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

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

#31

Post by Terr_ »

Terr_ wrote: post #17

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. Th…

To digress a little on the "dumb luck" stuff... Human brains seek patterns and create stories and "find" cause and effect, and that's been extremely useful for us overall... But there are also risks and blind spots.

My favorite example is the humble coin toss. Yet many people joyfully fall into faux-explanations of "hot streaks" or "overdue" outcomes etc., and retain them no matter what statistical evidence you provide.

Even those who consciously reject those ideas still have to bat the intrusive thoughts away, and that's for one of the most well-studied statistically characterizable things out there.

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

#32

Post by rufus_foreman »

dirtdobber wrote: post #14

I feel like this is almost always due to education around modern money systems. If a child inherits $1 million from their parents (after taxes), they may feel rich, and they may try really hard to hold onto that money by saving and buying appreciating assets. In 10 years time that money might grow to $2 million. However, the buying power of $2 million is approximately equal to $1.5 million (3% inflation over 10 years…

>> I feel like this is almost always due to education around modern money systems.

I don't think it is a matter of education, at least for me it is instinctual. If I get a large amount of money, I am going to invest most of it and it would never occur to me to do otherwise. When I get a paycheck, I am going to invest part of that paycheck first before I spend any of it, and it would never occur to me to do otherwise. I did that when I was making minimum wage.

This wasn't taught, my parents did not do that and my siblings do not do that. I don't think it is inherited. The collector gene is, my father and grandfather had that gene and I think it is related, but the investor trait is something additional. I don't know where I came up with that. It has made things in my life hard in the short run sometimes and very easy in the long run.

You can educate people all you want, but when they get money, most of them are going to decide well I need this and I need that so I can't save any money this time. Maybe next paycheck. That's what my family did, my friends, my girlfriends.

There's a Bukowski poem he wrote about his father's investment advice:

"I can pay for this house in my lifetime,

then it's mine.

when I die I pass it on to you.

now in your lifetime you can acquire a house

and then you'll have two houses

and you'll pass those two houses on to your

son, and in his lifetime he acquires a house,

then when he dies, his son -

I get it, I said."

What did he do?

"I gambled and drank away the money."

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

#34

Post by wrp »

z5h wrote: post #8

Luck. Model an agent that has some odds of doubling wealth, maintaining wealth, or halving wealth per iteration of some game. It's easy to generate downward trends.

Yes. TFA ignores what I think is the biggest factor. In researching family history, I've been struck by how important chance was regardless of how smart and hardworking they were.

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

#37

Post by dirtdobber »

rufus_foreman wrote: post #32
dirtdobber wrote: post #14

I feel like this is almost always due to education around modern money systems. If a child inherits $1 million from their parents (after taxes), they may feel rich, and they may try really hard to hold onto that money by saving and buying appreciating assets. In 10 years time that money might grow to $2 million. However, the buying power of $2 million is approximately equal to $1.5 million (3% inflation over 10 years…

>> I feel like this is almost always due to education around modern money systems. I don't think it is a matter of education, at least for me it is instinctual. If I get a large amount of money, I am going to invest most of it and it would never occur to me to do otherwise. When I get a paycheck, I am going to invest part of that paycheck first before I spend any of it, and it would never occur to me to do otherwise.…

I have not heard of that poem, thanks for sharing!

With respect to education around money systems, I am referring more to (a) knowing that investing is necessary but insufficient and (b) understanding the main drivers (besides spending) of wealth loss: inflation and taxation.

It's hard (even for successful, intelligent people) to wrap their head around the fact that their $1m house that ballooned up to $2m over the last 25 years has in fact, lost value.

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

#38

Post by rufus_foreman »

dirtdobber wrote: post #37
rufus_foreman wrote: post #32

Earlier quoted context omitted.

>> I feel like this is almost always due to education around modern money systems. I don't think it is a matter of education, at least for me it is instinctual. If I get a large amount of money, I am going to invest most of it and it would never occur to me to do otherwise. When I get a paycheck, I am going to invest part of that paycheck first before I spend any of it, and it would never occur to me to do otherwise.…

I have not heard of that poem, thanks for sharing! With respect to education around money systems, I am referring more to (a) knowing that investing is necessary but insufficient and (b) understanding the main drivers (besides spending) of wealth loss: inflation and taxation. It's hard (even for successful, intelligent people) to wrap their head around the fact that their $1m house that ballooned up to $2m over the l…

That was an excerpt, full poem is at https://bukowskiforum.com/threads/father-who-art-in-heaven.8....

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

#40

Post by DaleNeumann »

The 2nd, 3rd Generations ahead are entitled to that wealth they did not work for it, they simply accepted it as a gift from there relative or mother and father. They are not matching each dollar pound for pound with sweat over there foreheads. Wealth squandered, I just didn't think that 70-90% lose there wealth, it seems like an immense number to me but when you consider how careless and uninformed people get, it is not entirely surprise.
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