Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: family | wealth | heir | children

Why Rich Families Lose Their Wealth

By    |   Wednesday, 25 June 2014 01:55 PM EDT

Going from rags to riches is the popular story, but the full story should be rags to rags in three generations.

That's because children and grandchildren of the fortune-building super wealthy typically squander the family's riches.

Statistics show that 65 percent of family wealthy is lost by the second generation and 90 percent gone by the third generation, according to tax lawyer and investment advisor Tim Voorhees of WealthCounsel, a nationwide collaborative organization for attorneys and wealth planning professionals.

Editor's Note:
Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

As a rule, people who struggled up the proverbial rags-to-riches path are highly motivated, even obsessive. Lacking that drive, their children, are usually better at spending the accumulating money. Grandchildren are even bigger spendthrifts.

"Psychologists specializing in 'sudden wealth syndrome' acknowledge that heirs, like lottery winners, tend to blow their windfall," Voorhees writes on the company's blog.

Offspring of the super wealthy often suffer from "affluenza," he says, crediting Jesse O'Neill, author of "The Golden Ghetto: The Psychology of Affluence." They lack purpose, self-esteem and the ability to delay gratification.

"As problems grow worse, heirs withdraw from others, avoid accountability and develop progressively more serious social disorders," Voorhees states.

Family business founders, he says, often fail to instill values of hard work and thrift in their children and often leave flawed estate plans that fail to define who will inherit and control the family's wealth.

"It goes back to the Biblical story of the Prodigal Son," Roy Williams, president of wealth advisor The Williams Group, tells CNNMoney. "We haven't changed in 2,000 years, and that same unprepared heir issue is now worldwide."

For instance, Cornelius Vanderbilt built a massive fortune from railroads and shipping in the 19th century. His children and grandchildren are known for building luxurious mansions in New York City and Newport, R.I.

When 120 Vanderbilt descendents held a family reunion in the 1970s there wasn't a millionaire among them, CNNMoney notes, citing the book, "The Wealthy 100" by Michael Klepper and Robert Gunther.

Family patriarchs are partly to blame, experts agree. They often fail to leave clear instructions for handling inheritances in their wills, prompting their survivors to squabble bitterly over the over the fortune.

"The intent is good, but there's a communications gap," Michael Liersch, director of behavioral finance at Merrill Lynch Wealth Management. tells CNNMoney. "People can have a different take on what the wealth creator wanted, and that creates dispute."

Editor's Note: 10 Secret Ways to Make Big Money Like Warren Buffett

© 2023 Newsmax Finance. All rights reserved.

Going from rags to riches is the popular story, but the full story should be rags to rags in three generations.
family, wealth, heir, children
Wednesday, 25 June 2014 01:55 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved