In the past few years, generational wealth has become the center of discussion regarding the racial wealth gap. Furthermore, personalities who have generational wealth have found themselves under the spotlight because of their unique circumstances.
However, what exactly is generational wealth, and how come family fortunes have disappeared over the years? Find out here!
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What Is Generational Wealth?
The term generational wealth is used to describe assets passed from one family generation to another. These assets include bonds, stocks, real estate, family businesses, and other investments.
The majority of generational wealth is passed down to family members after death as an inheritance. However, large inheritance is rarer than you think. In fact, in the US, 55% of all inheritance between 1995 and 2016 were all under $50,000. Inheritances that were more than $1 million were only 2%.
The government taxes inheritances at a certain amount. In most cases, they are taxed under inheritance tax or estate tax, depending on where you are. However, there are other ways of transferring generational wealth aside from inheritance. This include:
- Medical Expenses
- Educational Expenses
- Gifts
Families with Generational Wealth
Are you wondering who the blessed people are with generational wealth and how they were able to acquire their fortune? Here are some of the wealthiest families with generational wealth:
- Albrecht Family
The estimated wealth of the Albrecht family is around $41 billion.
When World War II ended, Theo and Karl Albrecht started managing their parent’s grocery store. They were able to grow their business and establish a grocery store chain which we now know as Aldi. Today, Aldi is the company behind Trader Joe’s which is one of the most popular grocery chains in the US.
- Johnson Family
The Johnson Family holds an estimated wealth of $46.3 billion.
In 1946, Edward C. Johnson II founded Fidelity Investment. It has grown to become one of the most successful financial services firms in the world. They have provided numerous investment services to literally millions of people.
Abigail Johnson, the granddaughter of Edward Johnson, is now running the financial firm. She has a net worth of $10.8 billion, putting her in the 124th rank of the Forbes billionaire list.
- Wertheimer Family
Chanel is a luxury brand known all over the world. The family behind it, the Wertheimers, has an estimated collective fortune of $54.5 billion.
Alain and Gerhard Wertheimer co-own their grandfather’s company with Gabrielle Coco Chanel, the founder. Both brothers have a net worth of $17 billion, and they share the 48th rank in the Forbes Billionaires list.
- Dumas Family
The estimated net worth of the Dumas family is around $63.9 billion. Their family fortune originated from Thierry Hermes.
In the 19th century, Thierry created fashioned riding apparel for rich people. Over time, he ventured out to make perfumes, neckties, handbags, and scarves. Today, Hermes is now a brand that is synonymous with luxury and style. You can see many rich and affluent individuals owning these items from this brand.
Currently, the CEO and chair of Hermes is Axel Dumas. Meanwhile, the Artistic director is Pierre-Alexis Dumas.
- Koch Family
The Koch family built their fortune through oil businesses. Today, they have an estimated wealth of over $109.7 billion.
The father of Charles and David Koch founded the Koch Industry. Charles is known for his politics and financing of tanks, candidates, and university professorships. The brothers were partners in business up until the death of David in 2019.
Charles Koch has a net worth of around $38.2 billion, landing him on the 18th spot of the Forbes billionaires list. He shares this spot together with his brother’s widow, Julia Koch.
- Walton Family
In some aspects, the Walton family is considered to be the wealthiest family in the United States. This clan’s wealth is all thanks to the retail giant Walmart.
In 1962, Sam Walton founded Walmart. The company earned $524 billion worth of revenue in 2020 alone. It also has over 11,510 locations across the world as of 2020.
Families that Lost Their Generational Wealth
Unfortunately, some families were not able to maintain their generational wealth. Some examples of this include:
- The Vanderbilt Family
The Vanderbilt family’s fortune was mostly from the shipping and railroad industries. Cornelius “Commodore” Vanderbilt, the family’s patriarch, enriched and monopolized these businesses until the end of the 19th century.
The prominence of the Vanderbilt family lasted up to the 20th century. The decline in their economic success started with Commodore’s children, specifically, William Vanderbilt, who had extensive spending and philanthropy. This was followed by his grandchildren who also lived lavish lifestyles without doing anything to preserve their fortune
Although some members of this family are still rich up to this day, their net worth has significantly declined compared to how it was during their glory days.
- Carnegie Family
In 1859, Andrew Carnegie became the railroad superintendent. While he was in power, he made plenty of lucrative investments in different businesses in the railroad, oil, coal, and iron industries. At 30 years old, he became insanely rich.
However, almost nothing is left of his fortune today. Andrew died at the age of 42, and his fortune was split between his wife and 9 children.
Reasons Why Family Fortunes Disappear
Almost 70% of family fortune disappears over time. But why is that the case? Here are some of the common reasons why family fortunes disappear.
- Underdeveloped Entrepreneurial Spirit
Most of the time, wealth creators are succeeded by excessive wealth spenders who don’t have entrepreneurial spirits. As a result, the fortune will be slowly consumed because no businesses or investments will maintain their value.
- Family Disputes
Another common reason why family fortunes disappear is because of family disputes. These issues are often left to fester unless there is a resolution mechanism put into place. Unfortunately, there are none most of the time.
There have been a lot of cases where family fortunes disappeared because of quarrels between relatives. In many of these cases, internal conflict within the family has resulted in business shutdowns and failures.
- No Planning for the Next Generation
Planning for the next generation is important in maintaining family fortunes. Unfortunately, not many families train their children to be legacy drivers and wealth creators themselves. By the time the family fortune is in their hands, there’s a strong possibility of them making wrong decisions, resulting in the disappearance of the family fortune.
- Lack of Common Purpose
The loss of family fortune can also be because of the lack of common purposes. Family members will increase over time, which means that the wealth is also divided among more people. At the same time, this also means that wealth is more likely to be squandered because of different principles and ideals.
Tips on How to Preserve Family Fortune
Suppose you want to maintain your family fortune. In that case, the following strategies can be helpful:
- Talk About It
Many parents refuse to discuss their wealth with their children because they want to encourage them to work hard. However, this might not be a good idea because they wouldn’t know what to do when they get a sudden windfall.
- Have a Plan
There are many instances when wealth creators die; the remaining family members have no idea how to proceed with the future. This is why, if you want to continue your family’s fortune and legacy, having a long-term plan is highly suggested.
One method of making plans for the future is drawing up a will. But, when you do so, make sure to discuss it with your children and family members. The best way to do this is to be as transparent as possible and communicate your reasons. This will help avoid disputes and quarrels once you are gone.
- Start Them Young
One of the biggest mistakes of families who lost their huge fortune is that they did not train their children how to handle it properly. A good example of this is the Vanderbilt family. The grandchildren were the definition of “Rich Kids,” but they did not have the ability to make money on their own.
As early as possible, instill an entrepreneurial spirit in your children. It is also highly recommended that you teach them financial literacy as early on. Just because you have the means for it does not mean that you can live a very lavish lifestyle without worrying about anything else.
Final Words
Generational wealth is not a myth, and a testament to that is old money families who are still thriving today. However, maintaining family fortunes for many generations is more challenging than you think, especially as the family grows bigger. In fact, it’s rare to see generational wealth that thrives for more than 3 generations because of various reasons mentioned previously.
