9 ms·

Why do 70% of families lose their wealth in the 2nd generation? (2018)

86 points by ushakov 5y ago

Arubis 5y ago
While not strictly zero-sum, my understanding is that in order to have upward mobility, you must also have some downward mobility.
- DarylZero 5y ago
  It is strictly zero-sum the way mobility is normally defined. It's actually a misnomer, "upward mobility" -- it's all "mobility".
- iso1210 5y ago
  Only 10% of the population can be in the top 10% of wealth at any time. What's more important for the majority is how good life is at the bottom half than the top. You're far more likely to get knocked into the bottom 10%, and especially the bottom 50%, than get into the top 10%.
  - toomanydoubts 5y ago
    Depends where you are. In Brazil, making enough to live with dignity puts you in top 5%
  - adventured 5y ago
    > You're far more likely to get knocked into the bottom 10%, and especially the bottom 50%, than get into the top 10%. The odds don't say that at all necessarily. That entirely depends on you, your competency, your circumstances, the random events in your life. Depending on who and what you are, your odds can be dramatically better that you will end up in the top 10% than that you will end up in the bottom 50%. All people are not created equal and are obviously not born into equal circumstances. It invalidates the premise of applying detached likelihoods (detached from the person they're supposed to apply to) to such a concept entirely. A simple example is Bill Gates. The odds were radically better that he'd end up in the top 10% than in the bottom 50%, based on his traits and circumstances growing up. The same goes for Paul Allen, even though he came from a different economic background than Gates; his attributes, circumstances growing up and chosen professional field heavily tilted the odds toward top 10% rather than bottom 50%. You have to know enough about the person you're talking about, if you want to have some glimmer of insight at the odds in question.
    - iso1210 5y ago
      The average person would be at the 50% line. Vast majority of people are closer to the bottom 50% than the top 10%. Sure if you're born into a family at the 85% range then you're closer to the top 10%. 85% people are not born into that range though.
- lettergram 5y ago
  I believe it was Yeonmi Park - a North Korean defector - who said (on Joe Rogan’s podcast) how surprised and in a sense happy she was to see homeless. Effectively, you can’t have upward mobility unless you let people fail (and id argue many homeless choose that life style, based on my experience working with them). She explained in North Korea there are no homeless, everyone is equally poor. Highly recommend listening to a talk with her. Truly eye opening
  - mistrial9 5y ago
    interesting but also delusional -- disease and preventable misery skyrockets among the "homeless" in the USA meanwhile, how difficult is stability, especially in high-tech tracks? amazingly stupid in some ways, to declare a victory with skyrocketing homelessness in modern streets
  - sumnole 5y ago
    You don't need homeless to have upward mobility. That there are homeless means the consequences of failing are too high and the risk will have a repressive effect on society. People are much more likely to thrive and innovate when they have safe and secure living conditions.
    - mistrial9 5y ago
      > consequences of failing are too high and the risk will have a repressive effect on society as a USA citizen I absolutely agree with this -- a rise in low-level legal cheating over money, and a marked decrease in arts and the lives of artists, are plainly visible now
  - mattm 5y ago
    Don't agree with this at all. In fact, this seems like a very American point of view. There's plenty of poor countries where people are allowed to fail. It doesn't correlate to upwards mobility. Some of the richest people - Gates, Bezos, Buffett - were able to become that way because they had a safety net provided by their parents. They were able to take risks knowing they wouldn't become destitute if it didn't work out.
- mrkentutbabi 5y ago
  This is interesting, any article that you can give me?
- savant_penguin 5y ago
  This is nonsense If everyone makes $10 more a day there is no ""mobility"" in the percentage sense, but everyone is better off. If you ask a hobo that makes $0 a day, he certainly perceives an upgrade
  - swader999 5y ago
    And if bread rises to $100 a loaf?
    - cerved 5y ago
      That would suck but that's not how inflation works
      - jkepler 5y ago
        Its how it worked in the Weimar Republic in the 1920s, in Argentina in the 1980s, Zimbabwe after 2011, and in Venezuela in recent years. Especially if you look at bond market yield curves going negative, and consider that massively indebted governments don't have any politically viable options to solve their debt problem other than default through massive inflation. It could totally happen. Governments don't have a good option.
        cerved 5y ago
        If everyone's wealth increased by $10 because they produced $10, the price of a loaf doesn't magically become $100. You're mixing up monetary policy with macroeconomics. Though often correlated to a degree, they are not the same. The Weimar republic adding zeroes to the DM is not the same as wage increase due to economic growth
    - savant_penguin 5y ago
      Then the hobo is fucked However, inflation does not derive from poor people making more money. It comes from insane government spending. Of course, if you try to achieve better life conditions through government spending you can end up with bread at $100.
sna1l 5y ago
Where are these numbers coming from??
- ipaddr 5y ago
  Random estimate or cherry picked stat. Questions that come up. - How do they define wealth 5/10 million or 100 million - How do they define lost it? Bill Gates is giving away most of his fortune if his daughter doesn't generate similiar wealth has she lost it or can she safely live on her 500 million and be considered rich - If you had 10 million and split between 4 kids does that make the next generation lose it because they are only worth 2.5 million or do they combine everyone's value - Do death taxes play a large part?
- iso1210 5y ago
  They seem to be commonly quoted, without sources. I found this "Approximately 70% of second-generation family firm successors are likely to close the family firm post succession due to succession process-related issues" in an abstract of a paper https://scholarworks.waldenu.edu/dissertations/10669/ https://scholarworks.waldenu.edu/dissertations/10669/ But nothing close to confirming the claim
- FredPret 5y ago
  Same place 83% of statistics come from!
- rufus_foreman 5y ago
  A study by Roy Williams from the Williams Group which is a wealth consultancy: "In 2002, Roy Williams of The Williams Group published the results of a 25-year survey of 3,250 instances of generational wealth transfer. He concluded that 70% of those transitions failed, where failure was defined as involuntary loss of control of the assets. That finding underscores and even quantifies the observation that Smith made centuries ago, but Williams took the analysis a step further and explored the reasons for those failures" -- https://www.bbh.com/resource/blob/12348/efb7f72e1db41ada8ef1d7d1a28f78f3/crossed-wires--why-most-generational-wealth-transfers-fail-pdf-data.pdf https://www.bbh.com/resource/blob/12348/efb7f72e1db41ada8ef1... He wrote a book with Vic Preisser titled "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values" that has the results of the study. Looks like you can get a copy for $3.51 on Amazon.
YPCrumble 5y ago
Should I be using the flag feature for clickbait nonsense like this article?
vannevar 5y ago
>It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. The above uncited statistic is the only reference in the article to the title's premise. Clickbait.
orzig 5y ago
> It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. As far as I can tell this is the only number in the article, and it is “estimated“. Who knows, maybe it is even true, but you should at least average it with my estimate of rolls 10 dice 47. Percent, I guess.
synthos 5y ago
This will change as South Dakota trusts gain more popularity among the wealthiest in America. Perpetual trusts will ensure generational wealth for centuries as long as these aren't legally challenged. Normally trusts have a cap of 100 years or so before all the funds are disbursed and the pampered beneficiaries can fritter away most/all the wealth as per the article. These trusts are also: - obfuscated (difficult to 'find' to litigate) - state tax free - legally protected (difficult to litigate) - can designate oneself as beneficiary America is the new tax haven
- VWWHFSfQ 5y ago
  There's nothing new about America being a tax haven. It's always been one of the strong selling points. Some states are better at this than others though.
- cascom 5y ago
  Not sure how we are defining wealth here, but for 99% of Americans this is a non-issue given the estate tax exemption of $12m/individual $24m/couples. Perpetual trusts are a boon to the super rich, but doesn’t change the math for everyone else.
  - pydry 5y ago
    These trusts will compete with the middle classes for assets. This kind of thing is a large part of why there is a housing crisis. The existence of this wealth is an existential threat to the middle class.
    - cascom 5y ago
      I don’t have the numbers at my fingertips but I believe it’s institutional money (pensions, endowments, insurance companies, sovereign wealth funds, etc) that are the real drive asset prices, not the marginal high net worth buyer
  - synthos 5y ago
    my point isn't so much taxation on inheritance (although that is unfair too - step up etc...) my point is that these trusts are specifically structure to prevent decendents from exiting their wealth. through poor risk taking, ineptitude, getting sued. nothing will affect the trust
crims0n 5y ago
This article neglects my understanding of the issue, which is a lot more simple. The more kids you have, the more grandkids you have, the more your wealth is divided up. A 10 million dollar estate devalues quickly when there are several hands in the pot.
- iso1210 5y ago
  If your 10 million pot increases by 4% per year above inflation, and each generation has 3 kids, after 25 years it's 33 million, each kid gets 11 million (adjusted for inflation). They can take 1 million and still pass on 10m each to their kids. That 1 million is $40k a year, which is enough to live. Especially when part of that 10m is a house which costs very little to maintain (compared with rent). Crucially it's a great safety blanket too, you don't have to work 2 full time minimum wage jobs to afford to live, which increases the chance of getting a good job to top up that wealth.
  - cm2187 5y ago
    If... The other thing is people don't inherit when they are 20, rather when they are 50 or older. Children of well off families do get a leg up, first because they can afford to take more risk, have better access to education, also because of what they learn from their parents. But inheritance is typically something that come much after they key years of one's career.
  - cm2012 5y ago
    No one who grew up rich is going to live in 40k a year.
    - AnIdiotOnTheNet 5y ago
      No, but none of them do nothing to increase their wealth either. They leverage the opportunity of being born wealthy and use it to increase their wealth in ways that are completely unavailable to lower classes.
  - PragmaticPulp 5y ago
zcw100 5y ago
This article has nothing to do with wealthy families losing their wealth after two generations. The 70% number is a complete fabrication, they couldn't even be bothered with coming up with a more believable number like 73%, or even defining what amount is losing it. This article serves two purposes. Puffing up currently wealthy people as only being that way from pure grit and determination. No inheritance here. If you're wealthy it's because you've worked hard for it because we've already established that inherited wealth is a losing proposition. Secondly, it tries to establish that there is no generational wealth which reinforces the first premise that all wealth is due to hard work. It's a wonderful bit of circular reasoning. All wealth is gained through hard work, generational wealth might exist but it's fleeting, so the multigenerational wealth that you do see must be due to multigenerational exceptionalism.
- cinntaile 5y ago
  Ignoring the number. Unless you take precautions your wealth gets divided if you have children. They usually don't have the same luck/possibilities/grit as their parents so I would not be surprised if the wealth reduces over time. It's kind of hard to squander several 100 million or several billion within a generation though, so they can make plenty of mistakes and still be wealthy.
  - summm 5y ago
    As soon as money is concentrated a lot, it multiplies much faster, more or less automatically. This is called capitalism. This is the counteracting force to division of inheritance. Exceptional grit and luck is not needed anymore, it is sufficient to just be not exceptionally unlucky.
    - selestify 5y ago
      Also, people in developed nations are having fewer kids. And people are less likely to marry across class lines these days. So the historic trends of dividing wealth up through heirs might be reversed altogether.
    - 5y ago
flatiron 5y ago
I’ve always heard “you make it. Then your kids take it. Then their kids break it”
- mmmm2 5y ago
  A haiku from the book "Portraits of Edo and Early Modern Japan": "The son of the third generation writes ‘Furnished house for sale!’ in beautiful Chinese-style calligraphy." It's the same idea: the first generation builds the business. the second enjoys the benefits, but remembers the struggle and maintains it. The third generation only knows the luxury and lets it go to ruin.
  - readthenotes1 5y ago
    "shirt sleeves to shirt sleeves in three generations"
JohnJamesRambo 5y ago
https://en.wikipedia.org/wiki/The_Millionaire_Next_Door https://en.wikipedia.org/wiki/The_Millionaire_Next_Door This book was recommended on HN in a comment and opened my eyes to lots of things and what exactly wealth is. It touches on the same subject and comes to the same conclusion.
paulsutter 5y ago
What percentage of individuals lose the wealth that they gain? 70% might even be a LOW estimate I find this article totally unremarkable
chaz6 5y ago
I believe inheritance should be completely abolished as it leads to hoarding of money that should be used in the economy, not stagnating in offshore accounts. I would also try to close any loopholes such as trusts and businesses that can be passed from parents to children.
- feanaro 5y ago
  How would this work? I can't gift a house or an apartment to my child?
  - PopAlongKid 5y ago
    Maybe a better way to handle it is to abolish income tax-free inheritance (I'm not talking about a wealth tax). If you make a gift of property while alive, the recipient would, if they sold it, still owe income tax on any gain in the value of the property since your acquired it. But if you die and the property is inherited, in the U.S. there is a magical basis adjustment to the fair market value on date of death, so all that income is suddenly tax free, for no particular reason.
- tarr11 5y ago
  Here’s a counter study from the DOL “ The main focus of the paper is to examine the effects of inheritances and other wealth transfers on overall wealth inequality. The results reported below are surprising, unexpected and even counter-intuitive. We find that wealth transfers actually act as a factor that decreases wealth inequality rather than increasing it. Though we do not have hard empirical evidence on whether inheritances inhibit or spur intergenerational wealth mobility, we infer that wealth transfers are likely to raise the degree of wealth mobility across the generations.” https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.pdf https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.p...
  - whimsicalism 5y ago
    Worth noting that this study is based on a survey where people self-report (by the inheritor) inheritance flows. In countries where this is tracked in parallel with actual estate data, most inherited wealth is not reported on these sorts of surveys. It is also based on patching together different datasets from different authors. Estimates using non-self reported data as well as homogenous (rather than pasted) series have found that about 60% of wealth in the US is inherited, likely 50% of that is inherited by the top 5% most affluent households, and that the effect is inequality enhancing. [0] [0]: https://eml.berkeley.edu/~saez/estateshort.pdf https://eml.berkeley.edu/~saez/estateshort.pdf
baskethead 5y ago
My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.
- danrocks 5y ago
  The camel would be an upgrade to the Land Rover, though.
- steveBK123 5y ago
  Sounds about right. Anyone who has lived in coastal cities and been exposed to the trust fund class would understand. :-) America, and especially expensive coastal cities have entire industries available to consume the wealth of failsons quite quickly. I lived next to the youngest kid of a guy who had made his bucks in early Silicon Valley days & died worth $10Ms~100Ms. Unsurprisingly, the father had come from 2 generations of fairly successful local industrialists, so had both the freedom to pursue many years of education and the capital to invest in his ideas. He married 3-4 times, so first there was distributions to each of the wives. Then there were ~10 kids/stepkids, ~5 grandkids. He was well known enough to have a Wikipedia entry & NYTimes obituary. Anyway, the kid didn't graduate from college, bought a few million of NYC real estate in cash, some of which he paid to renovate and try to flip, all of which he eventually sold for less than his purchase price (plus transaction cost and renovation losses).. in a bull market. Finally last I checked he was "investing" in film productions. For a while before he sold his place next to me, he had a "personal assistant" and various C-list artists squatting in his apartment while he lived elsewhere. Mostly his social media posts were filled with him flying on private jets, partying in famous exclusive resorts/hotels, and hanging out with familiar sounding failsons of 90s-00s actors.
- deleted 5y ago
  [deleted]
cryptica 5y ago
I think this article is generally accurate but it doesn't cover all the reasons. My family has been wealthy for over 400 years. The total wealth has kept growing but it was reduced at the individual level because people had too many children. I have over 5000 living relatives which I can trace through my family tree. In spite of this, most of my relatives are relatively well off; the main reason for this IMO is that children did not have access to any of their parent's wealth until they died so each generation got to experience what it's like to start with nothing and, at some point, many struggled to make ends meet and worked simple jobs until their retirement. That said, some generations do have it easier than others and they quickly tend to lose touch with reality. When you've had a good childhood, you need to experience a disproportionate amount of struggle in adulthood in order to beat reality into your skull. My wife was born in USSR (had a tough life) and she used to make fun of how naive I was whenever I complained about how crooked and messed up things are when you don't have money. She could not believe that I did not see it before. She thought all people from wealthy backgrounds were aware of all the evil that they cause behind the scenes. It turns out that the human mind is really good at forming blind spots when it's convenient.
- cryptica 5y ago
  I think it's right that wealthy people should not help their children and they should avoid helping each other. This approach allows the wealthy to stay in touch with the reality of the working classes via their friends and children. Being out of touch with the working classes is the leading cause of rebellions and revolutions. My ancestors were particularly vulnerable to rebellions and conflicts on multiple fronts; there were several times when they could have been completely wiped out (it happened to most other families in a similar situation). I wonder if it was their constant awareness of the situation of the average working person which kept them alive and prosperous.
_the_special_ 5y ago
I don't know how to put this in a formula, but my observations about my family's wealth disappearing is the following: Great grandpa had tons of land, dies and leaves it to his children who then left it to their children when they died to split as heritage (so my parent and uncles and their cousins) which they ended up selling and splitting it between around 60 heirs. They bought things that are not really an investment like cars, new furniture, vacations...So all the wealth from my great grandpa has vanished because his great children like to spend money rather than invest. Edit: typo.
- Misdicorl 5y ago
  I wonder how wealthy your great grandparent was. Cars aren't relevant purchases for the types of wealth I'd consider under examination for this type of article. It's tough because a multi millionaire family certainly has wealth worth discussing. It's just such a different ballgame from a family worth hundreds of millions of dollars.
  - _the_special_ 5y ago
    I understand this is all relative. I come from an African country but even there around 250 acres of both residential and agricultural land is significant money. I'd say only about 20 acres are left where the owners are one of the ancestors. My dream is to one day repurchase some of the lands and have financially sounder children that could take care of it ;)
    - Misdicorl 5y ago
      It's a good point. I can I imagine a family having the local purchasing power (homes, a night on the town, etc) of a hundred millionaire family but that wealth diminishing quite quickly when used to consume luxury goods marketed to very expensive countries.
- whimsicalism 5y ago
  Regression to the intellectual mean is a law of nature
qzw 5y ago
Welcome to the world of “personal finance”, where the numbers are made up and the conclusions don’t matter.
cletus 5y ago
I, for one, draw comfort from the fact that generational wealth seems to be relatively uncommon. If this weren't the case, wouldn't the US economy be dominated by Astors, Vanderbilts, Morgans, Rockefellers and Carnegies? While some families still maintain some wealth (eg Rockefellers), it's nothing like the relative wealth from whence it came. Trusts expiring aren't the reason. Perpetual trusts won't lock in generational wealth forever. Human nature just gets in the way. Trust administrators can be corrupt or just bad, determined trustees can dissolve the trust, wealth gets diluted across generations as the numbers grow and of course just being given a huge pile of money is no guarantee you have the mindset, skills and luck to maintain it. All of this is good. The ultimate form of wealth redistribution is war and revolution. Wealth inequality seems to be ultimately self-correcting. I just don't believe that in 200 or even 100 years the world will be dominated by Bezos's descendants. While there are clearly problems with inequality now, the simple fact is that there is no better time to be a human than now compared to the entire of human history for the average person by pretty much any objective measure you can reasonably choose.
- nathanvanfleet 5y ago
  The US is dominated by billionaires. If you draw comfort from this article than it doesn't take much.
- MiroF 5y ago
  > I, for one, draw comfort from the fact that generational wealth seems to be relatively uncommon. ~50% of all private wealth in the US is generational wealth inherited by the richest 5% of households, 60% of all private wealth is inherited at all.
johnnyApplePRNG 5y ago
I find it odd that the article does not even mention the most common factor that helps some people become insanely wealthy while similar people do not in the same time period... luck.
golergka 5y ago
That's only true for material wealth. I come from a long line of merchants and rabbis (Abarbanel), and while our family have been expelled, robbed and worse many times, we've been able to build upon education and constructive traditions passed on from generation to generation; this is kind of wealth that's much harder to take away.
- nobodytoseehere 5y ago
  There is a saying in Chinese that wealth does not last more than 3 generations. I am 4 generations down from a successful businessman. Family is not wealthy, but I sometimes meet distantly related or socially related families, of different generations, descending from the circle of successful businessmen 4 generations ago. While there are exceptions, I think the saying is broadly true, and my take is a bit simple and possibly offensive. The first generation had fortunate circumstances, but were _incredibly capable_. Their spouses tended to be attractive. Like it or not, many skills have hereditary components. As a kid you hear about your great grandfather doing insane things when they were young and wonder if you can do that too. As an adult, you read about those insane things and you realize _you still can't do those things_. Not only that, your parents can't, and their parents couldn't either. It's just alien. It really isn't complicated. If you get wealthy from _outstanding ability_, and want to have kids that are capable of handling wealth _by capability_, then have capable kids. People who are capable of handling wealth aren't drawing inspiration from a Nasdaq article. Maybe OP is seeing many clueless people who lucked into wealth recently. Well I certainly know that luck is not hereditary: it only takes one gambler to end a generational empire. > we've been able to build upon education and constructive traditions passed on from generation to generation; this is kind of wealth that's much harder to take away. I think this is the best way to think about wealth and wish this perspective has wider appreciation.
motohagiography 5y ago
Making a lof of money and managing money are often different skills (build vs. extract value from a dynamic). Making enough to pay for your grandkids' univeristy tuition is probably the best goal, as it keeps the lifestyle kids become accustomed to and the hedonic treadmill slower. Managing money means being responsible for more than you can take from it. Growing up with people who had a trustee deposit income into their accounts on a regular basis, I learned that their understanding of money was the same as someone getting welfare from the government. It arrives independent of their control or influence, and they adapt their lifestyle and ambitions to what's available. It absolutely sabotaged them. People who had to run their parents businesses learned how to run their own, and what making money actually means (it's not a job). The smart parents did things like put a downpayment on a house for their kid at university, and have the kid rent out the rooms and manage collecting rent from his own student tenants, provided seed money for landscaping, snow plowing, painting and other student level service businesses and had their kid run them. The key thing was the kid could only ever got money as investment, and almost never as income. Metaphorically, often their fathers acted like a bank, whereas their mothers acted like a government, and the difference in outcomes between who handled the money was stark. I have no doubt those behaviours could become independent of which parent, but the family pattern of dependent sons who came from money is a pretty old cliché. However, internet subcultures like FIRE (financial independnce, retire early) are game changers for financial literacy, and I think we're going to see a real change in how wealth is made and managed over the next few decades as a direct consequence.
efficax 5y ago
In Italy at least, this just isn't true https://qz.com/694340/the-richest-families-in-florence-in-1427-are-still-the-richest-families-in-florence/ https://qz.com/694340/the-richest-families-in-florence-in-14... The rich stay rich over hundreds of years, for the most part. I would guess that squandered fortunes are the exception: money makes more money for itself, and while new money might be even more spectacular than old, the Carnegies aren't middle class a century later because the Walton family is richer than they could have dreamed
- bitshiftfaced 5y ago
  In Italy, wealthy business owners pass down the company to their oldest son/daughter. https://www.usatoday.com/story/news/world/2016/06/07/how-rich-and-famous-remain-rich-and-famous-florence-italy-globalpost/85540990/ https://www.usatoday.com/story/news/world/2016/06/07/how-ric... A similar thing happens in the Netherlands, where family wealth can persist and grow for centuries. In the USA, people usually structure their will so that all children get a piece of the pie. Generational wealth gets divided exponentially, but businesses don't usually grow at that pace, at least not for centuries. Unless the family has very few children over multiple generations, the wealth per person isn't sustainable.
heisenbit 5y ago
Based on the growing divide between have and have-nots in the past decades I would call this article B.S..
InnerFlamingo 5y ago
simonblack 5y ago
The first problem is that the wealth is exponentially spread ever more thinly over more and more people. But the main problem is that the generation(s) who receive the unearned benefits of the wealth don't have any skin in the game to hold on to it. Usually the story goes: A, who built the wealth through guts and hard work leaves the wealth to be spread amongst his kids B and C. Those kids who now receive only a share of the wealth, rather than all of it, have vivid memories of the work involved and, in general, try to maintain the wealth whilst enjoying the benefits. When they die they leave the inheritances to B's kids, D and E, and C's kids F and G. After two generations from A, we have four kids, D, E, F and G, who have only a small amount of the wealth money, a quarter each, and no memories of the work involved in producing it. They tend to enjoy that windfall.

86 points by ushakov 5y ago

While not strictly zero-sum, my understanding is that in order to have upward mobility, you must also have some downward mobility.

DarylZero 5y ago
It is strictly zero-sum the way mobility is normally defined. It's actually a misnomer, "upward mobility" -- it's all "mobility".
iso1210 5y ago
Only 10% of the population can be in the top 10% of wealth at any time. What's more important for the majority is how good life is at the bottom half than the top. You're far more likely to get knocked into the bottom 10%, and especially the bottom 50%, than get into the top 10%.
- toomanydoubts 5y ago
  Depends where you are. In Brazil, making enough to live with dignity puts you in top 5%
- adventured 5y ago
  > You're far more likely to get knocked into the bottom 10%, and especially the bottom 50%, than get into the top 10%. The odds don't say that at all necessarily. That entirely depends on you, your competency, your circumstances, the random events in your life. Depending on who and what you are, your odds can be dramatically better that you will end up in the top 10% than that you will end up in the bottom 50%. All people are not created equal and are obviously not born into equal circumstances. It invalidates the premise of applying detached likelihoods (detached from the person they're supposed to apply to) to such a concept entirely. A simple example is Bill Gates. The odds were radically better that he'd end up in the top 10% than in the bottom 50%, based on his traits and circumstances growing up. The same goes for Paul Allen, even though he came from a different economic background than Gates; his attributes, circumstances growing up and chosen professional field heavily tilted the odds toward top 10% rather than bottom 50%. You have to know enough about the person you're talking about, if you want to have some glimmer of insight at the odds in question.
  - iso1210 5y ago
    The average person would be at the 50% line. Vast majority of people are closer to the bottom 50% than the top 10%. Sure if you're born into a family at the 85% range then you're closer to the top 10%. 85% people are not born into that range though.
lettergram 5y ago
I believe it was Yeonmi Park - a North Korean defector - who said (on Joe Rogan’s podcast) how surprised and in a sense happy she was to see homeless. Effectively, you can’t have upward mobility unless you let people fail (and id argue many homeless choose that life style, based on my experience working with them). She explained in North Korea there are no homeless, everyone is equally poor. Highly recommend listening to a talk with her. Truly eye opening
- mistrial9 5y ago
  interesting but also delusional -- disease and preventable misery skyrockets among the "homeless" in the USA meanwhile, how difficult is stability, especially in high-tech tracks? amazingly stupid in some ways, to declare a victory with skyrocketing homelessness in modern streets
- sumnole 5y ago
  You don't need homeless to have upward mobility. That there are homeless means the consequences of failing are too high and the risk will have a repressive effect on society. People are much more likely to thrive and innovate when they have safe and secure living conditions.
  - mistrial9 5y ago
    > consequences of failing are too high and the risk will have a repressive effect on society as a USA citizen I absolutely agree with this -- a rise in low-level legal cheating over money, and a marked decrease in arts and the lives of artists, are plainly visible now
- mattm 5y ago
  Don't agree with this at all. In fact, this seems like a very American point of view. There's plenty of poor countries where people are allowed to fail. It doesn't correlate to upwards mobility. Some of the richest people - Gates, Bezos, Buffett - were able to become that way because they had a safety net provided by their parents. They were able to take risks knowing they wouldn't become destitute if it didn't work out.
mrkentutbabi 5y ago
This is interesting, any article that you can give me?
savant_penguin 5y ago
This is nonsense If everyone makes $10 more a day there is no ""mobility"" in the percentage sense, but everyone is better off. If you ask a hobo that makes $0 a day, he certainly perceives an upgrade
- swader999 5y ago
  And if bread rises to $100 a loaf?
  - cerved 5y ago
    That would suck but that's not how inflation works
    - jkepler 5y ago
      Its how it worked in the Weimar Republic in the 1920s, in Argentina in the 1980s, Zimbabwe after 2011, and in Venezuela in recent years. Especially if you look at bond market yield curves going negative, and consider that massively indebted governments don't have any politically viable options to solve their debt problem other than default through massive inflation. It could totally happen. Governments don't have a good option.
      - cerved 5y ago
        If everyone's wealth increased by $10 because they produced $10, the price of a loaf doesn't magically become $100. You're mixing up monetary policy with macroeconomics. Though often correlated to a degree, they are not the same. The Weimar republic adding zeroes to the DM is not the same as wage increase due to economic growth
  - savant_penguin 5y ago
    Then the hobo is fucked However, inflation does not derive from poor people making more money. It comes from insane government spending. Of course, if you try to achieve better life conditions through government spending you can end up with bread at $100.

sna1l 5y ago

Where are these numbers coming from??

ipaddr 5y ago
Random estimate or cherry picked stat. Questions that come up. - How do they define wealth 5/10 million or 100 million - How do they define lost it? Bill Gates is giving away most of his fortune if his daughter doesn't generate similiar wealth has she lost it or can she safely live on her 500 million and be considered rich - If you had 10 million and split between 4 kids does that make the next generation lose it because they are only worth 2.5 million or do they combine everyone's value - Do death taxes play a large part?
iso1210 5y ago
They seem to be commonly quoted, without sources. I found this "Approximately 70% of second-generation family firm successors are likely to close the family firm post succession due to succession process-related issues" in an abstract of a paper https://scholarworks.waldenu.edu/dissertations/10669/ https://scholarworks.waldenu.edu/dissertations/10669/ But nothing close to confirming the claim
FredPret 5y ago
Same place 83% of statistics come from!
rufus_foreman 5y ago
A study by Roy Williams from the Williams Group which is a wealth consultancy: "In 2002, Roy Williams of The Williams Group published the results of a 25-year survey of 3,250 instances of generational wealth transfer. He concluded that 70% of those transitions failed, where failure was defined as involuntary loss of control of the assets. That finding underscores and even quantifies the observation that Smith made centuries ago, but Williams took the analysis a step further and explored the reasons for those failures" -- https://www.bbh.com/resource/blob/12348/efb7f72e1db41ada8ef1d7d1a28f78f3/crossed-wires--why-most-generational-wealth-transfers-fail-pdf-data.pdf https://www.bbh.com/resource/blob/12348/efb7f72e1db41ada8ef1... He wrote a book with Vic Preisser titled "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values" that has the results of the study. Looks like you can get a copy for $3.51 on Amazon.

YPCrumble 5y ago

Should I be using the flag feature for clickbait nonsense like this article?

vannevar 5y ago

>It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. The above uncited statistic is the only reference in the article to the title's premise. Clickbait.

orzig 5y ago

> It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. As far as I can tell this is the only number in the article, and it is “estimated“. Who knows, maybe it is even true, but you should at least average it with my estimate of rolls 10 dice 47. Percent, I guess.

synthos 5y ago

This will change as South Dakota trusts gain more popularity among the wealthiest in America. Perpetual trusts will ensure generational wealth for centuries as long as these aren't legally challenged. Normally trusts have a cap of 100 years or so before all the funds are disbursed and the pampered beneficiaries can fritter away most/all the wealth as per the article. These trusts are also: - obfuscated (difficult to 'find' to litigate) - state tax free - legally protected (difficult to litigate) - can designate oneself as beneficiary America is the new tax haven

VWWHFSfQ 5y ago
There's nothing new about America being a tax haven. It's always been one of the strong selling points. Some states are better at this than others though.
cascom 5y ago
Not sure how we are defining wealth here, but for 99% of Americans this is a non-issue given the estate tax exemption of $12m/individual $24m/couples. Perpetual trusts are a boon to the super rich, but doesn’t change the math for everyone else.
- pydry 5y ago
  These trusts will compete with the middle classes for assets. This kind of thing is a large part of why there is a housing crisis. The existence of this wealth is an existential threat to the middle class.
  - cascom 5y ago
    I don’t have the numbers at my fingertips but I believe it’s institutional money (pensions, endowments, insurance companies, sovereign wealth funds, etc) that are the real drive asset prices, not the marginal high net worth buyer
- synthos 5y ago
  my point isn't so much taxation on inheritance (although that is unfair too - step up etc...) my point is that these trusts are specifically structure to prevent decendents from exiting their wealth. through poor risk taking, ineptitude, getting sued. nothing will affect the trust

crims0n 5y ago

This article neglects my understanding of the issue, which is a lot more simple. The more kids you have, the more grandkids you have, the more your wealth is divided up. A 10 million dollar estate devalues quickly when there are several hands in the pot.

iso1210 5y ago
If your 10 million pot increases by 4% per year above inflation, and each generation has 3 kids, after 25 years it's 33 million, each kid gets 11 million (adjusted for inflation). They can take 1 million and still pass on 10m each to their kids. That 1 million is $40k a year, which is enough to live. Especially when part of that 10m is a house which costs very little to maintain (compared with rent). Crucially it's a great safety blanket too, you don't have to work 2 full time minimum wage jobs to afford to live, which increases the chance of getting a good job to top up that wealth.
- cm2187 5y ago
  If... The other thing is people don't inherit when they are 20, rather when they are 50 or older. Children of well off families do get a leg up, first because they can afford to take more risk, have better access to education, also because of what they learn from their parents. But inheritance is typically something that come much after they key years of one's career.
- cm2012 5y ago
  No one who grew up rich is going to live in 40k a year.
  - AnIdiotOnTheNet 5y ago
    No, but none of them do nothing to increase their wealth either. They leverage the opportunity of being born wealthy and use it to increase their wealth in ways that are completely unavailable to lower classes.
- PragmaticPulp 5y ago

zcw100 5y ago

This article has nothing to do with wealthy families losing their wealth after two generations. The 70% number is a complete fabrication, they couldn't even be bothered with coming up with a more believable number like 73%, or even defining what amount is losing it. This article serves two purposes. Puffing up currently wealthy people as only being that way from pure grit and determination. No inheritance here. If you're wealthy it's because you've worked hard for it because we've already established that inherited wealth is a losing proposition. Secondly, it tries to establish that there is no generational wealth which reinforces the first premise that all wealth is due to hard work. It's a wonderful bit of circular reasoning. All wealth is gained through hard work, generational wealth might exist but it's fleeting, so the multigenerational wealth that you do see must be due to multigenerational exceptionalism.

cinntaile 5y ago
Ignoring the number. Unless you take precautions your wealth gets divided if you have children. They usually don't have the same luck/possibilities/grit as their parents so I would not be surprised if the wealth reduces over time. It's kind of hard to squander several 100 million or several billion within a generation though, so they can make plenty of mistakes and still be wealthy.
- summm 5y ago
  As soon as money is concentrated a lot, it multiplies much faster, more or less automatically. This is called capitalism. This is the counteracting force to division of inheritance. Exceptional grit and luck is not needed anymore, it is sufficient to just be not exceptionally unlucky.
  - selestify 5y ago
    Also, people in developed nations are having fewer kids. And people are less likely to marry across class lines these days. So the historic trends of dividing wealth up through heirs might be reversed altogether.
  - 5y ago

flatiron 5y ago

I’ve always heard “you make it. Then your kids take it. Then their kids break it”

mmmm2 5y ago
A haiku from the book "Portraits of Edo and Early Modern Japan": "The son of the third generation writes ‘Furnished house for sale!’ in beautiful Chinese-style calligraphy." It's the same idea: the first generation builds the business. the second enjoys the benefits, but remembers the struggle and maintains it. The third generation only knows the luxury and lets it go to ruin.
- readthenotes1 5y ago
  "shirt sleeves to shirt sleeves in three generations"

JohnJamesRambo 5y ago

https://en.wikipedia.org/wiki/The_Millionaire_Next_Door https://en.wikipedia.org/wiki/The_Millionaire_Next_Door This book was recommended on HN in a comment and opened my eyes to lots of things and what exactly wealth is. It touches on the same subject and comes to the same conclusion.

paulsutter 5y ago

What percentage of individuals lose the wealth that they gain? 70% might even be a LOW estimate I find this article totally unremarkable

chaz6 5y ago

I believe inheritance should be completely abolished as it leads to hoarding of money that should be used in the economy, not stagnating in offshore accounts. I would also try to close any loopholes such as trusts and businesses that can be passed from parents to children.

feanaro 5y ago
How would this work? I can't gift a house or an apartment to my child?
- PopAlongKid 5y ago
  Maybe a better way to handle it is to abolish income tax-free inheritance (I'm not talking about a wealth tax). If you make a gift of property while alive, the recipient would, if they sold it, still owe income tax on any gain in the value of the property since your acquired it. But if you die and the property is inherited, in the U.S. there is a magical basis adjustment to the fair market value on date of death, so all that income is suddenly tax free, for no particular reason.
tarr11 5y ago
Here’s a counter study from the DOL “ The main focus of the paper is to examine the effects of inheritances and other wealth transfers on overall wealth inequality. The results reported below are surprising, unexpected and even counter-intuitive. We find that wealth transfers actually act as a factor that decreases wealth inequality rather than increasing it. Though we do not have hard empirical evidence on whether inheritances inhibit or spur intergenerational wealth mobility, we infer that wealth transfers are likely to raise the degree of wealth mobility across the generations.” https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.pdf https://www.bls.gov/osmr/research-papers/2011/pdf/ec110030.p...
- whimsicalism 5y ago
  Worth noting that this study is based on a survey where people self-report (by the inheritor) inheritance flows. In countries where this is tracked in parallel with actual estate data, most inherited wealth is not reported on these sorts of surveys. It is also based on patching together different datasets from different authors. Estimates using non-self reported data as well as homogenous (rather than pasted) series have found that about 60% of wealth in the US is inherited, likely 50% of that is inherited by the top 5% most affluent households, and that the effect is inequality enhancing. [0] [0]: https://eml.berkeley.edu/~saez/estateshort.pdf https://eml.berkeley.edu/~saez/estateshort.pdf

baskethead 5y ago

My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.

danrocks 5y ago
The camel would be an upgrade to the Land Rover, though.
steveBK123 5y ago
Sounds about right. Anyone who has lived in coastal cities and been exposed to the trust fund class would understand. :-) America, and especially expensive coastal cities have entire industries available to consume the wealth of failsons quite quickly. I lived next to the youngest kid of a guy who had made his bucks in early Silicon Valley days & died worth $10Ms~100Ms. Unsurprisingly, the father had come from 2 generations of fairly successful local industrialists, so had both the freedom to pursue many years of education and the capital to invest in his ideas. He married 3-4 times, so first there was distributions to each of the wives. Then there were ~10 kids/stepkids, ~5 grandkids. He was well known enough to have a Wikipedia entry & NYTimes obituary. Anyway, the kid didn't graduate from college, bought a few million of NYC real estate in cash, some of which he paid to renovate and try to flip, all of which he eventually sold for less than his purchase price (plus transaction cost and renovation losses).. in a bull market. Finally last I checked he was "investing" in film productions. For a while before he sold his place next to me, he had a "personal assistant" and various C-list artists squatting in his apartment while he lived elsewhere. Mostly his social media posts were filled with him flying on private jets, partying in famous exclusive resorts/hotels, and hanging out with familiar sounding failsons of 90s-00s actors.
deleted 5y ago
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cryptica 5y ago

I think this article is generally accurate but it doesn't cover all the reasons. My family has been wealthy for over 400 years. The total wealth has kept growing but it was reduced at the individual level because people had too many children. I have over 5000 living relatives which I can trace through my family tree. In spite of this, most of my relatives are relatively well off; the main reason for this IMO is that children did not have access to any of their parent's wealth until they died so each generation got to experience what it's like to start with nothing and, at some point, many struggled to make ends meet and worked simple jobs until their retirement. That said, some generations do have it easier than others and they quickly tend to lose touch with reality. When you've had a good childhood, you need to experience a disproportionate amount of struggle in adulthood in order to beat reality into your skull. My wife was born in USSR (had a tough life) and she used to make fun of how naive I was whenever I complained about how crooked and messed up things are when you don't have money. She could not believe that I did not see it before. She thought all people from wealthy backgrounds were aware of all the evil that they cause behind the scenes. It turns out that the human mind is really good at forming blind spots when it's convenient.

cryptica 5y ago
I think it's right that wealthy people should not help their children and they should avoid helping each other. This approach allows the wealthy to stay in touch with the reality of the working classes via their friends and children. Being out of touch with the working classes is the leading cause of rebellions and revolutions. My ancestors were particularly vulnerable to rebellions and conflicts on multiple fronts; there were several times when they could have been completely wiped out (it happened to most other families in a similar situation). I wonder if it was their constant awareness of the situation of the average working person which kept them alive and prosperous.

_the_special_ 5y ago

I don't know how to put this in a formula, but my observations about my family's wealth disappearing is the following: Great grandpa had tons of land, dies and leaves it to his children who then left it to their children when they died to split as heritage (so my parent and uncles and their cousins) which they ended up selling and splitting it between around 60 heirs. They bought things that are not really an investment like cars, new furniture, vacations...So all the wealth from my great grandpa has vanished because his great children like to spend money rather than invest. Edit: typo.

Misdicorl 5y ago
I wonder how wealthy your great grandparent was. Cars aren't relevant purchases for the types of wealth I'd consider under examination for this type of article. It's tough because a multi millionaire family certainly has wealth worth discussing. It's just such a different ballgame from a family worth hundreds of millions of dollars.
- _the_special_ 5y ago
  I understand this is all relative. I come from an African country but even there around 250 acres of both residential and agricultural land is significant money. I'd say only about 20 acres are left where the owners are one of the ancestors. My dream is to one day repurchase some of the lands and have financially sounder children that could take care of it ;)
  - Misdicorl 5y ago
    It's a good point. I can I imagine a family having the local purchasing power (homes, a night on the town, etc) of a hundred millionaire family but that wealth diminishing quite quickly when used to consume luxury goods marketed to very expensive countries.
whimsicalism 5y ago
Regression to the intellectual mean is a law of nature

qzw 5y ago

Welcome to the world of “personal finance”, where the numbers are made up and the conclusions don’t matter.

cletus 5y ago

I, for one, draw comfort from the fact that generational wealth seems to be relatively uncommon. If this weren't the case, wouldn't the US economy be dominated by Astors, Vanderbilts, Morgans, Rockefellers and Carnegies? While some families still maintain some wealth (eg Rockefellers), it's nothing like the relative wealth from whence it came. Trusts expiring aren't the reason. Perpetual trusts won't lock in generational wealth forever. Human nature just gets in the way. Trust administrators can be corrupt or just bad, determined trustees can dissolve the trust, wealth gets diluted across generations as the numbers grow and of course just being given a huge pile of money is no guarantee you have the mindset, skills and luck to maintain it. All of this is good. The ultimate form of wealth redistribution is war and revolution. Wealth inequality seems to be ultimately self-correcting. I just don't believe that in 200 or even 100 years the world will be dominated by Bezos's descendants. While there are clearly problems with inequality now, the simple fact is that there is no better time to be a human than now compared to the entire of human history for the average person by pretty much any objective measure you can reasonably choose.

nathanvanfleet 5y ago
The US is dominated by billionaires. If you draw comfort from this article than it doesn't take much.
MiroF 5y ago
> I, for one, draw comfort from the fact that generational wealth seems to be relatively uncommon. ~50% of all private wealth in the US is generational wealth inherited by the richest 5% of households, 60% of all private wealth is inherited at all.

johnnyApplePRNG 5y ago

I find it odd that the article does not even mention the most common factor that helps some people become insanely wealthy while similar people do not in the same time period... luck.

golergka 5y ago

That's only true for material wealth. I come from a long line of merchants and rabbis (Abarbanel), and while our family have been expelled, robbed and worse many times, we've been able to build upon education and constructive traditions passed on from generation to generation; this is kind of wealth that's much harder to take away.

nobodytoseehere 5y ago
There is a saying in Chinese that wealth does not last more than 3 generations. I am 4 generations down from a successful businessman. Family is not wealthy, but I sometimes meet distantly related or socially related families, of different generations, descending from the circle of successful businessmen 4 generations ago. While there are exceptions, I think the saying is broadly true, and my take is a bit simple and possibly offensive. The first generation had fortunate circumstances, but were _incredibly capable_. Their spouses tended to be attractive. Like it or not, many skills have hereditary components. As a kid you hear about your great grandfather doing insane things when they were young and wonder if you can do that too. As an adult, you read about those insane things and you realize _you still can't do those things_. Not only that, your parents can't, and their parents couldn't either. It's just alien. It really isn't complicated. If you get wealthy from _outstanding ability_, and want to have kids that are capable of handling wealth _by capability_, then have capable kids. People who are capable of handling wealth aren't drawing inspiration from a Nasdaq article. Maybe OP is seeing many clueless people who lucked into wealth recently. Well I certainly know that luck is not hereditary: it only takes one gambler to end a generational empire. > we've been able to build upon education and constructive traditions passed on from generation to generation; this is kind of wealth that's much harder to take away. I think this is the best way to think about wealth and wish this perspective has wider appreciation.

motohagiography 5y ago

Making a lof of money and managing money are often different skills (build vs. extract value from a dynamic). Making enough to pay for your grandkids' univeristy tuition is probably the best goal, as it keeps the lifestyle kids become accustomed to and the hedonic treadmill slower. Managing money means being responsible for more than you can take from it. Growing up with people who had a trustee deposit income into their accounts on a regular basis, I learned that their understanding of money was the same as someone getting welfare from the government. It arrives independent of their control or influence, and they adapt their lifestyle and ambitions to what's available. It absolutely sabotaged them. People who had to run their parents businesses learned how to run their own, and what making money actually means (it's not a job). The smart parents did things like put a downpayment on a house for their kid at university, and have the kid rent out the rooms and manage collecting rent from his own student tenants, provided seed money for landscaping, snow plowing, painting and other student level service businesses and had their kid run them. The key thing was the kid could only ever got money as investment, and almost never as income. Metaphorically, often their fathers acted like a bank, whereas their mothers acted like a government, and the difference in outcomes between who handled the money was stark. I have no doubt those behaviours could become independent of which parent, but the family pattern of dependent sons who came from money is a pretty old cliché. However, internet subcultures like FIRE (financial independnce, retire early) are game changers for financial literacy, and I think we're going to see a real change in how wealth is made and managed over the next few decades as a direct consequence.

efficax 5y ago

In Italy at least, this just isn't true https://qz.com/694340/the-richest-families-in-florence-in-1427-are-still-the-richest-families-in-florence/ https://qz.com/694340/the-richest-families-in-florence-in-14... The rich stay rich over hundreds of years, for the most part. I would guess that squandered fortunes are the exception: money makes more money for itself, and while new money might be even more spectacular than old, the Carnegies aren't middle class a century later because the Walton family is richer than they could have dreamed

bitshiftfaced 5y ago
In Italy, wealthy business owners pass down the company to their oldest son/daughter. https://www.usatoday.com/story/news/world/2016/06/07/how-rich-and-famous-remain-rich-and-famous-florence-italy-globalpost/85540990/ https://www.usatoday.com/story/news/world/2016/06/07/how-ric... A similar thing happens in the Netherlands, where family wealth can persist and grow for centuries. In the USA, people usually structure their will so that all children get a piece of the pie. Generational wealth gets divided exponentially, but businesses don't usually grow at that pace, at least not for centuries. Unless the family has very few children over multiple generations, the wealth per person isn't sustainable.

heisenbit 5y ago

Based on the growing divide between have and have-nots in the past decades I would call this article B.S..

InnerFlamingo 5y ago

simonblack 5y ago

The first problem is that the wealth is exponentially spread ever more thinly over more and more people. But the main problem is that the generation(s) who receive the unearned benefits of the wealth don't have any skin in the game to hold on to it. Usually the story goes: A, who built the wealth through guts and hard work leaves the wealth to be spread amongst his kids B and C. Those kids who now receive only a share of the wealth, rather than all of it, have vivid memories of the work involved and, in general, try to maintain the wealth whilst enjoying the benefits. When they die they leave the inheritances to B's kids, D and E, and C's kids F and G. After two generations from A, we have four kids, D, E, F and G, who have only a small amount of the wealth money, a quarter each, and no memories of the work involved in producing it. They tend to enjoy that windfall.