Don't Lose The Money

This past weekend I came across an interesting article that made me reflect on one of my posts regarding work ethic and the example I gave on John taking over his father’s empire. The article was in Time magazine and I took a snippet of it for this specific post.

The interesting thing about it is that apparently, according to Time magazine and the research they did, 70% of rich families lose their wealth by the second generation. In the previous post on work ethic I wrote on, I mention the example that you will not reach the top and you will not have success unless you have a tremendous amount of work ethic. Someone however like John (in the post example) who will inherit his fathers' empire and be worth billions gets it handed to him without having done anything. I point out though that I am sure he’s perhaps gone through some trials and tribulations as well, however, the point being that if John is not ready and not willing to put in the work that money will be gone down the line unless someone else is managing it for him.

Well, this TIME article came along interestingly enough. They give an example of a family whose grandfather starting a shirt business and grew it into a $70M business, but through bad decisions, bad luck, and alcohol that money was gone by the next generation. Imagine! The Williams Group wealth consultancy notes that approximately 70% of families lose their wealth by the 2nd generation and nearly 90% lose it by the 3rd. If that is not poor money management.

The article goes on to explain that the U.S. Trust surveyed high net worth individuals (the classification of HNW equates to folks with over $3M in assets) and roughly 78% said that the next generation, their own children, are not financially responsible enough to handle the inheritance. On TV you only see the glamour and stars, but there are plenty of rich out there who still have the common sense of the street. An interesting fact also stood out to me, which is that 64% have mentioned nothing to the next generation in regards to inheritance. That means roughly 1 out of 2 HNW individuals have said nothing to their kids regarding anything related to inheriting money or wealth.

Here’s why:
“The survey lists various reasons: People were taught not to talk about money, they worry their children will become lazy and entitled, and they fear the information will leak out.”

A majority of the article covers why these people believe that the next or even the third generation lose the money they have created, regardless of trying to pass on the knowledge of business, wealth management, etc.

The reason why I’m pointing this article out is because, for one I found it interesting, and secondly there are a few great pointers I want to summarize for you. Regardless of whether or not you are a high net worth individual, these are things you can pass on no matter what you leave (or don’t) to the next generation and things we can definitely take for Jayden and his future.

• Talk early and often – discuss financial topics continuously. Give your kids a crash course in financial literacy.
• Encourage hard work – do not foster ignorance by simply giving
• Discuss your will – this is a tough one. I remember sitting with my dad and him going through his will with me. It was tough on him to think about it, but important for my siblings and myself to understand what our parents want and to respect that. Renata and I have done the same in regards to our future. The key here is communication.

Create a road map – what is your family mission statement. Lay out as a family in regards to spending, saving, giving back, and strategies to continue building on the wealth.

Take these four points and no matter what your families financial status, make this a foundational topic in your household. You never know what the next days brings, and having communicated and discussed these things will make it easier for everyone.