Is it Possible to Squander-Proof Your Family’s Wealth?

It’s natural for wealth-building generations to fret that their descendants, once handed the keys to the family fortune, will forfeit that accumulation. If you’re among those who share this concern for your later generations, you’re not alone—it’s likely that your inheritors themselves share your trepidation.

According to a 2020 study across the U.S., the U.K., and Canada, 54% of next-generation high-net-worth individuals worry that, upon taking over leadership, they’ll lose their family’s wealth. Another 44% worry that their children will be the ones to relinquish it.

Your family deserves to be invigorated about the future, not shouldering fear of failure or concern for the unknown. By examining when and why these wealth-transfer fears develop, we can create a plan that boosts everyone’s confidence in next generations.

Why the Next Generation Worries

Why do many members of the inheriting generation feel concerned? First, it’s the burden of responsibility. No one wants to be captain if the ship were to crash. No one wants to be the decision maker whose choices costed loved ones their quality of life. In many families that would also come with immense guilt—a feeling of letting down prior generations and dimming their legacy.

Many next-generation wealth holders don’t have the information needed to be confident at the helm. They were under-informed about their family wealth for most of their lives and didn’t acquire skills that would’ve helped them lead. Sudden change puts them in charge and they encounter what feels like a crash course on everything from financial literacy to family politics.

There’s also potential to feel miscast for this leadership role, a sense that they’re wearing someone else’s shoes, that the family they guide isn’t truly theirs so much as yours—especially if they’re preserving a legacy they had no voice in crafting. 

Finally, there’s distrust toward the financial professionals who helped the previous generation. Rising leaders will wonder if the service providers remain as invested in the family’s future and have their best interests in mind to the same extent that they had yours.

Fact Versus Fiction and Fear

Our industry is fond of citing a Williams Group study from the 1990s that says 70% of wealthy families squander wealth by the second generation and 90% by the third. But the doomsday tone of the report is flawed in its basis—the report merely restated the research of a 1987 study that examined a small sample size (200 families) in a specific industry (manufacturing) in a single place (Illinois).

While it makes for an entertaining (and pervasive!) storyline in film and television—the wealthy family that had it all, only to see it wash away—our experience is that generational loss is less common and more preventable than fear-mongering reports and entertainment plots would make it seem. Yes, it’s good to be cautious and vigilant regarding generational loss, but our experience is that future leaders in your family can not only preserve but even expand your family wealth.

Your descendants deserve better than to tremble from the outset that odds are stacked against their favor.

Communication is King

In the mid 2010s, the U.S. Trust commissioned a study of high-net-worth individuals, asking how they felt next generations were prepared for handling significant wealth. Among those surveyed, 78% echoed a common refrain, claiming that their direct descendants weren’t “responsible enough” to handle inheritance. But 64% of those surveyed said they’d disclosed little or nothing about their wealth to their kids. 

Talk about a chicken-or-egg conundrum. We’re saying that generations who haven’t been prepared for wealth aren’t prepared for wealth? Well, generations who’ve been patronized more than prepared certainly aren’t ready, but whose fault is that?

When it comes to communicating with your descendants so they can carry on your wealth and legacy, you don’t have to go about it alone. A modern multi-family office has worked with so many families like yours—uniquely their own but also sharing so many of your same challenges, hopes, and worries—so the team is prepared to help onboard your next generations with financial literacy and leadership skills.

Let CM Wealth Help You Prepare Your Next Generation

CM Wealth’s team is here to help you decide when and how you want to have empowering conversations with your children and grandchildren. We can grow with your future generations over the years—training them incrementally for the day when they will lead, and remaining with them once they do.