70% of Families Lose Their Wealth by the Second Generation
The underbelly of financial success, not openly discussed, is that the more successful you are as the parent, the less likely your kids will be financial successful of themselves. Financial success doesn’t beget financial success, well not when it comes to a parent and their child.
Preparing our kids for financial success requires the strongest mindset of the parent, which can be more of an internal struggle, rather than financial. We are intrinsically programmed to want to give our children all the opportunities we can, even it's not necessarily what they need. What we now know, is that if financial opportunity is not encased with sound financial practice, it can disadvantage children in the long run.
Disturbingly, studies show that the richer you are as a parent, the more likely your kids are going to erode the wealth you have worked so hard to create. According to a US Study completed by Williams Group Wealth Consultancy, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third. The tall poppy in you might not care, but the parent in you should. Because wealth is a relative term, which in this case should be replaced with the word ‘comfort’. If you live comfortably, then you are at risk of creating financially inadequate kids. The working parent who struggles and succeeds at bettering their family’s lifestyle, usually wants their kids to not have to fight the same fights, forgetting that their fights and failures have ultimately lead to their success. Success, after all, is a lousy teacher. It is failure – or more correctly the fight back after failure, that leads to triumph.
So why are we creating such financially useless kids? The answers are consistent across the board, and it comes down to our kids not being taught how to value money or how to handle it. Perhaps, most importantly, we are not teaching our kids how to have a wealthy mindset. Our psychology of parenting is usually linked to our psychology of spending which means when they want something we teach them to ask for it and if they are any good at hustling, they usually get it because, lets face it, it is just easier to give it to them. In small doses it's hard to gauge its impact, and it's not until your kids receive a windfall, usually in the form of an inheritance, that their financial lacking is showcased. Not surprisingly, it's been said it takes the average inheritance recipient only 19 days before they have replaced their car.
A common characteristic of the poverty mindset is that they have a plan to spend their money, before they have a plan to grow their money. A poverty mindset mixed with wealth, creates deficiency. We know that having money in isolation will not create wealth. It might give you a head start, but it doesn’t guarantee that you will be able to grow it. To grow, money requires the right mindset and strategy. If you want your kids to be able to take advantage of life's opportunities, blessings or the windfalls they might one day receive, then you need to teach them the differences in financial mindsets, and at the same time look at your own.
10 signs of a wealthy mindset.
• Wealth knows its hourly rate and thinks of spending in terms of hours of work needed to make the money back. Poverty disconnects the effort made from the money being spent.
• Poverty looks at $1 and sees it value as $1, wealth sees its value based on the opportunity the $1 can create.
• Poverty plans to spend, wealth wants to grow.
• Poverty lives for today, wealth plans for tomorrow.
• Wealth has a family mission statement, financial goals and a financial purpose, poverty is aimless.
• Poverty sees problems without solutions, wealth finds an opportunity in every problem
• Poverty feels entitled, wealth is driven
• Poverty fears the future, while wealth has a plan
• Poverty blames others for their problems and position, while wealth takes responsibility for things that aren’t always their fault which means they are less likely to repeat the same mistakes
• Poverty is prepared to sacrifice today’s comfort for tomorrow’s children and grandchildren
You can change your mindset if you surround yourself with the right people, who are usually better than you, and both challenge and influence you to be better version of yourself.
Not surprisingly, it is possible to have a wealthy mindset and still be poor. However, it is more common to be living a comfortable existence (aka “wealthy”), but have a poor man’s mindset. The latter, will almost certainly erode your financial position, whether through complacency or ignorance, and your children will be burdened with this disadvantage. As the proverb says, a fool and his money are easily parted.
Photo credit Idella Maeland