How do you make your money last for generational impact?

Maintaining family wealth over generations can be challenging and there are so many obstacles on your way to wealth preservation. Ilze Alberts, wealth psychologist and behavioural strategist for families is sharing mental and behavioural strategies in 5 parts.

Part 1: “From shirtsleeve-to-shirtsleeve”

Many family wealth creators are ignorant about a proverb called “from shirtsleeve-to-shirtsleeve” or they might be aware of the proverb, but are uncertain about a strategy to transform it.

In Japan, the expression goes, “Rice paddies to rice paddies in three generations.” The Scottish say “The father buys, the son builds, the grandchild sells, and his son begs.” In China, “Wealth never survives three generations.” Around the world there are many variations on this theme, all used to describe the tendency of the third generation of a family to squander the wealth obtained by the first generation.

 According to studies, only 30% of family businesses built by one generation are passed on to their children and only 10% of those businesses ever reach a third generation. One reason suggested is that the third generation doesn’t possess the same set of values, work ethic and perspective due to their very different experience growing up.

The first generation struggles hard to rise above their current conditions in order to achieve a more comfortable life for themselves and their family. They work hard, diligently save their money and by their later years, have something of value to pass on.

Their children, the second generation, grow up as a witness to their parent’s struggle and understand the value of hard work. Although they now live a comfortable life, they can remember a childhood filled with frugality and perhaps even poverty. Because of this, they make educational and financial choices that help them build on what their parents created. By retirement, they have, most likely, acquired even greater wealth.

The third generation, however, has no memory of want or struggle. They only know a life of plenty. When the family wealth is passed onto them, they lack the values and skills necessary to maintain the health of the assets. If universal proverbs and small business statistics are to be believed, the third generation squanders the resources their parents and grandparents had worked so hard to achieve. Thus, the three generations cycle.

The first step to wealth preservation for generations is the awareness of the proverb and the second step is developing human behaviour strategies to transform the proverb.

Author: Ilze Alberts is a life strategist and international educator on strategies to a beautiful life.