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Is your wealth really destined to disappear after three generations? The truth about this fear-based myth

By Sam Instone - November 29, 2023

In a timeless parable, a wise grandfather shares a lesson with his grandchild about the constant struggle between two wolves.

One representing evil, with qualities like hate and greed.

The other embodying goodness, kindness, and hope.

The grandchild asks which wolf will prevail.

The grandfather responds, "The one that you feed."

Recently, our client James, a wealthy, successful managing partner of a law firm living in Dubai, shared concerns about how children of affluent parents often stray from responsible financial paths.

Conversations like this too often focus on wealth destruction and failed wealth transfers.

Instead, I decided to ask, "What have you done to instil good values about money in your children?"

James thought for a moment, then told me about some of his parenting strategies centred around responsibility, skill-building through allowances, and fostering a spirit of gratitude, kindness and giving.

The conversation changed into something positive.

As a trusted guide to affluent families, it’s crucial to constantly reconsider and revise the best approach to help them gain clarity, confidence and control over their ideal future.

It's extremely hard, even at the best of times to escape the status quo, indecision, apathy, procrastination and inertia that acts like gravity against our finances.   

Getting on and staying with a highly optimised pathway that provides certainty to ultimately enjoy a life with no regrets and maximise life's opportunities is almost entirely a behavioral challenge. 

Over the past 40 years, the field of family wealth advice has shifted from a transactional, to a much more psychologically-informed approach.

However, the shift has also become deep-rooted in fear-based messaging, pushing stereotypes about wealth and how it’s bound to disappear after a few generations.

Take, for example, the well-known "shirtsleeves to shirtsleeves" myth, or the statistic that 70% of wealth transfers fail.

Both are powerful stories - but this power mainly comes from the fact they're so widely used.

Let's take the first one - the notion that family wealth tends to follow a predictable pattern over three generations:

  1. First generation: The first generation builds wealth through hard work, entrepreneurial endeavors, or other successful financial activities. They start in "shirtsleeves" (representing a modest or working-class background) and achieve prosperity.

  2. Second generation: The second generation, born into wealth or having witnessed their parents' success, often enjoys the benefits of affluence. However, they may not share the same level of drive, work ethic, or financial acumen as the first generation.

  3. Third generation: By the time the wealth reaches the third generation, it is often believed to have dissipated or been mismanaged. The saying implies a return to "shirtsleeves," signifying a loss of financial standing.

It suggests that without proper financial education, values, and planning, subsequent generations may struggle to maintain the wealth accumulated by their predecessors.

It uses fear to highlight the importance of instilling financial responsibility and values in heirs to break the cycle of wealth decline.

But neither this, nor the statistic about failing wealth transfers, have any strong, empirical evidence to support them.

In fact, the contrary is true.

They should both be viewed as cultural or folk wisdom, rather than proven principles in financial planning.

Here, the ‘industry’ has fed the anxious, suspicious, and controlling wolf, leading to overly rigid planning that may, ironically, result in the outcomes affluent families were trying so hard to avoid.

AES takes the best from this shift.

It leaves behind ungrounded fear.

It emphasises a client-centric approach through sage financial life management and systematic investment.

It acknowledges and addresses behavioural biases while highlighting inner drive and purpose.

That means the focus shifts from fear-driven planning, to a long term, psychologically-informed life strategy.

Calling for greater professionalism in a largely toxic industry, while being radically transparent and adhering to the highest possible fiduciary standards.

The future of family wealth planning lies in challenging convention and creating deep transformation.

By feeding the wolf of purpose and education, and with a wise guide by your side, your family can navigate the complexities of wealth successfully on your journey to a flourishing future.

No myths, stories or fables.

So, knowing your wealth may in fact last many generations, does this change how you think about your legacy?

Get a second opinion