The Great Gatsby deals in part with the difference between old money and new money, but one financial planner in California says that the existence of old money is actually pretty uncommon. The reason, in a lot of cases, is that the children just blow all of the cash.
That planner remembered being a young boy and going to visit his grandparents, who he thinks had about $70 million. They owned mansions in Canada and New York. He says going there was similar to living in Gatsby’s world, right down to the tuxedos and the drinks.
However, he noted that he never really got to see that money, because his parents’ generation wasted it. Part of it was due to alcohol, part of it was because of bad choices and decisions, and part of it was just poor luck. Still, the money was gone.
Looking into this, he noted that it’s actually very common. The Williams Group wealth consultancy did a study and found that wealthy families see that wealth erased by the second generation a remarkable 70 percent of the time. By the time they get to the third generation, this is true for 90 percent of these families.
It’s no surprise, then, that the third-generation financial planner did not get to use his grandfather’s wealth. If he’d seen that old money, he would have been in the vast minority.
When doing estate planning, it’s important to note how often things like this happen. It is sometimes possible to use tactics—such as trusts that dictate how money can be used—to preserve wealth for future generations.
Source: Financial Post, “How to keep your kids from blowing the family fortune,” Chris Taylor, Reuters, June 18, 2015