Over time, human nature does far more to address income inequality than the policies of your favorite politician.

Families that succeed across generations have certain traits we can learn from. While you can’t control your birth situation, there is a lot you can do to influence family wealth.

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My great-grandfather was one of the wealthiest men in Canada and I have an early memory of seeing him on the cover of Fortune magazine. Down my branch of the family, the magazine cover endured longer than his finances, which found their way back to society within two generations.

On the other side of my family tree, my great-great-grandfather was wealthy, but not cover-of-Fortune wealthy. A small amount of his money will eventually pass through to my children. I get a kick out of this as he was born in the mid-1880s.

Living rich is different than living well and it takes generations for this difference to become apparent.

A favorite quote, “there has never been a more expensive time to be rich.”

Dropping this gem will likely get you a smirk and an eye roll from most young people. However, it touches on a truth of our time and provides a warning to wealthy families.

Over the last 40 years, a billion people have been lifted out of extreme poverty. Lifting the bottom of the wealth curve has impacted the top of the curve.

While we were lifting hundreds of millions out of poverty, “the rich” started to live differently. Morgan Housel’s article touches on these changes and reminded me of a valuable legacy from my great-grandfather (the one on the Fortune cover). A non-financial legacy that made it four-generations down my family tree.

Camping.

The fondest memories of my childhood happened at a YMCA summer camp. A camp largely unchanged from when my uncles attended 20 years before me.

40 years on, I ask myself:

Am I willing to constrain myself to get a better outcome for my children’s future selves?

Somewhere between childhood and adulthood, you may develop “requirements” that increase your baseline cost of living. Your “requirements” are your business. However, know that your luxuries will become your children’s baseline.

These cultural baselines have unintended consequences in family systems. The kids who can keep up with their spending aspirations have a greater risk of neglecting their families in favor of money. The kids who can’t keep up are more likely to reject you, to protect their self-identities.

I’ve known five generations of my family and have witnessed this pattern across each generational transition => the increasing spending of the ascendant, and the pain as the descendant fall out of their childhood demographic.

I believe there is a better way.

I’m going to offer three areas for you to consider.

I’ve made mistakes in each area. Having kids later in life (highly recommended), the main people who have had their values skewed by my errors are my wife, and myself.

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The three areas are vacations, housing and education.

Your first filter is to ask: Are we living well, or are we living rich?

To keep yourself honest, search for your reaction when other people live a certain way.

VACATIONS

Cultivate interests that hedge your need for cash flow.

Camping, driving distance from home, has a very different long term cash flow impact than Surfing in Kauai, via private jet.

I’ve spent a small fortune trying to make family trips work (catamaran charters, seaplanes, traveling staff, ship’s captain with deckhand).

Everyone had a blast but what did I achieve?

I increased the hedonistic baseline for my wife, my kids and myself. Not a big deal to make a mistake. However, if I create a habit then what happens when three kids, and five grandkids, scale my choices across their lifetimes?

Simple, one-on-one trips in nature is where I focus these days.

We will come back to the scaling effect.

HOUSING

Housing is the most consequential capital purchase most of us will make and it’s a tricky one because of the changes happening in many of the places where we grew up.

My wife and I went to high school in cities (Boulder/Vancouver) where many of the graduates are unlikely to be able to afford to live in their childhood homes. The winners of global wealth creation have bid up local real estate values.

My notional share of my great-great-grandfather’s estate is about $100,000. Money that would have proven very useful if I had chosen teaching, rather than finance, for my first career.

If you ask my seven-year old what type of house she’d like to live in then she’ll describe something that looks a lot like my grandparent’s homes: 1,500 sq ft per person, swimming pool, grounds… you name it. She’d put us into a 7,500 sq ft mansion with seven bathrooms.

She’s not alone. As soon I as I had the cash, I bought myself a monstrous house. Buying at the top of the market, I was lucky to avoid financial disaster.

Am I willing to constrain myself to get a better outcome for my children’s future selves?

Yes I am.

Coming out of the last recession, we downsized and bought two rental properties in our school district. I’m positioning the family to do a similar thing coming out of the next recession.

The kids were disappointed to learn that the next house was going to be smaller but I’ve been watching what they do, rather than their aspirations. When my kids can pick, they want all of us jammed into a bunk room => they love a seething, noisy mess!

Beware of the preferences of others and pay attention to where you are happiest, rather than what you think you should like.

What you don’t see when you “get the house” is the life you don’t lead as a result of living there. The time you don’t spend together, the energy spent managing a large asset you don’t need.

Once again, these lost opportunities for connection scale across time for your grown children and grandchildren.

EDUCATION

Graduate debt-free with skills enabling you to get paid

This implies a few things:

• working in high school, and for a long time thereafter
• public education, as long as possible
• parents who are willing to let you fail, experience poverty and learn from your own mistakes

Unless your family is exceptionally wealthy, or you are an outstanding student, you are going to be much better taking the bulk of your family’s education dollars and investing them over a 20-25 year time horizon. The goal being to enable your family to (continue to) live in a great public school zip code.

For example, the Boulder Valley School District isn’t (yet) priced out of reach. BVSD just built a school in the eastern part of the county and we have strong political support for local investment in education.

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Are you seeing how all of this fits together?

• Moderation of spending, regardless of being able to afford it
• A modest allocation in personal real estate assets
• Over time, yields long-term capital within the family system
• A focus on helping the family stay local and avoid shackling themselves with education loans
• When graduating debt-free, young adults repeat the cycle

This works so long as everyone pays their own way, for the way they wish to live.

Collectively, the family system avoids subsidies towards personal consumption.

Each branch, and generation, of the family defines their values, and lives with the consequences of their choices.

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Further Reading