First, we have to understand that it’s common for assets to be diluted as they are shared among generations of heirs. The first generation builds wealth. They bring a specific skill set to bear that grows the business.
There are truths to these aphorisms…
The second generation expands wealth; these family members tend to become philanthropists and grow accustomed to their lifestyle. Meanwhile, the third generation is so far removed from the skills it takes to run wealth successfully which led them to spend the wealth.
Williams Group wealth consultancy survey found that 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third.
To add, the survey also shared that 78% feel the next generation is not financially responsible enough to handle inheritance. Apparently, it only takes the average recipient of an inheritance 19 days until they buy a new car.
And here we are applying for i-Sinar to make ends meet.
But, is it because their kids aren’t equally smart/hardworking OR the wealthy are so poor at passing along money smarts?
Image source: oreilly.com
Perhaps it’s a little bit of both. Here are a few logical reasons why most wealthy families went from boom to bust:
- Lack of common purpose
- Not equipped with financial literacy
- Sense of entitlement
Guess what? The "curse" is breakable, even for non-atas-people who are on their way to the ‘nouveau riche’ land
Mandy Tham, the Academic Director of the Master of Science in Wealth Management (MWM) at the Singapore Management University Lee Kong Chian School of Business (SMU LKCSB) shared wealth can last beyond the third generation as long as it is well managed and the succession planning is carefully planned.
Just take a look at the Mars family. Yup, that chocolate Mars, it's theirs. The family still owns the confectionery giant bearing their name, have bucked the historical trend, surpassing that third-generation mark with their wealth intact. They must've been doing something right.
Here are some of the ways to ensure that you wouldn’t live the proverb:
- Open communication builds trust. That's the idea of sustaining your family’s wealth. Preparing the next generation for what they will expect is critical. Don't assume they know what you know or have the same beliefs and values as yours.
- Talk to a wealth planner to craft a plan that takes inheritance goals into account while having asset protection tools that may be used to preserve your family’s wealth in case shiz hits the fan. Click here for a list of approved financial advisers by Bank Negara Malaysia.
- Introduce a financial road map to help the descendants manage their money wisely like saving, spending, charitable contributions and also strategies/guidance on increasing one’s wealth. They won't be able to learn what to do through osmosis.
- Start succession planning early. Don’t wait until you’re either burnt out or incapacitated to determine your successor, or leave it up to the family to figure out. Make sure that your affairs are in order.
- Have proper legal work and life insurance designs in place as the catalyst for bringing your vision to fruition.
Okay, so maybe you still have trust issues with your children or you don’t want to pamper them - you can always go one step further and disinherit your children to encourage them to forge their own careers like Bill Gates. He has decided to pass his wealth to charity. Of course, he's not that cold. He did give his children the tools they need to succeed which is a good education and a sum of money to invest.
Now, are you ready to build your empire?
- Here’s What Happens to Your Debt When You Pass On
- Does Your Family Have Enough Savings in Case of an Emergency?
- What Happens To Your Assets If You "GO" Without Leaving a Will?