Generational wealth: Does the apple fall far from the tree? 

WILL the son of a billionaire perpetuate his inherited wealth? Apparently not, if history is any guide. In fact, there is strong evidence that most “rich families” will be poorer after several generations. Some of the reasons for this are systemic. Taxes, for example, chip away at a family’s wealth. But most factors that diminish a family’s wealth over generations stem from the choices that heirs make. These include how they invest their inheritance, how many children they have, whether they get divorced, and other lifestyle choices.

As the table illustrates, six of the 10 richest people in the world were “created” in 10 years. And these were all men, which is why I use the term “patriarch”. Of course, this is too small a sample to be statistically significant. But at first glance, the Forbes Top10 List shows that capitalism has the capacity to create new billionaires and generate wealth. Another way to look at it is that capitalism replaces billionaires who either failed to increase their fortunes as quickly as others or lost it somehow.

This raises some intriguing questions: what does it take for someone who was yesterday’s top 10 billionaire to lose that rank and status today? Are the causes applicable to other affluent investors? If there is no single formula for getting rich, is there a single formula for losing a family’s wealth? When it comes to generational wealth, does the apple fall far from the tree?