5 ms·

And yet 70% of generational wealth is gone by the 2nd generation.

by IAmNotACellist 3y ago

jshen 3y ago
I was wondering the same thing. I've heard conflicting things and I'm not sure how to make sense of that.
- Clent 3y ago
  I would imagine it has a lot to do with how wealthy the family was. It's easier for a single generation to waste 50 million than it will be for them to waste 50 billion. Family sizes are also much smaller so the split of the inheritance will result in larger starting wealth for each generation.
  - brewdad 3y ago
    One could blow through $50 million in a month and probably not even draw much attention. Wasting $50 billion is going to take a lot of dedication and hard work to achieve, especially if any of those assets are generating income.
- ff317 3y ago
  I have no data, but I would hypothesize that the generational advantages do not disappear easily, even if a large chunk of the monetary value does. Even just looking at from a purely monetary angle: maybe generation two manages to "lose" 70% of a $50 million inheritance. They've still got $15 million to start over with. Even if they lost 95% of the inheritance, they're still on a better financial footing than most with $2.5 million of capital laying around to rebuild themselves from. That's not enough to live like a king and never work, but if you're even remotely smart in managing that amount from somewhere in early to middle adulthood, that's still enough to at least never have a mortgage or worry about college for yourself or your kids. It's enough to start a successful small business or three as well. But I think there's another angle on this. Even if the kids stupidly lose a lot of the cash, they're still riding on a ton of benefits from their enriched childhood: far better health thanks to a virtually limitless diet of high quality food and great medical care, the best schools and tutors, connection networks to all the other rich kids from their rich neighborhoods and schools, and learning (through osmosis if not explicitly) all about their parents and grandparents lessons of being in executive positions and how to invest wisely and preserve capital, what kinds of lawyers and insurances you should have, etc. Bottom line is they could literally set 100% of the inherited cash on fire and they'd still have a much higher chance of re-becoming wealthy than most.
verbify 3y ago
Do you have a source for that? It's off quoted but I can't find how people arrived at that number. Here's a counterpoint: 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...
eschulz 3y ago
How is generational wealth defined in that statistic? I know many people who had parents whom I would consider wealthy, but the kids don't make as much and the family are taken down a notch as the kids reach middle age. However, these "wealthy" people were doctors or lawyers, they did well and probably were in the top 2% of earners in their prime, but they were never worth many tens of millions. On the other hand, I think a billionaire's wealth can last for generations if set up properly in trusts, etc.
- deleted 3y ago
  [deleted]
kasey_junk 3y ago
This is a stat that is never sourced and is mostly cited by the wealth planning industry that have an ulterior motive for making people believe it. I’d love to see a rigorous backing of this stat.
- themagician 3y ago
  That's because it's just not true in any meaningful sense. What happens is that the wealth is often transformed and split between separating couples, but it mostly stays in the same class. The idea that generational wealth is lost is a great story though. It's part of the "American Dream". Anyone can do it. The "self-made" man. Rags to riches. If you spend any real time with the wealthy people—almost anywhere in the US—you know this isn't true. It happens, sometimes, sure. What you DO see is plenty of "millionaires" who saved 50% of their income for 45 years and get to retire at 65 with >2 million in the bank. There are tons of these people. This is what the wealth planning industry creates and it's what skews the statistics about these sorts of things. Poor for a lifetime for a taste of wealth at the end. But man, the idea that, "70% of generational wealth is gone by the 2nd generation" is literally a joke. I can imagine it as the punchline to a joke where management is trying to convince to labor to work harder. It's so easy to be wealthy when you grow up with money. And it's easy to stay there as long as you don't fall into a serious addiction of some sort. And even when you lose a bit it's easy to get back because the connections you have basically guarantee you income. Being born into wealth is damn near a safety net that lasts a lifetime. If you can earn the respect of a just 5 or 6 people in wealthy families you never really have to worry about money. And truth is, once you know 2 or 3 you end up with a dozen contacts. Your next venture is a phone call away. There is always a job for "talented people". That's the reality that people really don't talk about because why would they. It just pisses anyone off who isn't at that level. When I see people talk about how most generational wealth is lost by the second generation what I have to assume they are talking about is someone who inherited $2 million or so when their parents died. Not because their parents were wealthy, but because they spent their entire life relatively poor (despite having some assets), saving for a day that never came, and then died at 70. So their kids grew up relatively poor, and suddenly at 40 they have a few million that they quickly piss away. That's a scenario that happens all the time that people are familiar with. That's technically generational wealth. But when I think about generational wealth I think about families that own land, businesses, assets. Families that own city blocks. Truth is, if you show up at the elite country club for the first time at 65 no one is going to consider you wealthy, especially if you don't have the stories. The real wealthy people have been there since they were 15. Wealthy people have a lifetime of wealthy people stories that they like to tell each other. Real generational wealth is its own society.
zozbot234 3y ago
The thing about accumulated wealth is that the moment you spend it down, that chunk of it is gone forever and not coming back - it's very different from having a high income, which can support continued levels of spending over time. So it takes very cautious, culturally-ingrained attitudes to pass down such wealth for many generations. It becomes more of a cultural symbol or totem than anything really tangible at that point.
- wing-_-nuts 3y ago
  Oh, it's very much tangible. If you inherit 10M from your parents you can spend ~ 2% of it per year for the rest of your life and still hand down a larger nest egg to your children.
gilbetron 3y ago
https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-There-is-no-70-rule-JGrubman-IFOJ.pdf https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-... It seems that the 70% "rule" is on very wobbly legs. I wonder if there are any actual studies - well, now I know what I'm doing this afternoon ;)

And yet 70% of generational wealth is gone by the 2nd generation.

jshen 3y ago

I was wondering the same thing. I've heard conflicting things and I'm not sure how to make sense of that.

Clent 3y ago
I would imagine it has a lot to do with how wealthy the family was. It's easier for a single generation to waste 50 million than it will be for them to waste 50 billion. Family sizes are also much smaller so the split of the inheritance will result in larger starting wealth for each generation.
- brewdad 3y ago
  One could blow through $50 million in a month and probably not even draw much attention. Wasting $50 billion is going to take a lot of dedication and hard work to achieve, especially if any of those assets are generating income.
ff317 3y ago
I have no data, but I would hypothesize that the generational advantages do not disappear easily, even if a large chunk of the monetary value does. Even just looking at from a purely monetary angle: maybe generation two manages to "lose" 70% of a $50 million inheritance. They've still got $15 million to start over with. Even if they lost 95% of the inheritance, they're still on a better financial footing than most with $2.5 million of capital laying around to rebuild themselves from. That's not enough to live like a king and never work, but if you're even remotely smart in managing that amount from somewhere in early to middle adulthood, that's still enough to at least never have a mortgage or worry about college for yourself or your kids. It's enough to start a successful small business or three as well. But I think there's another angle on this. Even if the kids stupidly lose a lot of the cash, they're still riding on a ton of benefits from their enriched childhood: far better health thanks to a virtually limitless diet of high quality food and great medical care, the best schools and tutors, connection networks to all the other rich kids from their rich neighborhoods and schools, and learning (through osmosis if not explicitly) all about their parents and grandparents lessons of being in executive positions and how to invest wisely and preserve capital, what kinds of lawyers and insurances you should have, etc. Bottom line is they could literally set 100% of the inherited cash on fire and they'd still have a much higher chance of re-becoming wealthy than most.

verbify 3y ago

Do you have a source for that? It's off quoted but I can't find how people arrived at that number. Here's a counterpoint: 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...

eschulz 3y ago

How is generational wealth defined in that statistic? I know many people who had parents whom I would consider wealthy, but the kids don't make as much and the family are taken down a notch as the kids reach middle age. However, these "wealthy" people were doctors or lawyers, they did well and probably were in the top 2% of earners in their prime, but they were never worth many tens of millions. On the other hand, I think a billionaire's wealth can last for generations if set up properly in trusts, etc.

deleted 3y ago
[deleted]

kasey_junk 3y ago

This is a stat that is never sourced and is mostly cited by the wealth planning industry that have an ulterior motive for making people believe it. I’d love to see a rigorous backing of this stat.

themagician 3y ago
That's because it's just not true in any meaningful sense. What happens is that the wealth is often transformed and split between separating couples, but it mostly stays in the same class. The idea that generational wealth is lost is a great story though. It's part of the "American Dream". Anyone can do it. The "self-made" man. Rags to riches. If you spend any real time with the wealthy people—almost anywhere in the US—you know this isn't true. It happens, sometimes, sure. What you DO see is plenty of "millionaires" who saved 50% of their income for 45 years and get to retire at 65 with >2 million in the bank. There are tons of these people. This is what the wealth planning industry creates and it's what skews the statistics about these sorts of things. Poor for a lifetime for a taste of wealth at the end. But man, the idea that, "70% of generational wealth is gone by the 2nd generation" is literally a joke. I can imagine it as the punchline to a joke where management is trying to convince to labor to work harder. It's so easy to be wealthy when you grow up with money. And it's easy to stay there as long as you don't fall into a serious addiction of some sort. And even when you lose a bit it's easy to get back because the connections you have basically guarantee you income. Being born into wealth is damn near a safety net that lasts a lifetime. If you can earn the respect of a just 5 or 6 people in wealthy families you never really have to worry about money. And truth is, once you know 2 or 3 you end up with a dozen contacts. Your next venture is a phone call away. There is always a job for "talented people". That's the reality that people really don't talk about because why would they. It just pisses anyone off who isn't at that level. When I see people talk about how most generational wealth is lost by the second generation what I have to assume they are talking about is someone who inherited $2 million or so when their parents died. Not because their parents were wealthy, but because they spent their entire life relatively poor (despite having some assets), saving for a day that never came, and then died at 70. So their kids grew up relatively poor, and suddenly at 40 they have a few million that they quickly piss away. That's a scenario that happens all the time that people are familiar with. That's technically generational wealth. But when I think about generational wealth I think about families that own land, businesses, assets. Families that own city blocks. Truth is, if you show up at the elite country club for the first time at 65 no one is going to consider you wealthy, especially if you don't have the stories. The real wealthy people have been there since they were 15. Wealthy people have a lifetime of wealthy people stories that they like to tell each other. Real generational wealth is its own society.

zozbot234 3y ago

The thing about accumulated wealth is that the moment you spend it down, that chunk of it is gone forever and not coming back - it's very different from having a high income, which can support continued levels of spending over time. So it takes very cautious, culturally-ingrained attitudes to pass down such wealth for many generations. It becomes more of a cultural symbol or totem than anything really tangible at that point.

wing-_-nuts 3y ago
Oh, it's very much tangible. If you inherit 10M from your parents you can spend ~ 2% of it per year for the rest of your life and still hand down a larger nest egg to your children.

gilbetron 3y ago

https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-There-is-no-70-rule-JGrubman-IFOJ.pdf https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-... It seems that the 70% "rule" is on very wobbly legs. I wonder if there are any actual studies - well, now I know what I'm doing this afternoon ;)