Guide to Generational Wealth | AWM Insights #128

It is estimated that 70% of wealth is lost by the second generation and 90% by the third. This is what defines the phrase “shirtsleeves to shirtsleeves” and it has been this way for centuries and across cultures.

What can be done about it? 

You have to start by being intentional and focusing on solving the problem for your family. Begin by thinking big picture and spending time and resources to set your family up for success over the long term. 

The number one issue we have seen is a lack of skillsets - not technical knowledge. Not knowing how to talk to your kids and failing to prepare them can be addressed early on. Setting the intent and fostering strong communication over decades can establish the foundation for them to then be successful into the next generation.

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EPISODE HIGHLIGHTS:

(0:27) There is no greater impact than working on your family and helping them become the center of that impact. Not just for today but into the future.(1:38) Why doesn’t wealth transfer? How you can have more impact on future generations?(1:44) Family wealth includes more than just dollars and cents. It includes values, history, and the stories that create family legacy. (2:05) Intentionality is difficult. The numbers are unfortunate. It’s estimated that 70% of wealth is lost by the 2nd generation and 90% by the third generation.(2:30) The “shirtsleeves to shirtsleeves” epidemic has been around for centuries. (3:02) To break this trend, you have to begin the process. Doing nothing or passing it off to someone else isn’t the best solution.(3:30) You shouldn’t be afraid of your kids inheriting large sums of money. You should feel confident they are prepared and educated on how to handle it when that times comes. (3:50) Passing off the wealth to someone else probably won’t result in the greatest impact for your family. Training your own family and heirs to steward the wealth well is an incredible opportunity that you have a lot of control over.(4:32) The data shows that 60% of the reason wealth doesn’t transfer is communication, and 25% is due to heirs being inadequately prepared. Technical knowledge only makes up a small amount of the problem.(5:45) Lack of skillsets. Not knowing how to talk to your kids and failing to prepare them can be addressed. Setting the intent and fostering strong communication over decades provides the foundation for them to be successful.(6:20) Not talking about money is common in our society. Communication should be encouraged and framed in the right way.(7:00) Talking about the work, study, and effort that went into earning that wealth is a great opportunity to frame wealth the right way.(7:56) Stewarding the wealth generation after generation becomes the mindset rather than just focusing on what you can do with it only in your lifetime.(8:34) Wealth can be financial capital, human capital, social capital, and charitable intent. Each of these types of wealth deserve their own conversation. (9:11) Generational wealth is more than just a portfolio and how big it is.(9:23) The families that successfully transfer wealth are ones that take a step back and establish intentionality and a big picture vision.(9:55) If you’re a business owner, you have utilized your intellectual capital and intelligence to create a new opportunity. Teaching financial capital is important but arguably more important is social capital. Relationships and the people you are around is an incredible opportunity to model for your children.(11:02) Put your kids in a lunch with you and someone important and teach them the importance of relationships to begin building their social capital.(11:45) The technical side or financial science is just one part of the equation. (12:29) Building the foundation for a flourishing family that will make an impact for generations is a fulfilling endeavor. (12:46) It’s never too early to start. The younger years are actually the most influential when it comes to money. It’s also never too late. The worst strategy is to not communicate and leave it to chance.