The health and growth of the family is vital for many who have wealth. The wealth creators, who often earned wealth with sacrifice and risk taking, hope that their wealth is preserved and can impact the family positively for many generations.
Commonly within western society, we believe that the proper practice of preserving just the financial assets, the things we own, is the key objective. Although this is certainly a very important objective, it’s definitely not the only one.
It has been thoroughly mentioned in previous writings, that wealth is more often created and destroyed within three generations. As James Hughes sites in his book, “Family Wealth”, the old Chinese proverb which is “shirt sleeves to shirt sleeves in three generations.” To further explain, the existence of wealth occurs in three stages within a family.
Paralleling this to physics, the first stage is creation which occurs in the first generation with the wealth creators. These are typically “Mom and Pop’s” who created the wealth, usually through a successful business venture.
The second stage is statis stage; a stage of status quo or what can be referred to as a stage of balance where wealth is maintained or preserved.
Then finally, the existence of matter, or in this case wealth, moves into a state of entropy or decay. If it is not properly attended to, wealth begins to vanish or is transferred outside the family. This typically happens with the third generation, or at least has a reputation of doing so, because the third generation is far removed from the concept and requirements that it takes to create wealth in the first place, also known as the “silver spoon” spoon syndrome.
The question is: how long can the family keep their wealth and make it last preferably within the first stage of creation for several generations?
The first step is to recognize that there is more than one kind of wealth in a healthy and sustainable family. Wealth, the kind that is vital within a strong lasting family for several generations, comes in three forms: human wealth, intellectual wealth, and financial wealth.
Human wealth pertains to the individual family member’s well-being and happiness; the grounding in purpose and strength in their own identity and sense of freedom. Often, one of the challenges of an individual inheriting significant wealth is that they know they didn’t work for it or create it in the first place. Along with not having a clue of what it truly takes to create the wealth, is that they know that they did not earn it and can form a complex of guilt.
Another outcome, which is common in the second generation, is a sense of obligation to preserve it, to which they take on profession to do so such as being an attorney or a financial advisor. But, among recipients of significant wealth, life really can become awkward in some ways. Very often, these inheritors may question why their friends really like them – do they like them just because of their wealth? This can create insecurity.
The point being, that human wealth is a vital form of wealth that needs to be given an environment within the family to grow and flourish, and maintain and build a sense of purpose. Therefore, like any successful organization, the most important asset within a family is its people and the success, growth and happiness of its members. So, the physical and emotional well-being must be a top priority.
The second form of wealth within the family is its intellectual wealth. Intellectual wealth can be described as the building and maintaining knowledge, creativity, skills, and experience to support and promote the human and financial wealth and well-being of the whole family.
Though difficult to quantify, intellectual wealth can be measured by each individual’s successes, whether it be academic, artistic, career or enterprise related, or interpersonal. This intellectual capital is also required in order for individual family members to preserve and grow the financial capital. In fact, both the human and intellectual capital is crucial in order for financial wealth to survive within a family over several generations.
Without the proper planning and structure of family governance, the three kinds of wealth, being human, intellectual and financial wealth will not survive. Hence, the proverb of “shirt sleeves to shirt sleeves in three generations” comes to fruition. Proper estate and legacy planning must be carefully crafted and structured in a way that preserves these three forms of wealth.