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, make sacrifices and save diligently 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.
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 sound financial and educational choices that help them build upon the foundation their parents worked so hard to create. In turn, the second generation acquires 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 providing the lifestyle they now enjoy. Without this awareness, it is of little surprise when the third generation squanders the wealth their parents and grandparents worked so hard to build.
Avoiding the Three Generation Cycle
By keeping family stories alive, younger generations are better able to understand their parent’s and grandparent’s contributions as well as the work needed to build and maintain family wealth. Awareness of one’s past combined with thoughtful strategy for the future can help families ensure wealth continues beyond the Third Generation.
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