I am a junior in CSOM, concentrating in Finance and Management & Leadership with a minor in Philosophy. You might be inclined to assume that I intend to get a job on Wall Street or work for a finance corporation. However, I actually plan to go onto law school after graduation. In addition, I do not see myself litigating for banks or overseeing mergers and acquisitions, but one never knows what the road ahead will bring. When I tell people of my future aspirations, they often wonder why I am a Finance major if I have no intention of working in that field. In brief, my answer is that first, it interests me, and second, regardless of my future income, my management skills will ultimately be the major determinant of my financial stability.
In a recent Time article, Chris Taylor discusses the phenomenon of rich families’ wealth dwindling as it is passed on to each generation. One of the most surprising statistics that Taylor cites is the fact that 70% of well-off families lose their wealth by the second generation, and by the third generation 90% of well-off families lose their wealth. This loss can be mainly attributed to lack of communication and trust between generations.
The root of such distrust stems from the idea that if younger generations become aware of their parents’ wealth, then they will become lazy and entitled. These fears are justified by many modern examples, the most nauseating of which is the “Rich Kids of Instagram” account. For those who are unfamiliar with the account, it documents the extravagant escapades and pricey purchases of many young adults, and even teens, who live off of their family’s wealth while seemingly not holding a job of their own. Obviously, this pattern of spending without earning can not have a good outcome.
On the other hand, by not informing younger generations of the wealth they will likely inherit, older generations run the risk of “sudden wealth syndrome.” The most common examples of sudden wealth syndrome are lottery winners and athletes who sign multi-million dollar contracts. These fortunate people are even more likely to experience sudden wealth syndrome if they lack experience with managing money, do not come from wealthy families, and/or lack the guidance necessary for managing their finances. Nonetheless, as seen by the aforementioned statistics, experience of a comfortable lifestyle does not leave heirs immune to sudden wealth syndrome.
Fortunately, there are ways for both the currently wealthy and newly wealthy to preserve their fortune, while maintaining humility and cultivating a work ethic in the younger generations. In his article, Taylor suggests talking early on with younger generations about the families’ wealth, creating a roadmap (e.g. trusts) and discussing the breakdown of the will.
Although I have no personal experience with vast amounts of wealth or offspring of my own, I would suggest working a minimum wage or low-wage job in high school and even college. As a result of working such jobs, I feel I have gained a strong appreciation of how to manage any money I earn, and how important it is to maintain a certain amount of savings (even if it is just a Ziploc bag of tip money). I know that there will be a steep learning curve when it comes time for me to pay for rent, a mortgage, insurance, etc., but I believe I have strong financial knowledge foundation that will be useful when I eventually hold a salaried job. Capable young adults should work in order to gain a strong work ethic, a method of saving and to build some sense of autonomy from their parents’ resources.
On a larger scale, I would suggest looking at the difference between the Rockefeller family and the Vanderbilt family for guidance. Everyone knows that these names represent captains of industry. However, something I find interesting is that at a Vanderbilt family reunion in the 1970s, around 120 family members showed up, but not a single individual was a millionaire. In contrast, the Rockefellers today have several millionaires and a billionaire among them.
The Rockefellers generational success can actually be attributed to their philanthropy. By developing a nonprofit, younger family members were able to learn how to manage their finances and retain an ambition to work. As the younger family members aged, they cultivated a skill set that prepared them well for any future wealth they might have encountered.
Beyond the intrinsic value of philanthropy, one can certainly argue that being good to others has an extrinsic value as well. Based on this information, perhaps the best use of our learning from BC is supplementing the importance of serving with the skills we are taught in class.