The Rockefellers, the Vanderbilts, the Gettys – all famous families known for their success in building and maintaining generational wealth. You probably have your own thoughts about what generational wealth looks like, but truthfully it’s something many families need to consider in their financial plan. You don’t need to have a famous name to learn about building or preserving your family’s wealth.
Below we’re breaking down common myths regarding family wealth and the truth about generational wealth planning that every family should hear.
Myth #1: Wealth Lasts Many Generations
It’s easy to assume that a wealthy family has always been wealthy and will always be wealthy. But, around 70 percent of wealthy families lose their wealth by the second generation, and around 90 percent of families lose that wealth by the third generation.1
There are many reasons why families are likely to lose their wealth over time. Parents may not wish to discuss money with their kids, second- or third-generation heirs don’t understand the value of money, or families may neglect to set a plan for preserving their wealth. Whatever the case may be, it’s important to understand that having family wealth and preserving family wealth are two very different things, and the latter often requires careful and considerate planning.
Myth #2: All Family Members Are Smart About Money
Inheriting a large amount of wealth does not mean one suddenly gains financial literacy. What it does mean is that a lack of financial knowledge can lead to decisions with a greater impact. This myth can be a dangerous one, as it may make some family members feel embarrassed or reluctant to admit their lack of financial knowledge.
For those who find themselves in this position, working with a trusted financial professional should be a top priority. Your financial advisor isn’t there to judge or scoff at your lack of financial knowledge. Instead, he or she is there to educate, guide, and strategize on your behalf.
Myth #3: Parents Talk to Their Kids About Money
While communication has increased in recent years, it’s likely some parents or grandparents are uncomfortable talking about money with their children or grandchildren. It’s easy to assume money and wealth are common topics of conversation; but in reality, it’s possible children may receive an inheritance with very little understanding of how much they have or what to do with it.
This, in turn, can lead to poor spending habits or loss of wealth over time. This is why a crucial component of preserving family wealth is open communication and transparency among family members.
Myth #4: Most Millionaires Inherited Their Wealth
As we discussed previously, only about 30 percent of wealthy families maintain their wealth beyond two generations and only 10 percent beyond three generations.1 That means that the majority of millionaires today didn’t actually inherit their wealth, or at least did not inherit all of it. Instead, they followed a plan, invested wisely, and accumulated their wealth.
You don’t have to be a Rockefeller to make a generational wealth plan. If you have assets you wish to preserve for generations to come, you’re in need of a plan. Consider working with a trusted financial professional who can help you make a plan, educate family members, and see your plan through after your passing.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.