Money in Families

Recently I finished a book called Preparing Heirs (URL) that estimated the chance of a successful generational transition at 30%, success being defined as a transition of the family’s total capital (family values, human capital and financial wealth). 


After I read the book, I drew as much of my family tree as I could remember and discussed with my key family. They helped me flesh out the tree and reminded me of various successes, and failures, that I’d forgotten. 


When I ran the numbers, I saw that our family is below average for success with transitions, we usually get wiped out every third generation (all but once). One bright spot is a four generation streak down one side of the family. Interestingly, in our family education/opportunity are much more important than financial support.


Back to my observation about $1 million. With a 30% success rate, what’s left for your grandkids, on average?


$1 million lands on your lap

– 70% of that goes (on average) by the time you die

– So $300,000 goes to your kids

– 70% of that goes (on average) by the time they die

– So $90,000 goes to your grandkids


My family is well under the above but nobody is suffering, or complaining. Goes to show that there’s a lot more to human capital than financial capital.


So $1 million IS a lot of money for the lucky recipient (or hard working saver) but it IS NOT a lot of money for most families. Human nature, and my family experience, shows that the capital will be gone in fifty years.


Why is that?


If I spend an extra $25 per day then how long will my $1 million dollars last if my after tax return on investment is 3.75%?






Your kids won’t even get the $300,000.