Anyone with wealth has heard the “shirtsleeves to shirtsleeves” adage probably many times, as many many family businesses and wealth legacies fade away within three generations. People across the world have their own sayings about it, so it seems that generational wealth decline is all too common across borders and throughout time. Economists, philosophers and authors have tried musing at what the cause of generational wealth decline is, but the reality is that there are a number of factors that cause this effect. Yet, when more than 70% of families lose their wealth by the third generation, it’s clear that a wealth solution is needed. At Factum Financial, we want to help any family with any income level to protect that money and keep it, so we try to arm people with typical reasons why wealth declines within three generations, as well as some steps to keep that wealth in the family.
What’s Responsible For Generational Wealth Decline?
There are a number of reasons why generational wealth decline is so common when it comes to family legacies. There are a lot of people that want to put the blame squarely on the heirs who squander and lose the money or sell off the family business. And why not? They were not good stewards of that wealth and they never knew hardship or what life could be like without the wealth they have grown accustomed to. They didn’t see the value. However, it’s possible they were also never given the chance to see. The problem with this “shirtsleeves” discussion is that families, in an effort to protect their wealth from dissipation, end up creating a self-fulfilling prophecy. What is meant by that is that families will often try to protect wealth, even from their heirs, without communication about the reasons why it’s important to maintain this generational wealth. When all the attention is focused on what can go wrong and not what responsible members can add to the situation, isolation and paternalism can create spoiled children that aren’t prepared to manage wealth.
Many families don’t communicate about money, business, and opportunity. Furthermore, the legacy or stories of their family wealth creation are lost to time. This is a tragedy, not just when it leads to generational wealth decline, but when important life lessons learned in sweat and blood fall into the realm of the forgotten. Families that want to avoid generational wealth decline need to be open communicators to beat the three generation cycle.
Learning How To Break The Cycle
While the 70% statistic is staggering, it’s definitely possible to beat that statistic and it’s a lot easier to do than many people think. When you apply sound financial education and knowledge to your plan and establish a legacy of stewardship that’s built around communication, the name and wealth that you have worked so hard for will last for generations. Making plans for wealth and sharing in the family decision making gives people, especially those that are not in charge of the wealth yet, cause to maintain the legacy. More than anything, it’s important for families to formulate and keep to a set of values. A core set of beliefs and goals serves as a strong foundation that a family tree can stand on.
At Factum Financial, we want to help you keep and maintain your family legacy. We want to see your wealth last for years to come and help you avoid generational wealth decline. That’s part of what we do for families and we do it because we are believers in a lasting legacy. Our wealth strategy team is eager to teach people how to maintain, grow and protect their wealth. If you want to break the generational wealth decline cycle, contact the Factum Financial team now at 480-525-8180. We look forward to hearing from you.