It’s a misconception that wealthy families maintain their capital for generations. Harvard studies indicate that about 70 percent of wealthy families lose their wealth by the second generation. Even more impactful, 90 percent have lost their wealth by the third generation. For families around the world who work to build wealth, it is very challenging to maintain that wealth and educate the next generations on how to do so as well.
What Does It Take to Maintain Financial Wealth Through Generations?
Senior Portfolio Manager and Senior Wealth Advisor, Thane Stenner, of Stenner Wealth Partners+ at Canaccord Genuity Wealth Management has built a successful career advising ultra high-net-worth families and entrepreneurs with at least $10+ Million of investment capital, or $25+ Million net worth. In his monthly podcast, Smart WealthTM with Thane Stenner, produced by BNN Bloomberg Brand Studio, he explores familial wealth and the dynamics of succession planning.
“Protecting substantial wealth takes focused, intentional effort. From careful estate planning and difficult family conversations, to sound business acumen and investing, successful wealth portfolios are those that are well-managed and understood.”
Money Talk – Early Memories Often Shape Future Decisions
When it comes to understanding why second generations struggle to maintain financial wealth, consider looking at their first experiences with money. It is not uncommon for young children to ask their parents if they are rich. Most people have some memory of coming to a decision about whether they were well off or not at a young age. That answer and memory may propel them for years and shape their decisions.
Those early memories really make an impression. They become the blueprints of how a person feels and relates to money for years to come.
Another factor that contributes to this early belief system is whether a person is an immigrant to wealth or a native to wealth. An immigrant to a wealthy family is one that came to the U.S. with little and built their wealth over time here. After that, the first generation has a much different view on money. They are native to wealth because they grew up having money and being able to feel confident about their money and having privileges. Third generations typically have even more freedom – they live a life filled with privilege and do not have the memories of struggle or wealth building.
For families, it takes creating a solid understanding that there is a responsibility to build wealth at each generation. More so, it is critical to educate each generation on the importance of wealth building. Making a conscious decision to invest in education from one generation to the next and maintaining that responsibility is not always easy, but it is necessary for those families that want to sustain wealth long term.
Family Legacy Building – How Family Dynamics Can Impact Your Legacy
Many people who build wealth or come from a family of wealth take important steps to create a plan for the future. They invest heavily in estate planning and asset building, knowing that they want to leave something for the next generation so that generation does not have to work as hard or have what they desire.
Yet, doing this is not enough. Rather, creating financial assets and a plan for them is only the very first step. To create a legacy and drive future generations of financial well-being, it is also critical to lay a foundation for your family’s harmony.
It is not uncommon for family relationships to involve a lot of emotions and feelings. Even if you built a strong family unit that you think may never falter, family relationships are difficult. What’s more, talking about financial assets and managing them in a successful manner can draw out many of those tensions and emotions, often pitting one person against the other. Consider a few scenarios on what can shape the future of your wealth.
Does your family work together?
You may have numerous members of the family working within your company. That can be a good thing, especially when they are well-educated and contribute to the success of the organization. However, this often creates strain on communications. That’s because there are two relationships here – a personal one and a business relationship. That can strain relationships.
How much is your family changing?
Most families often change with marriages, births, and deaths. There are even divorces in there. This can alter the family’s dynamic as well as the financial dynamics of the family, especially if there is, again, emotion involved and tensions rise. More so, the roles of each person in the family may change somewhat. That again impacts the way people communicate.
Who makes the decisions in the family?
While each member of the family may receive benefits from the family’s wealth, it is also important to focus on what happens beyond that. For example, each person has their own ideas and goals. They have their own fears and personality traits. When it comes to making decisions about the roles and responsibilities of each person in the family, especially as it relates to financial assets, it is important to give each person their own voice. Let them help with the planning of those assets.
There is quite a bit to consider. Should you provide each member of the family an equal share of the wealth? What about those that don’t contribute? In some families, the focus is on providing what is fair. There’s also the importance of considering each person’s belief system about money, which comes from the type of lifestyle and experiences they had at a young age.
Creating a wealth plan for family legacy is not just about building wealth on paper and dividing it up. Rather, it also has to take into consideration the dynamics in your family that could support or break your legacy.
