Lately, I’ve been seeing a lot of chatter and positivity around springing entirely past financial independence and going for “Generational Wealth“.
And while in theory the idea of generational wealth for your loved ones seems like it should be the goal. It isn’t.
Giving too much wealth to your children backfires
70% of wealthy families loose their wealth by the second generation.
90% of inherited wealth is lost by the third generation.
But it happens.
And it happens a lot…
The second and third generations — who have been raised wealthy, and thus much differently than the person who made the money to begin with — behave differently, and that hurts the family fortune.– Catey Hill, Here’s why 90% of rich people squander their fortunes
The fact is that generational wealth is something that sounds great in theory, but backfires nearly every time. 90% of the time!
To me, the reasons seem obvious:
- If you didn’t earn it, you don’t value it as much
- When you grow up with more than you’ll ever need, your reality is skewed
- Kids want to accomplish their own feats, not rely on their parents or grandparents
- Instead of growing into a strong resilient person, you end up weak and reliant
It is counterintuitive, but giving too much money to your children is more likely to set them up for failure than for success.
The goal is to raise resilient, productive children, who can forge their own path
My wife and I have one goal that looms larger than anything else right now:
That is pretty much it.
Yes, I have my own personal goals.
Yes, I have created wealth that could potentially be passed onto my kids.
But, if we do our job well, they won’t need it.
Giving our kids just enough, but not more
We ALL want the best for our kids.
When you reach financial independence, you are at the point where you can likely give your kids everything they’ll ever want and more.
I don’t want to give our kids more than they need.
I want to give them just enough to become the resilient and productive adults that I want them to be.
I’m not sure exactly what this will look like. My children are just starting their schooling, but I can tell you that it will likely look something like this:
- Public School for K-12.
- Allowed to fail, so they can learn that failure is a part of life.
- Getting jobs as soon as they are old enough to be hired.
- We’ll pay for a state college, or equivalent if they wanted to go out of state and received a scholarship.
- Probably not allowed to live at home post-college, unless it makes financial sense or some other solid reasoning.
Is this going to be a winning formula? Only time will tell.
Giving back to the world and our community
So what do I want to do with any leftover wealth that we might have in the process reaching financial independence?
I want to give back.
I want to help others.
I want to make the world a better place in my own way.
I hope that by the time it is all said and done, my kids are part of the solution, and not the problem.
I want them to be able to handle whatever life throws at them, and go out and create their own path.
To me, that is the way.
So, if the if the question is “how do I leave a legacy?”
The answer isn’t generational weath.
Ooooh I feel so strongly about this. And I am 100% on the same page. Whether the data is accurate or not, I’ve seen it in my own family and friends, and that’s enough for me. I care far more about teaching my kids to fish. We tell them to go create their own fortunes. I recently read How Children Succeed, and it made an interesting point about how the “family money” types who go to fancy private schools usually do okay in life because there’s a pretty good safety net that they can’t fall below, but they often don’t really go far either, partially because they’ve never learned to deal with failure or adversity. Anyways, I could rant about this all day. But I’ll also just add that the people who talk about generational wealth are super off-putting. It kind of comes across to me as an egocentric, “I’m going to be the patriarch/matriarch of a Wealthy American Family” to me. Maybe I’m being too judgy of people’s motivations, but it seems obnoxious.
I don’t mind folks having strong goals, but I think they are kind of missing the point. Most current billionaires didn’t create their wealthy by striving to be the next Oligarchy. Bill Gates, Elon Musk, Jeff Bezos, Warren Buffet, Larry Page, Sergey Brin, and on and on. They built amazing products and companies that changed the world. It was never about generational wealth for them.
For the rest of us. Just focus on becoming financially independent and raising strong kids who can do the same and have a shot following their passion and doing good in the world.
So, this quotation is used a lot, yet when you try to find the actual study, it is almost impossible to find. However, by digging deeply I actually found the study. And it was not a study, it was never peer reviewed and the methodology never explained (as would be required for peer review). It was a private consulting business’ personal review. Later the same man (Roy Williams) published a book (with Vic Preisser) titled “Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values”. In the book they referenced the review done by Williams consulting firm but the funny thing is neither the review nor the book were actually looking at wealth. They were looking at family businesses and how long the family business says in the control of that family. You can have a business no longer be within the family yet the family remain wealthy. So, this is a long way to say, your premise is flawed.
Even if the study never happened or was flawed…for me personally, I firmly believe that passing on money alone isn’t the wisest path forward.
I want my kids to be self-sufficient adults most of all. That is what matters to me.
My overarching point is it doesn’t matter how much money you pass down to kids if they aren’t prepared and able to handle the real world, they will only find a way to squander it one way or the other.