Gone by the third generation

[OddGuy]

The old adage of wealth going “shirtsleeves to shirtsleeves in three generations” is called to mind by today’s news story of Elvis’s granddaughter trying to save Graceland from foreclosure.

It’s cited that 90% of wealth is lost by the third generation, and the pattern is typically (if reductively) cited that Gen 1 are the builders, Gen 2 are the maintainers, and Gen 3 are the squanderers.

What have members here seen play out?

 

[street]

I have no experience with the data you reported but it sure makes sense and believe that is most likely very true.

 

[audreyh1]

A huge estate is generally a money pit anyway.

 

[Markola]

For sure. That’s why the British call manor houses that are beyond repair “piles”.

 

[Yoheadden]

It will be interesting to hear the responses for this. I have no personal experience on this topic since DW & I are the builders.

On a side note, the same thing is said about multigenerational businesses. With each generation, the chances of the business closing is greater & greater.

 

[Markola]

It’s not necessarily that the 3rd generation is always the squanderers. Most businesses don’t last, taxes eat into everything, and multiple heirs (with multiple divorces) divide the pot.

Probably the best way to ensure at least some longevity over generations, if that is important to a founder, is sell everything and put it in a perpetual trust with strict rules about who gets what. Maybe just pay for heirs’ educations.

Something tells me Elvis didn’t grasp such things. Colonel Tom Parker probably handled Elvis’ estate planning, lol.

 

[athena53]

For sure. That’s why the British call manor houses that are beyond repair “piles”.

From what I've read, the British estate tax system is cruel and many families don't have enough left over to maintain it after the owner dies. Occasionally you'll see a piece of artwork in the British Museum with an info panel noting that it was donated by a family in lieu of estate taxes.

Dad always said it takes 3 generations to make a gentleman and 3 to end up in the lower tiers again. Mom and Dad were builders- not lavish but when Dad died 5 years after Mom and after 18 months in a good LTC facility he left $1.4 million. None of my 4 siblings and I need it, really- we'd all had good careers and made good decisions. Our children (13 grandchildren) are all doing well but not extravagantly. DS is 40, well-employed and living frugally with DDIL and the 3 kids. He says anything I leave will go to the kids. The oldest is 10, so way too early to tell, but she and her sister (7) are not "gimme" kids and she'll take a VERY long time making careful buying decisions (learned that from her mother). I got them UGTMA accounts and they're learning about stocks. I plan to bring their brother in when he's a little older.

Similarly, my Ex's parents were builders. His sister was also a hugely successful entrepreneur. Ex squandered all of his inheritance (mostly through expensive toys and a lot of unemployment) except for what we put down on the house. Sister's son, only child, has an MBA from Georgetown and has a good job. Too early to tell with the kids but they appear to be on the preppie track.

It can vary. We'll see what happens with the next generation.

 

[twirler]

This is among my largest concern when building wealth. I often find myself asking, "Will it all be worth it?"

 

[athena53]

This is among my largest concern when building wealth. I often find myself asking, "Will it all be worth it?"

Well, that's why you have to enjoy some of it (and give some away) when you're alive!

And even the money my Ex inherited from his mother wasn't squandered completely. When we divorced, I got 40% of the equity in the house. His was gone after a few years but I immediately put the $100K I received into another house, keeping DS in the same school district. I sold it 7 years later at a $200K profit after I remarried and relocated to a LCOL area and was able to invest most of that. That was 2003 so it's added to my ability to have a prosperous retirement, get DS through school without student loans and add to my grandchildren's 529s. I think his parents would be happy with that outcome.

 

[wrigley]

Lisa Marie wasn't quite in the right state of mind for a long time. She probably didn't even remember taking a loan against the property.

 

[aja8888]

3 generations? Well, for me......grandparents (both sets) came over on the boat from Lithuania (1890s) and worked the coal mines and died in their 40's. Dad/mom inherited their used personal belongings and liquor store debt. They left me the same thing except I had to pay to bury both parents. I guess I am third, and will leave "it" to my daughter and God only knows what she will do with "it". Since I have no grandchildren, she's the last stop. No book to write about this family.

 

[Exit 2024]

For me it doesn't matter, we are builders by nature, we do not build with expectation of someone after us to continue to build, it is their life and they need to live it way they can. We cannot live spender's life, although we are not super frugal either, it is just not something that could be taught, but have close friend who thinks that we are foolish for not enjoying all that we earn. In his view life have to be fun to the last penny. We all just do as we can and learn our own lessons through that journey to the end ...

 

[Lorenzo]

3 generations? Well, for me......grandparents (both sets) came over on the boat from Lithuania (1890s) and worked the coal mines and died in their 40's. Dad/mom inherited their used personal belongings and liquor store debt. They left me the same thing except I had to pay to bury both parents. I guess I am third, and will leave "it" to my daughter and God only knows what she will do with "it". Since I have no grandchildren, she's the last stop. No book to write about this family.

Almost the same story in my family. Immigrant grandparents (both sets) were frugal and hardworking but had nothing extra to leave their children. My parents were entrepreneurs who rode the highs and the lows but ultimately had nothing to leave me. DW and I have no children, and the whole facet of estate planning for the benefit of children or grandchildren is a weight off our shoulders.

 

[MarieIG]

It seems like a lot is involved to pull oneself into the uber rich class, but "falling back" is less of an effort. The succeeding generations can either engage in some type of work, coast, or go off the rails. (I did see some families where the progeny were educated and put to work in the family business although the founders were the ones with the golden touch.)

Falling from upper middle class or middle class to lower class I have seen due to both lack of effort and substance abuse (which can get really ugly).

 

[Dash man]

I hope to convince my kids to accept the dividends from inherited stocks/ETFs as the only extra spending money, and to put the sale of any real estate into solid stocks/ETFs that grow their dividend each year. It has built in inflation protection with dividend increases, often above the rate of inflation. By not selling shares (unless fundamentals of a company falter) these should last for generations.

 

[rk911]

The old adage of wealth going “shirtsleeves to shirtsleeves in three generations” is called to mind by today’s news story of Elvis’s granddaughter trying to save Graceland from foreclosure.

It’s cited that 90% of wealth is lost by the third generation, and the pattern is typically (if reductively) cited that Gen 1 are the builders, Gen 2 are the maintainers, and Gen 3 are the squanderers.

What have members here seen play out?

Well, my wife and I are definitely Generation 1 but that's as far as it goes.

We married in 1970. It took us 35-yrs to edge our NW over the very, very low 7-figures. These days we're blessed to have a much larger NW but no kids to leave it to. My wife has no surviving family but I have a married nephew who is in line to get a healthy slice upon our deaths. He and his wife are expecting their first who, in theory, would be Generation 3. We'll be long gone when that child achieves adulthood.

Between now and then we support dozens of small-to-large charities and are generous with financial gifts to my neice and nephew and my sister and her husband. But most of what we have will be left to charity.

 

[OldShooter]

It's apparently cultural to a degree. We just got back from Japan and on the trip we visited a number of companies where we met 4th, 5th, or 6th generation general managers. A company that did historic thatched roofs, a pottery company, and a miso maker are the ones I remember offhand.

 

[pacergal]

I have heard of that adage before.
As long as I have enough to safely get me to the end and have some left for my kids, I will be happy.
We are not a multi millionaire multi generations family, though. It seems that families that have that, frequently are covered with trusts attempt to protect the money for generations.

As far as the Graceland thing, I have read that they are potentially being scammed. But who knows. It would be sad, but not the end of the world.

 

[Closet_Gamer]

I believe it. Mostly because by the third generation they didn’t witness first hand what it took to build it so they underestimate the work required to succeed at that level and never experienced the leak of resources to create motivation.

 

[Texas Proud]

It might be the norm but I have seen the opposite... I helped do tax work for some people who were in the 6th to 10th generation and some were quite wealthy...

It was a partnership started in the 1860s or there about (prior to tax law so grandfathered in from a bunch of things).... the next generation gets a share of their parents holdings... they cannot sell it as the partnership has the right to buy back anything...

It produces a LOT of income and some were getting hundred of thousands each year...

It probably is true that it takes 3 generations but who knows how many are now part of the whole? There are some people with 30 to 50 grand kids or great grand kids...

 

[upupandaway]

It's not a binary choice either. My grandparents were the primary builders and my parents seem to be maintainers but also will add a sum to the overall pot. When it comes to my sister and I it will most likely be me growing the family funds significantly and she will either spend or partially maintain her inheritance. In this situation different branches will have a different generational outcome.

 

[Exit 2024]

“Hard times create strong men. Strong men create good times. Good times create weak men. And, weak men create hard times.” I find that true in my experience in the context of generations and wealth.

 

[Gumby]

I'm working hard on shirtsleeves to shirtsleeves in one generation.

 

[sengsational]

My grandfather started a business and made money hand over fist, selling into WWII. My dad went into the family business, but the business had to pivot because the demand dried up. The business became asset based and wasn't any better than could be done investing, so my dad sold it. My dad and his siblings, 7 of them, were supposed to be the maintainers. Some went right to squandering, LOL, but most kept the assets in tact. Most of my cousins and all of my siblings got a great start in life, but little money, so nothing to squander. One aunt, one of the few who didn't have kids, passed and her nieces and nephews each got a nice chunk of change. 100% of mine was invested, so I didn't squander it, but I think some of my cousins did blow it. I think these kinds of observations are just entertaining, but not really that predictive. Six of my aunts and uncles had between 2 and 4 kids. Even if they didn't spend a dime, you start dividing up assets and it gets smaller quickly...is that really squandering?

 

[Midpack]

The Vanderbilts went from one of the richest families in US history in their first and second generation, to the fourth generation pretty much wiping out what the spendiest third generation left. The only wealth left in subsequent generations (5+) may be Anderson Cooper and the Biltmore Company trust - both rebuilding their "fortunes" more than inheriting.