The fact that it took precisely three generations to complete the rags to riches to rags cycle makes a lot of sense. The first generation starts somewhere at the bottom, works hard, saves, and invests diligently to a point where worldly comforts become the norm.
The second generation, watching their parents’ metamorphosis from struggling upstarts to affluence, start to incorporate some of what they saw and learnt growing up into their own lives. But the fact that the first generation did everything right meant that quite a bit of that behavior trickled down to the generation next.
But the second generation does not need to try as hard, and abundance is all they experience. But because there is no struggle there, by the time the third generation rolls around, it is all The Rich Kids of Instagram. No hard choices to make, no corners to cut, life is easy.
And regardless of the size of the inheritance, it does not take much to spend through all of it and more and hence by the time the fourth generation rolls around, all is gone, and the cycle starts over again.
This is not just anecdotal evidence based solely on the story of the Vanderbilts or how I perceive this bust-boom-bust cycle transpires. Data compiled by The Williams Group in a study of more than 3,200 families found that 70% of the wealth dissipates by the end of the second generation and almost 90% by the third. Hence the old saw, “shirtsleeves to shirtsleeves in three generations.”
But along the way, the book dispenses some important life takeaways. First, wealth management is hard.