You may have heard the old proverb, “Shirtsleeves to shirtsleeves in three generations.” In Japan, the expression goes, “Rice paddies to rice paddies in three generations.” The Scottish say “The father buys, the son builds, the grandchild sells, and his son begs.” In China, “Wealth never survives three generations.”
Around the world there are many variations on this theme, all used to describe the tendency of the third generation of a family to squander the wealth obtained by the first.
The Three Generation Cycle
The First Generation comes from a life of hardship and is determined to make something better for themselves. They are willing to work hard and make sacrifices in order to achieve their goal. By their later years, their efforts have paid off; they are able to enjoy a more comfortable lifestyle, often with assets to pass on to their children.
Their children, the Second Generation, grow up a witness to their parent’s struggle and understand the importance of hard work. Although they now live a more comfortable lifestyle, they may still remember a childhood filled with frugality. Because of this awareness, they make financial and educational choices that help them build upon the foundation their parents worked so hard to create. By their later years, the second generation has acquired even greater wealth.
The Third Generation, however, has no memory of want or struggle. They only know a life of plenty and are often unaware of the work that went into creating the lifestyle they now enjoy. Without an awareness of the work needed to build family wealth, it’s of little surprise that the third generation is known to squander the wealth their parents and grandparents worked so hard to build.
Avoiding the Three Generation Cycle
By keeping family stories and history alive, younger generations can understand their parent’s and grandparent’s contributions and the values critical to building family wealth. Awareness and respect for one’s history combined with thoughtful strategy for the future, may help families ensure wealth continues beyond the third generation.
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