Generational wealth

Generational wealth.

A phrase that conjures clichés and triggers all manner of knee-jerk reactions.

Inbred aristocracy. Idle nobles, hunting foxes on their manor estates. Old money families flexing their influence to buy elections and sponsor legislation. Legacy students purchasing conferred status from world-class tertiary institutions, regardless of ability. Deploying dynastic trusts and offshore entities to facilitate tax avoidance on an industrial scale.

But here is the thing: wealth, once acquired, confers legitimacy and buys respectability.

Regardless of origin.

Dig deep enough into the folklore of any monied family and tales of skulduggery abound. Today’s oligarchs are little different from the robber barons, raubritter, and monarchs of old.

No better. No worse. Just newer, their dastardly deeds simply performed in recent memory.

What is the origin story of your family’s wealth?

The unvarnished truth. That version only whispered about towards the end of family gatherings like weddings and funerals? As opposed to the oft-repeated fairy tale carefully crafted for the benefit of polite society.

A century ago, I had an ancestor who was said to be a difficult and disagreeable man. Impossible to verify, given he and everyone who crossed paths with him died long ago. Legend has it he was a man faint of praise, free of fist, and prone to pinching pennies so hard they begged for mercy.

As is the case with many of our forefathers, today my ancestor is little more than a name on a tombstone. A stern visage glaring out of an ancient photograph. A ghost in the family tree. In truth notable only for the fact that he reproduced. His lifetime worth of achievements and failures, hopes and dreams, triumphs and tribulations all long forgotten in the mists of time.

All that is, except for one.

A salacious tale was occasionally told about my ancestor. Shared by dementia suffering maiden aunts, from their nursing home beds. Recounted by his grandchildren, grandparents themselves by that stage, when they drunkenly let slip myths and legends of skeletons hiding in the family closet.

The story goes that during the depths of an economic depression there was once a game of cards. Desperate men playing for high stakes in a game they couldn’t afford to lose.

Out of money.

Out of options.

Out of time.

On the final hand, a broke farmer went all in. Betting the title deed to his farm. Good location. Good soil. Good rainfall. The only problem was his seed supply and livestock had all been slaughtered, sold, or stolen. Unable to afford to restock, he gambled everything to try and win a second chance.

Sometimes in life, everything comes down to a single moment. This was one of them.

The broke farmer lost.

A fight broke out. Accusations of cheating. Collusion. Theft. For all I know, they might even be true.

When the dust settled, my ancestor had lost a couple of teeth but gained ownership of the farm.

A farm that provided for his family. The families of his children. And their children. Generational wealth.

The reality is most of us are not born into wealth, whether real, rumoured, or just perceived. Our family names don’t automatically confer minor C-list celebrity status. Electoral pre-selection. Job opportunities. Non-executive directorships. Preferential investment access.

However, the decisions made by our ancestors do determine where we start out in life.

And, reluctant though we may be to admit it, where we start plays a major role in where we finish.

Some of us win the ovarian lottery. Born in a time of peace to families with access to clean drinking water, nutritious food, affordable healthcare, and a warm safe place to sleep.

A few hit the jackpot, choosing parents with the wisdom to recognise the importance of education, the means to provide it, and the foresight to live in a location offering good employment prospects.

Others lose out entirely. Consider the starting point of somebody born to a teenage single mother rape victim. In a refugee camp. Growing up in an orphanage. Raised in a criminal gang or religious cult.

Or perhaps less dramatic, growing up in a deprived rural locale with few prospects and even less hope. Indoctrinated with a closed mind, narrow world view, and an overwhelming fear of the “other”.

Whatever the cause, some folks have a steep climb just to reach the starting line. Many never get there.

As I thought about it, I realised generational wealth is far more prevalent than it may at first appear.

The scale of the numbers and entertainment value of the acquisition stories may vary, but many of us experience the benefit of opportunities passed down from one generation to the next. Parents striving to ensure their children enjoy a life richer in experience and opportunity than the one they had led.

The Bank of Mum and Dad is generational wealth in action.

The elder generation paying it forward to help out their children or grandchildren.

Regardless of whether the transfer is in the form of a loan, gift, or advance on a future inheritance, the main driver for the transaction is family ties rather than commercial sense. Wealth accumulated by one generation passed on to the next.

Parents calling in favours or working their network to secure their offspring university offers, internships, graduate placements, or apprenticeships are another common form of generational wealth.

The transfer of funds may be indirect, but the opportunities afforded to the child will certainly have to be paid for, either for deeds already done or future favours. Opportunities they would never have secured on their own, as they competed in an arms race against other well-connected kids.

The more wealthy or successful the family, the stronger the network. To the “haves” a dream can be a potentially viable opportunity. To the “have nots” it remains the stuff of fairy tales.

A third type of generational wealth is that of education.

Personal Finance writers expound the wonders of compounding and time for good reason. Riches await anyone who begins investing early enough and waits patiently for long enough.

Imagine if your childhood education had included learning about the stock market, real estate, identifying and valuing business opportunities, and the importance of cash flow. Taught by a loved one who had lived the experience, and could provide practical “learning by doing” lessons.

Compare that to the learned behaviours most children pick up by emulating their parents. Credit cards. Gambling. Leased cars. Mortgage stress. Conflating savings, which all too often are really just deferred spending, with investing. Mistaking working hard for working smart, chasing overtime and non-recurring performance bonuses instead of focussing on maximising the marketable value of time.

How might your financial position be different today, had you known how to start investing as soon as you were legally able? Or sooner, if your ancestors had established investment accounts in your name as a child.

Potentially being able to “Coast-FI” from a relatively young age. Possessing the means to make time investment decisions free from the financial imperative. Affording the luxury of choice.

Imagine being able to afford to make career choices based on your interests and values, rather than the harsh commercial realities of real life. Low paying jobs that benefit society and help people would become viable options. Soulless, yet lucrative, finance and technology jobs would lose their lustre.

Compare that invaluable real-world education to the school curriculum. Where children graduate into adulthood knowing how to calculate the volume of a sphere, compose a haiku, and name all the planets in the solar system. Yet they lack the most basic of money management skills, let alone how to invest, minimise taxes, or use leverage.

The attitudes, behaviours, beliefs, knowledge, life skills, and values that grandparents or parents equip the next generation with are the most valuable, yet least discussed, form of generational wealth. Positioning them for success or perpetuating failure.

Much is made of inequality. That some people seem to get all the luck, while others have none at all.

Angst about the playing field not being level. The “haves” winning more often than the “have nots”. That wealth, power, and connections are self-perpetuating engines of opportunity for those with access to them. Hurt feelings that the concept of meritocracy proved to be as real as Santa Claus.

Clichéd responses abound in response to the notion of generational wealth. Mostly ill-conceived attempts at wealth redistribution. Penalising those who had done the work, or had the good fortune to have an ancestor who once did. Rewarding those who had not.

The more I thought out those responses, the more I realised they were unlikely to work. Not sustainably. Human nature and self-interest are irresistible forces of nature. Methods constantly adapting and evolving, but the direction of travel is constant. Never enough, always seeking more.

I couldn’t help but wonder whether a better approach might not be to worry about what we could control? Educate ourselves. Acquire cash flows to create a perpetual money making machine. Pass those lessons on to the next generation. Leave things in a better state than we found them.

Borrow from the approach of countries that established sovereign wealth funds. Turning the proceeds from windfalls today into recurring revenue streams to provide for tomorrow.

The family farm of my ancestors passed down through many generations. Inherited by favoured son after favoured son. Along the way, it paid for many daughters to be married off, and provided seed funding for less favoured sons.

An arrangement that was inequitable, but born of practical reality. Working farms require a certain size to be economically viable, achieving the economies of scale necessary to sustainably support a family through times of both feast and famine. Divide them up, or sell off too many pieces, and kill the goose that laid the golden eggs.

My father did not inherit the farm from his father. But it did pay his way through boarding school, providing an education that allowed him to break with tradition, attend university, and eventually pursue a successful career in a nice air-conditioned office. Which in turn helped him afford my own education, and by extension indirectly that of my children. Generational wealth.

Eventually, all good things come to an end, and generational wealth is no exception. A force from without or a wrecker from within arrives to corrupt the functioning of the perpetual money machine.

Some combination of changing fashion, greed, impatience, incompetence, laziness, technological advancement, or simple bad luck conspire to derail the continuation of that wealth.

The family farm was no different. Its final owner enthusiastically embraced a “die with zero” ethos. The land was divided up and sold off to hobby farmers and homesteaders. The proceeds frittered away on largess and self-indulgence. The last of the farmers rationalised that their obligations to their descendants concluded when their youngest kid came of age.

If their children wanted wealth, they should go out into the world and make it for themselves.

Generational wealth no more.

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