There was a very interesting article in the Wall Street Journal about how damaging inheritances can be for a family. Unfortunately, I have seen this first hand and it is not a topic I have heard discussed enough. Here are some of the statistics from the article:
70% of inheritance is depleted by the 2nd generation.
90% of inheritance is depleted by the 3rd generation.
2/3rds of baby boomers will inherit family money over their lifetime to the collective sum of $7.6 trillion.
The article references the famous quote, “Shirtsleeves to shirtsleeves in three generations”. Why is this happening? My own anecdotal experience shows that the once the younger generation inherits the wealth, spending increases. This could be for any number of things- new car, house, country club membership, etc. The idea is that they are going to enjoy some of this new found wealth, but it will be temporary. But habits are formed quickly, and it is hard to turn off the spending, especially when you get accustomed to “the good life”. The exact same phenomenon happens with lottery winners.
If you have been blessed enough that you are able to leave a sizable estate to your children, it is imperative that you think through how that wealth might effect them. Having frequent discussions about the importance of work and accomplishment coupled with learning life lessons for themselves can help your children avoid potential disasters. If you are not careful, what is thought to be a blessing for the next generation can turn out to be a curse.
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