Biggie once said “mo money mo problems.” I don’t believe this to be exactly true. Rather than more problems, there are just different problems when more money enters the picture. Many would argue less dire problems, such as, instead of worrying about making rent next month or how to fund your children’s education, worrying about asset protection and estate planning.
When parents discuss raising their kids, they are often quoted saying, “I want better for them, better than what I had.” For people growing up lower class or lower-middle class, I’m sure this is a goal many parents would have for their children. Who wouldn’t want “better” for their kids?
Now let’s reverse roles. There is a parent who was raised lower-middle class, worked hard, got a little lucky, started a business, and now is firmly entrenched in the upper class. Their child grows up to become a teacher, or non-profit employee, or even an accountant or civil engineer. These are all great careers depending on what life and career goals the child has. However, a problem presents itself in that those careers may not provide an income and lifestyle comparable to the upper class lifestyle the entrepreneur parents provided to the child. Why? Because their earning potential, as long as they don’t have entrepreneurial goals, is more or less capped as it is with many W-2 type jobs.
Growing up, the child went on fairly luxurious vacations, always had what they needed and almost always what they wanted, education was always paid for in cash, and they were cast into adulthood at 22 with a college degree and no debt. This is where a potential problem may creep up.
On an entry level teacher or accountant salary, there is most likely not a maid assisting with household chores on a weekly basis. Maybe they never knew that they had to pay for things like car insurance, personal property taxes, or health insurance. The vacations taken from elementary school through high school are no longer attainable with their income. Without financial support from their parents, they might experience some downward economic class movement.
I’m well aware there are far worse problems than moving from upper class to middle class. But these are problems that are persistent. It has been written that 70% of wealthy families lose their wealth by the second generation, and 90% by the third. For the most part it’s not the children’s or grandchildren’s fault, it’s that the parents never taught them the value of money, how hard they had worked, and how lucky they were to obtain it. Money can be a taboo subject, but not discussing it at all can lead to economic and social problems for heirs.
The Vanderbilts were known for blowing through vast sums of wealth through a couple generations. As the wealth was split into slices and distributed to future generations, children were not educated that if they have half the wealth of mom and dad, they can’t spend MORE money than mom and dad did. By the mid 1900’s most of the Vanderbilt wealth was gone, down from $100 million in 1877 (not adjusted for inflation).
Money doesn’t just affect the bank account, it can also cause many social issues as well. Maybe the country club the child grew up attending events at is out of the reach of a average engineer’s salary. The kids they grew up with inherited greater sums of wealth, or entered the family business and are still firmly entrenched in the upper class, and are hard to keep up with.
In the end, rich or poor, discussing money with your children has many more benefits than risks. Even if you aren’t an investing connoisseur, share your money knowledge with your children. Also, share the mistakes you made along your journey, in hopes they don’t make the same.
My sibling has had this problem. They didn’t make much, but still wanted to travel as much as they did on our parents’ dime. What ended up happening was they accumulated a bunch of credit card debt. They’ve at least been smart enough to not buy a house yet!
Interesting. Luckily they have a sister that is a personal finance guru to spread the knowledge. 🙂
Yes but even with all the money management knowledge, we will still be making less than them. I grew up in an upper middle class family, and watched my parents work hard for all the money they earned, saved and spent on us. But my career goals were still very grassroot. Now am a non-profit employee, making a tenth of what they make. I personally manage my limited wealth well but the fact that I earn so less, is not accepted well in the family. Not at all. In the end, it is not my monetary limitations but the family’s criticism of it that stresses me out to be honest.
A bit late to this post, but something to add – I grew up with a very wealthy parent who insisted on principle that my brother and I would get no help beyond basics, especially after we turned 18. This is all well and good, I get it. I started working as soon as I turned 16; paid for my car, food, insurance, gas, etc. I made it through college scrimping and saving. I struggled a bit, but I worked it out. Again – no financial help, but also no favors or emotional support. Truly a sink or swim mentality. Now, I’m doing alright and floating in the lower middle class. This is an accomplishment to me! I’ve been through a lot and turned out a good person with food to eat. The problem is that due to my parents’ wealth, their friends and my extended family believe we grew up with a silver spoon in our mouths. And NOW they believe we must have wasted it all because we are both only “doing okay” in their eyes. Frustratingly, my wealthy parent is also beginning to echo that sentiment.
I had a very similar upbringing. More complicated as I come from a very conservative Indian family where girls are treated as a liability more or less. Apart from the whole ‘we won’t help you beyond the bare minimum’ mentality, I was subjected to several biases at their end – my younger brother who was not even a school topper like I was – was given an opportunity to study in one of the most prestigious universities in the US. Today he is happily married and working in a diplomatic career and earning a whole lot more than I can imagine. Both my parents live a very comfortable upper class life with their retirement sorted. I on the other hand, was expected to care after a sick parent and prioritize the family as a whole. I was vehemently denied any opportunities to study further by the same parents who gladly supported my sibling. After changing several jobs, running a failed startup – I stand penniless, in severe debt and with ZERO moral and emotional support. I also am single – having been through many failed relationships and have no future to look forward to. I did accomplish a lot for someone with my temperament and talent – but I was deprived of achieving my true potential by selfish and emotionally abusive parents. They’d rather spend on their half a dozen dogs then even help me with my business – even though they also have benefited from it at different occasions. My advice to anyone in my situation would be – just fly out asap and cut the cord for your own sanity. The longer you wait for their approval the more you screw your chances at life.