Rags to Riches to Rags

More than 70% of wealthy families are broke by the second generation, and 90% by the third.

There’s a lot of truth in the old saying ‘the first generation makes it, the second generation spends it, and the third generation blows it’.

Take the story of Cornelius Vanderbilt, America’s first great tycoon.

When Vanderbilt died in 1877, he left behind an inheritance valued at more than US$100 billion (adjusted for inflation). But within 50 years, the family’s fortune had largely dwindled away  – as many of his descendants proved to be better spenders than earners.

Unfortunately, this story is all too common – with a research study of 3,250 wealthy families finding more than 70% were broke by the second generation and 90% by the third.

These statistics can seem disheartening, particularly when you’ve spent a lifetime working hard to secure your family’s future. But this doesn’t necessarily mean your efforts have been in vain, as there are steps you can take to make sure your hard-won wealth isn’t squandered by your children.

And it all starts with education.

Why financial literacy is critical to preserving wealth

When you build wealth from scratch, you’re well aware of all the hard work and drive that goes into making, growing and managing money. However, this lesson largely bypasses the next generation who, having grown up around money, are less likely to see the relationship between work and reward.

The thing is – financial skills are taught, not inherited.

So, if your kids don’t know anything about saving, borrowing, investing or earning – they’re more likely to make bad decisions when you hand over the purse strings. This could be anything from taking unnecessary investment risks to under-earning, over-spending and taking on excessive debt.

The good news is that it’s never too early or late for your children to start learning – whether that’s basic principles such as saving and budgeting or more sophisticated financial concepts.

And the more of an insight you can give them into how to build and manage wealth, the better prepared they’ll be when you’re gone.

Teaching your children about personal finance can be challenging, particularly if their financial priorities don’t align with your own. But if you want your children to be stewards of the family wealth, rather than the generation that lost it all – these conversations need to happen.

An expert financial adviser who specialises in generational wealth planning can help. They can work with the entire family to create a long-term financial strategy that leaves a legacy of wealth for generations to come.

If you would like to have a confidential discussion about preserving your family wealth, speak to Affinity Private Advisors today by calling 1300 769 304, emailing enquiries@affinityprivate.com.au or filling in this online form.