You pull into your driveway after a long day at work.
After grabbing a quick drink, you look around the house. Your kids don’t have part-time jobs, so they should be around.
As you walk past their rooms, you notice they aren’t studying. Nor are they doing chores. Your son is playing video games. Your daughter is taking selfies in her bikini by the pool.
You’ve worked hard to build your business.
But have you made your kids soft with maids and a cushy life?
You’re haunted by a maxim that almost every culture sings.
The Chinese say, “Wealth doesn’t pass three generations.”
The English say, “Shirtsleeves to shirtsleeves in three generations.”
The Japanese say, “The third generation ruins the house.”
Your son yells as he kills another dragon. Your daughter strikes yet another Instagram pose. These aren’t skills that will grow (or even maintain) the wealth you’ve built.
You worry that your success, and the lifestyle it hugs, could have neutered your kids’ ambition and made them soft.
Will they just spend til the end?
Plenty of wealthy families do.
Anderson Cooper’s book, Vanderbilt: The Rise and Fall of An American Dynasty, describes how America’s once-richest family came to be middle class today. These stories snowball, and over generations, become folklore.
But here’s the plot twist—they’re exceptions, not the rule.
This might sound strange, but your dragon-slaying son and Instagram daughter will likely have more relative wealth than you, when they’re your age.
And their future kids (your grandkids) will be wealthier still. Those odds increase if you have significantly more wealth today than you had when you started your career.
That’s according to Fabian Pfeffer and Alexandra Killewald. In 2017, the sociology professors published their research in the Oxford University Press paper, Generations of Advantage: Multigenerational Correlations in Family Wealth.
They found that your wealth is “a unique predictor” of your future grandchildren’s wealth.
Smart estate planning helps.
But most of your children and grandchildren’s financial success is baked-in long before they inherit any money. Pfeffer and Killewald studied almost 50 years of US-based data from the Panel Study of Income Dynamics.
That comes from two things:
First, your children model your behaviour far more than you might know.
If you're responsible with money, spend wisely and invest intelligently, your children will likely see that, even from behind their selfie cam.
That isn’t my opinion. It’s what the research says.
However, if you do speak about money, you’ll really launch their success.
Convince your children to invest money when they’re young.
Show them how it can grow.
If your child is in the UAE, it can be trickier to open an investment account for them. But you don’t have to. You could encourage them to invest money with you.
For best results, make sure they contribute money they have earned. Give them small jobs. Teach them that money doesn’t grow on trees.
Track the investment returns in your personal account. Tell them what that is at the end of each year.
Create a ledger showing how their money gained or fell in proportion to yours. This makes it real, strengthening your child’s understanding of the market’s ups and downs.
It also teaches patience.
Even in Scandinavian countries, with their nosebleed taxes, a family’s wealth doesn’t just typically pass down inter-generationally. It grows. That’s based on research by the University of Oslo’s Maren Toft and Marianne Nordli Hansen.
Do most of them talk about money with their kids?
Bet on fields of reindeer that they do.
You might think, “OK, so the children and grandchildren of the wealthy don’t squander like we think. But what if you’re uber-wealthy, like helicopters-for-the-kids sort of rich?“
Professors Mikael Elinder, Oscar Erixson and Daniel Waldenström found that the higher the level of family wealth, the bigger the springboard for that family’s next generation. They published their findings in a 2018 edition of the Journal of Public Economics.
Surprisingly, the wealth you accumulate could keep your heirs dining in the best restaurants, living in the finest homes and donating to worthy causes 200 years from now.
In 2014, Princeton University Press published sociologist, Gregory Clark’s book, The Son Also Rises: Surnames and the History of Social Mobility.
He found that surnames of the wealthy from centuries ago still predict the social positions of those who have those surnames today.
Sure, much of that wealth-persistence came from the opportunities of better education.
If a child from a wealthy family wanted to open a business, the bank of mum and dad often pulled through. But these families taught their kids about money and financial planning, too.
In 2021, The Review of Economic Studies published similar research.
Using surnames in Florence from 1427-2011, they found that surnames were solid predictors of economic success. In other words, wealth benefits were typically passed down for hundreds of years. Sound financial habits and financial education kept those balls rolling.
Has the potential for wealth persistence changed today?
Not according to the German sociologist, Jens Beckert.
In his 2022 article, Durable Wealth: Institutions, Mechanisms and Practices of Wealth Perpetuation, he says the opposite is true.
Modern financial planning makes keeping and transferring a family’s wealth over several generations easier today than it has ever been before.
You might wonder how this happens, especially if your children appear better groomed for reality TV than a future corporate boardroom.
But they learn a lot that you don’t see.
Be patient.
If you teach them, they’ll apply what they’ve learned.
And they’ll share those lessons when they have kids.
Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.