Will your family wealth survive ‘three generations’?

We’ve heard of the expressions “from shirtsleeves to shirtsleeves in three generations,” in the United States, and “from rice paddies to rice paddies” in Asia. Does anyone know the Nigerian term? These expressions are so common regardless of culture or country. According to a study, “wealthy families across countries lose about 70 per cent of their wealth by the second generation, and a stunning 90 per cent by the third.”
Parents are driven by a natural instinct to love, nurture, and provide for their offspring. We all want to see our children happy and our greatest desire is to give them everything we ever had, or never had, and more. This desire can push us to spoil them. The danger is that while we are deriving pleasure from overindulging them, we may actually be interfering with their development and diminishing their own sense of accomplishment and fulfillment.

We all work so hard to create wealth not only for ourselves, but to pass a legacy to our children and future generations. For some reason, this has not been the reality for the majority of families. The reality looks more like this; the first generation works very hard, sacrifices so much, and sets aside savings and investments over three to four decades or more. Often, people who have had to build wealth from scratch are extremely frugal and disciplined when it comes to accumulating and preserving wealth.

There are clear reasons why it can be a challenge to transmit lasting wealth to future generations, particularly in the accumulation and preservation phases. In many families, the second generation tends to lack some of that initial drive and discipline that it took to build the wealth; perhaps at the back of their mind is the knowledge that there is always money to fall back on when the going gets rough. Often, they will spend more than their inheritance’s investment returns.

The third generation can be almost very oblivious to the need to accumulate wealth and is deep in the spending phase. Because they haven’t experienced what it took to build it, and did not have to work for it, they sometimes fail to appreciate what it takes to truly build family wealth that lasts; they are just so far removed from how it was made and how frugally the founder lived. As a result, they may literally consume the capital away and sadly, many will end up penniless having decimated a family fortune built over decades.

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