When Wealth Reaches “Critical Mass,” Sustainability Is Key

Once your assets hit a critical mass—where new assets are being generated faster than what is needed by owners—larger amounts of wealth are likely going to transfer to the next generation.

It seems like this should continue in perpetuity, but without intention and discipline, all this wealth could disappear after just a few generations.

Generational Wealth Requires Great Responsibility

Wealth is often seen as a blessing, but it comes with a lot of responsibility too. Most first-generation wealth creators know how much effort and discipline it took to build it.

That often includes:

• Delayed gratification
• Frugal decision-making
• Reinvestment of money for hoped-for future rewards

How Each Generation’s Relationship to Money Shapes Outcomes

Subsequent generations likely won’t have the need for that much discipline, so there’s a risk they see money differently.

• Children of the first generation often appreciate the work it took and tend to preserve the wealth they receive.
• Later generations, however, may be too far removed and fail to understand how easily money can be consumed to a point where it can no longer sustain itself.

The Two Factors That Determine Whether Generational Wealth Lasts or Disappears

We have seen lots of people inherit life-changing amounts of wealth. Our conclusion is that successful wealth transfer lies in:

1. What Good Habits Get Passed On

Talk to your children, prepare them, and give them experiences that help them understand the value of a dollar.

2. What People Learn on Their Own

If children implement discipline and healthy stewardship of their own money before inheriting wealth, they’re far more likely to manage and preserve it later.

If someone has never developed the necessary skills, miscalculations are likely. But all is not lost. Mistakes can be recovered from—if lessons are learned and behavior changes—allowing wealth to be rebuilt for future transfers.

If not, wealth can fall below the critical mass needed for ongoing sustainability.

Planning Helps Determine What to Spend, What to Preserve and What to Grow

Even if wealth is split among several beneficiaries, careful planning can identify:

• How much wealth could be used for lifestyle enhancement
• How much should be preserved and invested for long-term security

Everybody says they want the perfect blend, but follow-through is key. Most people do a good job, but some overspend and convince themselves that everything will work out. We find this unfortunate.

Protect Your Legacy With a Plan That Supports Generations to Come

Let’s talk through your goals, risks and options so you can build a plan that supports and preserves your generational wealth. Reach out today to connect with one of our experienced CERTIFIED FINANCIAL PLANNER® professionals.