Why Do 70% of Families Lose Their Wealth in the 2nd Generation? (2018)

They do not cite it, but searching that sentence on Google brings up a few articles mentioning a “20-year study by The Williams Group involving 3200 families, show that 70% of families lose their wealth in the second generation and 90% lose it in the third.”

But I can’t find an article in a quick check on er website.

There are some mentions on their website about how splitting the family fortune dilutes it and causes families to lose money.

There are families in Europe that pass the bulk of the family fortune to the oldest son. That son does what they can to help the rest of the family live comfortably, but the rest certainly aren’t rich. So, this statistic may only be applicable to American families or places where it’s common to successively divide the fortune up.

This piece seems to do a good job investigating it:

https://jamesgrubman.com/wp-content/uploads/2022/06/2022-06-...

The original source was a study in the 1980s examining 200 family businesses in manufacturing in Illinois, and since then a collection of financial advisors and estate planners have cited it (often without attribution).

Edit: As an aside, I understand that different industries have different standards - but it seems insane to me that any professional piece, let alone a well known brand like Nasdaq, would drop a statistic like that without any kind of attribution.

This is the entire premise in The missing billionaires - A guide to better financial decisions, Victor Haghani and James White, 2023. But this is an investing book, not sociology. They consider billionaires in the introduction and they point to the Forbes list rather than a specific study. Which is not unfair. Billionaires are counted and listed. Not hard to take a glimpse.

Their observation is counter to the usual cliché narrative that the rich have only one way. Up, can't lose.

Indeed if you consider that, starting with, say, one billion, I would be able to invest not too conservative, not too aggressive and still draw out insane amounts of money to "live on". Meaning that in theory, starting with a billion, there is only one way, up. Meaning that a billion dollar wealth, invested, should own the world after a few generations.

But this is obviously not what's happening. The Forbes list is full of relatively new wealth. Ancient wealth (more than 3 generations) stands out in the list. It's not common. And the highest wealth is first generation! And that's even though magazines tend to list the wealth of an entire family on one line - never mind that it's dozens of people.

A few more bullet points on the pile that aren't as often discussed, probably because they don't fit grand moralistic/child-rearing narratives:

* Regression to the mean. [0] Humans try very hard to avoid "dumb-luck" in any story even if it's the best available explanation.

* Inheritance split to more than one heir.

For the heir-scenario, imagine that Generation 1 is a single family living off the interest of $12m. They have three kids, who marry equivalently-wealthy spouses. Now Generation 2's average wealth is $8m. That's a decrease, and we haven't even begun to talk about factors like "raised with good habits" or "work" etc.

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[0] https://en.m.wikipedia.org/wiki/Regression_toward_the_mean

Reddit has several fascinating glimpses in the mess that are (some) very wealthy and trust fund situations. Never clear which ones are somewhat fiction and which completely genuine but still interesting.

In one of your threads, there is the mention that there are still tons of these "old money" families around. Yes. But hardly any of them is in the Forbes list range of billion dollar wealth. When mechanically, most of them might still be somewhere around there, had money been managed better.