There are so many perfectly legal ways how to deprive a person of their money in a way that seems like investing. And the people who want to take your money will approach you, helpfully provide advice when you ask, get recommended by your friends (whom they also scammed, in a way that is not immediately obvious). Even the serious institutions provide some product that are designed to be bad. I didn't inherit anything, but since I got my first salary, I tried to save and invest some of the money. Two decades later, I see (with the knowledge I have now, but didn't have back then) that almost everything I did was pretty much guaranteed to make the money gradually disappear. So if I inherited money, but not a very good knowledge how to handle it, it would probably be all gone by now. The only good investments I made was real estate and bitcoins. Ironically, two things that many smart people on internet are strongly opposed to. If I knew in my 20s what I know now, maybe there were better options available. But all the other options I knew about were scams.
libertine 5y ago
I think that's a bit of a myth, at least in a global scale. In Europe there's a lot of old money, or sources of income that only later generations can rip the benefits of their ancestors. The most common example in my country is people that sustain a lot of their wealth with cork. The thing with cork is that it takes decades to build up, and a large area. Basically people are living from their great+ grand parents buying small patches of land over many years, that had the trees already planted (or that just grew in the meanwhile). And I'm pretty sure this reality is probably also common across the Mediterranean region.
- djbebs 5y ago
  Portugal? Corticeira Amorim is the exception, not the rule.
  - libertine 5y ago
    I don't mean the major buyer/exporter, I mean the many smaller families/businesses which most likely get their cork bought by Amorim - still, they get a large share of their wealth from inherited terrains. Also, where you have oaks you can have cows or sheep. They have ways to make the most out of the land that just felt into their hands.
djbebs 5y ago
Less than 20%. Around 90% of millionaires in the US are selfmade

TacticalCoder 5y ago

> By fourth generation the wealth is completely destroyed. It doesn't change the fact that free people, living in a free country, should be free to give their wealth to whomever they please, including their children.

TheOtherHobbes 5y ago
Not if there are social, political, and ecological costs to other people. What makes you think that "free" should only ever benefit you, and everyone else's "free" is irrelevant?
- bdcravens 5y ago
  Very few things don't have a social, political, or ecological cost to others. How that money was earned to being with, purchasing choices, etc.
- djbebs 5y ago
  Taking away that money also has such costs.
CRConrad 5y ago
> ...free people, living in a free country, should be free to give their wealth to whomever they please, including their children. Sure. And those children should be as free as anyone else to pay the appropriate tax rate on that category of income. (Given that it's a sudden unearned windfall, a pretty high rate seems quite equitable.)

numbers_guy 5y ago

That's just because the wealth is dilluted amongst the descendants. The growth of the business is not strong enough to compensate. And statistically speaking even if all grand-grandkids worked as hard as the founder, a lot of them will fail.

tartoran 5y ago
That is a part of the equation, but it’s undoubtedly true that descendats of wealth are weaker wealth makers since they have it on a plate. Some of them greatly benefit from the wealth inherited from their descendants but the majority of them squander it away, there are too many temptations out there..
altusbrown 5y ago
There is an element to that, but it is not only that. Most (but not all) sizable wealth builders I've met or done research on have been people with a combination of: - ability to cut through bullshit but play the game (so can generate bullshit when necessary, but aren't fooled or impeded by it) - work hard (yes - bill gates, bezos, etc. all worked their asses off during many important periods). - know the right things to work on (so avoid expending their effort on digging ditches when they can spend the effort negotiating better deals) - get in the right place at the right time (combination of luck, pragmatism, paying attention to wider trends). You can influence this, but never really control it. - ability to work with wildly different people effectively (often nicely, often not nicely depending on the group) to get what they needed done - ability to raise capital, and put it to use. (significant environmental, education, networking effects here) - don't give away the farm/give away too much of their own ownership or assets. - knows how to effectively address a market and deliver a useful product, or find and direct people who do. This is not a common set of qualities. If you spent all the money in the world on training, you'd be lucky if 1 in 10 people could pick those qualities up. With Genetics and personality traits (ignoring the nurture element), even if they cloned themselves I doubt you'd get better than 50/50 odds. If being a wealth builder is the result of a large confluence of events coming together just right, say: - right genetics & right influences in early childhood to produce the right world view and personality - right set of circumstances early on to connect useful people for capital, or circumstances later to connect them to capital - right skillset with understanding and being effective with others of widely different backgrounds - right exposure to the right potential market, and the right luck with with many things (all of which have elements of personally influenceable factors and external non-influencable factors) It shouldn't be too much of a surprise that what works in the first generation doesn't usually last very long. The circumstances are different, everything is different by the time generation #2 or #3 happen. With the right training, education, and circumstances you can improve the odds. But maybe a generation or two? There is a saying I've run across a bunch - first generation builds it, second generation spends it, third generation blows it. In large part because the environment each generation is in has fundamentally different pressures and environments 'by default', and a lot of our personality and approach to things is set in early childhood. It's also why you see societies with more stable traditions of wealth/nobility/etc focus so much on traditional ways of doing things, acting, etc. is to attempt to keep reinforcing what was necessary for prior success even when it's not obvious for the new generation. Because they do provide necessary coping skills and the like. Even still, a great many of them lose it all (statistically).

giantg2 5y ago

"Also I think only 20% of millionaires in USA inherited it, which really surprised me." $1M isn't as much as it used to be. You pretty much need that much or more to retire, so it makes sense that there is a large percentage making it.

trompetenaccoun 5y ago

https://en.wikipedia.org/wiki/Madeleine_Schickedanz https://en.wikipedia.org/wiki/Madeleine_Schickedanz Heiress of a multi-billion dollar online retail business in Germany. She was the 13th richest woman in the world at one point. Gave her entire wealth to a private bank to manage. The bank got involved in shady real estate deals and long story short she's lost practically everything.

listenallyall 5y ago
Anecdote. First generation, not 4th. External fraud, not laziness/entitlement/wastefulness. Irrelevant.
- trompetenaccoun 5y ago
  Someone who doesn't understand finance and doesn't know how to invest is bound to lose the money sooner or later. There is always fraud, there's always wastefulness. How many generations it takes is irrelevant, that number four is just a meme that gets repeated because someone wrote this in an investment book once, and people think it sounds about right. It's not based on science. It's an extreme example. But you don't have to just look at billionaires, it's easy to observe this all around you with families that are worth much less. And it would be very concerning if it were any other way.
  - Viliam1234 5y ago
    > Someone who doesn't understand finance and doesn't know how to invest is bound to lose the money sooner or later. There is always fraud, there's always wastefulness. I agree; if you don't spend a lot of time researching how money works, you will almost certainly get scammed. There are so many perfectly legal ways how to deprive a person of their money in a way that seems like investing. And the people who want to take your money will approach you, helpfully provide advice when you ask, get recommended by your friends (whom they also scammed, in a way that is not immediately obvious). Even the serious institutions provide some product that are designed to be bad. I didn't inherit anything, but since I got my first salary, I tried to save and invest some of the money. Two decades later, I see (with the knowledge I have now, but didn't have back then) that almost everything I did was pretty much guaranteed to make the money gradually disappear. So if I inherited money, but not a very good knowledge how to handle it, it would probably be all gone by now. The only good investments I made was real estate and bitcoins. Ironically, two things that many smart people on internet are strongly opposed to. If I knew in my 20s what I know now, maybe there were better options available. But all the other options I knew about were scams.

libertine 5y ago

I think that's a bit of a myth, at least in a global scale. In Europe there's a lot of old money, or sources of income that only later generations can rip the benefits of their ancestors. The most common example in my country is people that sustain a lot of their wealth with cork. The thing with cork is that it takes decades to build up, and a large area. Basically people are living from their great+ grand parents buying small patches of land over many years, that had the trees already planted (or that just grew in the meanwhile). And I'm pretty sure this reality is probably also common across the Mediterranean region.

djbebs 5y ago
Portugal? Corticeira Amorim is the exception, not the rule.
- libertine 5y ago
  I don't mean the major buyer/exporter, I mean the many smaller families/businesses which most likely get their cork bought by Amorim - still, they get a large share of their wealth from inherited terrains. Also, where you have oaks you can have cows or sheep. They have ways to make the most out of the land that just felt into their hands.

djbebs 5y ago

Less than 20%. Around 90% of millionaires in the US are selfmade