The sad story of Vanderbilt wealth melting away is the story of too many families who build wealth. Stories of an heir squandering wealth are common. In fact, they’re so common that we have a saying about it. The American version is “shirtsleeves to shirtsleeves in three generations.” Many other cultures have similar sayings.
The Vanderbilt Story
When Cornelius Vanderbilt died in 1877, he was the richest person who had ever lived in the United States. Within fifty years of Cornelius’ death, one of his descendants died penniless. When more than a hundred of Cornelius’ descendants met in 1973, not one was a millionaire! The Vanderbilt story is a common one.
The First Generation
The first generation—and maybe that’s you—has known hard times and has worked and sacrificed for a better life. By their later years, they can afford a comfortable lifestyle and have assets to pass on to their then-adult children.
Too many successful people transfer their wealth but not the virtues and values that helped create the wealth. That’s where the trouble starts.
The Second Generation
The second generation, also maybe you, remembers the parents’ sacrifices. They remember harder times and respect the value of hard work and wise investing. They build on what they were given and hand the wealth off to the third generation.
The Third Generation
The third generation, probably not you, never knew hard times. They’ve known only wealth and haven’t seen much sacrifice. Worst of all, they have no mental model of the virtues and values that enabled their grandparents to build wealth. So, far too often, they spend their way through their inheritance. They and their children wind up in shirtsleeves.
What Research Tells Us
Roy O. Williams and Vic Preisser researched intergenerational wealth transfer. They painstakingly researched and interviewed 3,250 families with an average net worth of $20 million. In 1000 of them the wealth creators had died and attempted to transfer the wealth and family ties forward.
They found that 70% of the time, the family and the wealth did not survive even one generational transfer! By the second transfer, over 90% of the families and their wealth were no longer intact.
Your Challenge
If you care about what happens to your family and hard-earned wealth after you’re gone, the challenge is how to buck the trend. I’m convinced you must make a conscious effort to prepare your heirs.
What have you done to prepare your heirs to manage your legacy wealth responsibly?
This post was adapted from my book, Building Legacy Wealth.
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Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”