A groundbreaking 20-year study conducted by wealth consultancy, The Williams Group, involved over 3,200 families and found that seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation.
However, for a number of reasons, 70 percent of wealthy families are no longer wealthy by the second generation. Approximately 90 percent have lost their wealth by the third generation.
There are a variety of reasons why this happens: Generations are taught not to talk about money. The prior generations worry that the next generation will become lazy and entitled. Many have no clue about the value of money or how to handle it.
It's important to remember that building multigenerational wealth requires more than financial assets. For example, if you win a large sum of money but do not have the education to manage it financially, then the money will likely not last through the next generation.
Generational wealth can take many forms, but it is often built through investing in stocks and bonds, owning real estate, starting a business, or a combination of all of those. Smart estate planning can also help make sure that generational wealth isn't diminished through taxes that would otherwise be avoidable.
Baby boomers are collectively 10 times wealthier than millennials. Millennials are 24% behind Generation X in terms of wealth accumulated.
Myth #1: Wealth Lasts Many Generations
But the truth is, around 70 percent of wealthy families lose their wealth by the second generation. Moreso, around 90 percent of families lose wealth by the third generation. There are many reasons why wealthy families are likely to lose their wealth over time.
Millennials earn more money than any other generation has at their age. But they still hold way less wealth, largely because cost of living has outpaced wage increases. Two recessions before the age of 40 and student debt haven't helped matters.
A groundbreaking 20-year study conducted by wealth consultancy, The Williams Group, involved over 3,200 families and found that seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation. However, there are ways to be at the odds.
Social scientists generally agree that wealth must be sustained through more than three generations before being considered “old money”. That is, it doesn't reach the social status accorded to owners of “old money” until it has aged for three or more generations.
The brokest generation.
"Millennials are less well off than members of earlier generations when they were young, with lower earnings, fewer assets, and less wealth," the study said. According to this analysis, millennials are poor, which led Slate to deem them "the brokest generation."
Here are a few reasons for why 90% of wealth is lost by the third generation: Family Structure. This practice is known as family governance, which is establishing the proper framework for the wealth creators' families and especially offspring to assume that responsibility as well as making sound financial decisions.
Generational Wealth Lasts Forever
A staggering 70 percent of wealthy families lose their wealth by the next generation, with 90 percent losing it the generation after that. Sustaining substantial wealth takes financial savvy–something that not all rich parents are passing along to their heirs.
A staggering 70 percent of wealthy families lose their wealth by the next generation, with 90 percent losing it the generation after that. Sustaining substantial wealth takes financial savvy–something that not all rich parents are passing along to their heirs.
The average retirement savings rate for older generations (millennials, Gen X and baby boomers) is 12% of income, compared with 14% among Gen Zers.
Challenges of Building Generational Wealth
Unfortunately, the default for parents is to work hard and pass down assets. But, that scenario is unlikely to work in most cases. That's why an estimated 70% of generational wealth doesn't make it past the second generation, and 90% disappears by the third.
One of the biggest dilemmas that affluent families face is the so-called third generation curse, which states that the majority of families will lose both their wealth and their business by the time it reaches the third generation.
Why younger generations are poorer. According to recent Federal Reserve data, millennials collectively control about 6.6% of the total household wealth in the United States in 2022. Baby boomers control 50.4% — far more than any other cohort.
Millennials are the most educated generation ever. This trend is likely due to higher income returns from a college education, as well as many young people choosing to wait out the recession and lack of jobs by staying in or returning to school.
They've reaped benefits from low interest rates and inflated housing prices, which increased the value of their assets. As such, many boomers have acquired enough to partake in the greatest wealth transfer in modern history, which will go to their children and philanthropy.
Millennials have been at a disadvantage since the beginning
Compared with these generations, millennials have more debt, a lower net worth, and a worse chance of making more than their parents. Those factors, particularly the rise in student debt, have prevented millennials from getting a home.
Among the causes of the phenomenon are taxes, inflation, bad investment decisions and the natural dilution of assets as they are shared among generations of heirs. Yet among the most compelling causes are younger family members who are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship.
He found that building wealth involves a four-step process: Growing income, controlling spending, investing in index funds, and finding additional investment sources — namely, real estate.