Wealthy Behaviors

Generational Planning

Posted on July 3, 2024

On average, it only takes three generations for a family’s wealth to be lost. Learn from one family's mistakes and avoid the third generation curse.

Did you know on average, a family loses its wealth in just three generations? Studies indicate that 70% of wealthy families lose their wealth by the second generation[i], and 90% by the third generation.[ii] This phenomenon is often referred to as the “third generation curse.” It’s attributed to factors such as lack of financial education and poor wealth management skills amongst heirs.

It can be hard to talk about money with family. However, financial needs overlap generations, and history shows planning for the entire family is essential.

At Larson, we’re here to help you navigate the complex landscape of generational wealth planning.

Our advisors can help you have tactful discussions to help ensure financial fitness across generations.

A Lesson from History

The Vanderbilt family is one of the most famous American dynasties, accumulating great wealth during the early 19th and 20th centuries. Cornelius Vanderbilt, the family patriarch, built his fortune in the shipping and railroad industries. He amassed around $100 million, which is about the equivalent of $3 billion in today’s dollars.

And by the time he died in 1877, he passed on to his heirs an amount that was more than what the U.S. Treasury was holding at that time.

Cornelius’ son, William Henry, was the sole heir of the family business. While less ruthless than his father, he was an astute businessman. Understanding the importance of efficiency and modernization, he doubled the family fortune before his passing. 

The Breakers, located in Newport, Rhode Island, one of the Vanderbilt Mansions.
The Breakers, located in Newport, Rhode Island, one of the Vanderbilt Mansions.
The Third Generation of Vanderbilts

The next generations of Vanderbilts, however, are infamous for squandering the wealth their forefathers created. Some of the factors leading to their decrease in wealth include:  

  • Excessive spending and extravagance: The family built numerous opulent mansions and estates, held extravagant parties, and maintained an extremely luxurious lifestyle. They constructed 10 lavish houses in Manhattan alone and spent vast sums on art collections, yachts, and other luxuries.[iii]
  • Lack of financial education and management: Cornelius failed to properly educate his children on wealth management. He didn’t teach them crucial lessons like preserving capital and only spending interest.[iv]
  • Poor inheritance planning: Cornelius left the majority of his fortune to one son, creating family conflicts. He also failed to put restrictions on how the money could be used or establish trusts to protect the wealth for future generations.
  • Lack of business focus: Unlike Cornelius and William Henry, the subsequent generations were less focused on the family business. Many of them pursued other interests and lacked the business acumen of their predecessors. They did not expand or effectively manage the family enterprises, which led to financial decline.
  • Lack of diversification: The Vanderbilts failed to diversify their wealth, primarily tying it up in railroad and shipping stocks. This made it vulnerable to industry changes and easy for heirs to liquidate quickly.

By the 1970s, when 120 Vanderbilt descendants gathered for a family reunion, there wasn’t a single millionaire among them.

Avoiding the Curse

The rapid decline of the Vanderbilt’s fortune serves as a cautionary tale about the importance of financial education, diversification, and responsible wealth management across generations. So what can you do to preserve your wealth and legacy for generations to come?

Here are a few strategies to consider:

  • Educate early: Start financial education at home from a young age, instilling core values and life lessons beyond formal education. This can help heirs understand the family’s wealth purpose and develop responsible attitudes towards money.[v]
  • Foster open communication: Encourage discussions about wealth, its purpose, and family values. Address questions like “What is our money for?” and “What is our family’s purpose?” to create a shared vision.
  • Create a family mission: Establish a clear family mission which aligns with what you want your wealth and legacy to accomplish.
  • Prepare heirs adequately: Talk to your heirs to help them understand how to manage and grow the family wealth. This includes providing them with the necessary tools and opportunities to develop their own paths towards shared goals.
  • Diversify investments: Spread family wealth across various asset classes and industries to mitigate risks and ensure long-term financial stability.

Preserving family wealth requires more than just good intentions—it demands strategic planning, education, and guidance.

At Larson, we take a holistic approach to generational financial planning to help ensure your family’s legacy is protected and nurtured.

We are dedicated to helping you implement effective strategies, foster open communication, and prepare your heirs for the future. Talk with us today, and let our advisors help you create a financial legacy that can benefit your family for generations to come.

[i] https://www.nasdaq.com/articles/generational-wealth%3A-why-do-70-of-families-lose-their-wealth-in-the-2nd-generation-2018-10

[ii] https://finance.yahoo.com/news/generational-wealth-curse-causing-90-152639070.html

[iii] https://www.forbes.com/sites/natalierobehmed/2014/07/14/the-vanderbilts-how-american-royalty-lost-their-crown-jewels/

[iv] https://dividendrealestate.com/vanderbilt/

[v] https://www.tatlerasia.com/power-purpose/wealth/my-rise-and-fall-of-family-wealth-how-to-achieve-financial-longevity

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