Certainly! The phrase “wealth does not last beyond three generations” means that family wealth is often lost by the third generation. Here’s a simpler explanation:
- First Generation: Makes the money.
- Second Generation: Saves and keeps the money.
- Third Generation: Spends the money without making more.
This happens because the third generation might not know how to manage the money well or understand the hard work it took to make it. To prevent this, families need to teach each generation how to handle and grow their wealth.
- First Generation: Creates the wealth through hard work, entrepreneurship, and innovation.
- Second Generation: Witnesses the effort of the first generation and tends to preserve the wealth, often expanding it through careful stewardship.
- Third Generation: Lacks the direct connection to the hard work and sacrifices made to build the wealth, which can lead to a sense of entitlement and less motivation to maintain or grow the assets.
Several factors contribute to this trend:
Lack of Financial Education: Successive generations may not receive adequate education about managing and investing wealth.
Family Dynamics: Wealth can exacerbate pre-existing family tensions, leading to conflicts and mismanagement.
Dilution of Assets: As families grow, wealth gets divided among more individuals, reducing the share each person receives.
Changing Values and Goals: Each generation may have different values and goals, which can shift focus away from wealth preservation.
To combat this, some families invest in family governance and legacy planning, ensuring that each generation understands the family’s values, the purpose of their wealth, and how to sustain it. This includes creating mission and vision statements, holding family meetings, and engaging in strategic planning.
It’s important to note that while this pattern is common, it’s not inevitable. With proper planning and education, families can preserve and even grow their wealth across generations
Below simple graphic show how insurance planning concept ensure assets pass on more than 3 generation.
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