Good morning, everybody. My name is Raymond Jewell and I want to welcome you to FinancialFreedomRadio.com. Today I want to talk about generational wealth. I’ve been asked by one of our listeners to address this. It’s a pretty hot topic. it’s very misunderstood. Generational wealth means passing wealth from one generation to another.
When you look at generational wealth, there’s an old saying, “From rags to riches to rags in two generations.” What that means is the first generation will come out of poverty and build wealth and create wealth and then the second generation in most cases will lose it. or squander it.
So that being said, we must understand how the wealth was created in the first place if we ever want to eliminate the generational loss in the second generation.
When looking at Wealth Creation Principles, there’s a basic principle that’s ignored. It’s called Feelings and Emotions, I address this in my book, Why The Rich Are Rich, and you can get a copy of it at WhyTheRichAreRich.com. There’s no charge for it.
We do things based on feelings and emotions. We learn based on feelings and emotions. You ride a bike based on feelings and emotions. If you hadn’t ridden a bike for 30 years, and you get on that bike, you can ride it with ease because you know what it feels like. You’ve done it before. You learned it.
It’s the same with wealth creation. We understand how to create wealth.
If I dropped you anywhere on the planet and said, “You need to get back to the income you’re earning currently,” you could do it easily because you know what it feels like. You are emotionally connected with your income. You may get some variations up or down, but you know what it feels like.
But if I drop you anywhere on the planet and say, “I want you to earn 20 times your income,” you’d be paralyzed. You couldn’t do it, because you don’t know what it feels like. You haven’t gone through the feelings and emotions of acquiring that wealth.
It’s the same with the lottery syndrome. People get a ton of money, win the lottery, and then they lose it because they didn’t go through the feelings and emotions of developing wealth.
So with that background, let’s look at the rags to riches to rags concept. Well, the rags to riches, as that individual in that generation built up that wealth, they know what it feels like. And in many cases, the son or daughter of wealth creator, who built that wealth rose through those feelings and emotions with the father or mother. So whether it’s grandpa, great-grandpa, or dad, Mom or you, as wealth is acquired we go through feelings and emotions to acquire it. And anybody that’s around us will understand those feelings and emotions as the acquisition occurs of the wealth.
But now let’s step over to the second generation. Unless they worked alongside the son or the sibling or the child of the wealth creator and went through the feelings and emotions with that person, they will in all probability lose it, because they don’t know what it feels like and it’s really, in essence, the lottery syndrome. They get a bunch of money. They don’t know what it feels like to earn it, and they lose it unless they’re taught the feelings and emotions principals.
Now, a lot of wealthy people will do that. Regardless of how you feel about our 45th president, Donald Trump, he went from watching his father go from rags to riches, and then he was part of that process with the father.
Even though the father lent him $3 million, I think that’s the number, or whatever it was, lent him money. He went off and he built buildings and bought an apartment complex while he was in school, and then he decided to go build skyscrapers in New York City. So he’s going through the feelings and emotions personally.
He left the father and went through the feelings and emotions of building bigger buildings. Where the father was used to developing low-end rentals and low-end apartment buildings, Donald went out and started building skyscrapers, and that was a whole new feeling and emotion.
He has his kids working alongside him, and they go through the feelings and emotions and he’s making sure that he schools them to understand the feelings and emotions. So he’s creating sustainability as he builds his business, and they’re right there with them going through that process.
Now, whether they bring their children in and do the same thing, we don’t know because it hasn’t happened yet, but you’re going to see at least stability in their business and their wealth to the end of their generation unless they sell the whole thing to somebody else. This happens a lot of times. I’ve seen that happen more than once.
But the rags to riches to rags statement is true because in many cases the second generation didn’t go through the feelings and emotions of building wealth. Unless we have the feelings and emotions of building wealth, we’re not going to understand the acquisition of it. And when you don’t have a respect for the acquisition of wealth, chances are there’s a high probability you’re going to lose it.
Below is a link to an article in Fast Company that talks about generational wealth. It’s actually harder to maintain even though the American richest families might lead you to believe it’s not.
About 70% of wealthy families lose their wealth by the second generation and 90% by the 3rd generation. It”s a statistic that can be very easily overcome if the person that’s going to inherit that wealth goes through the feelings and emotions, of wealth simulation of feelings and emotion of creating wealth.
There’s a show on HBO called “Succession”, it’s a series that shows the family going through, how to pass the business from one generation to another. And these people, even though they work around the father and they’re part of the company, there’s only one that seems to understand the feelings and emotions of going through it, and that’s the oldest child. The problem is that he is a drug addict which is the story around the process.
But you could see it’s full hand, and as you watch the show and read about generational wealth, you’ll see it’s the feelings and emotions that the first generation started with and they went through during the buildup of the acquisition of wealth through all the different earning income curves that one goes through.
It’s an exponential curve. The old compound interest curve, it looks like that. You go through the startup phase then the growth phase, finally you get into the distribution phase. But while you’re in the distribution phase, you’re still running the business. At that point, you may end up worrying about succession, and when you worry about succession, what happens is you pass it to somebody that maybe didn’t go through the feelings and emotions process.
So if you want to read about it, I explain it in my book, Why The Rich Are Rich, so go to WhyTheRichAreRich.com and download your free copy where you can read about it.