The markers of generational wealth are manifold, from the promise of a good education to the security of homeownership. Wealth begets further wealth, but not always through inheritance of assets. “Much of the transmission of wealth to the next generation goes through these earlier life processes, such as supporting children’s education, supporting their ability to purchase a home, or to get married,” researcher Fabian Pfeffer wrote in a recent study at the University of Michigan. “All of these—education, homeownership, marriage—in turn help you accumulate wealth.”
But the extent to which family money helps future generations retain and build on their wealth—or acquire financial literacy—is less marked than you might imagine. Here are some of the commonly held misconceptions about the beneficiaries of generational wealth.
1. Their wealth lasts many generations
We don’t have to look further than one Donald Trump to see how wealth can trickle down and set up future generations for success. But generational wealth is actually harder to maintain than America’s richest families might lead you to believe: About 70% of wealthy families lose their wealth by the second generation, and 90% do by the following generation.
One reason that happens is the next generation may not be equipped to manage the money they inherit. But it’s also that family wealth can be diluted as it is divided amongst children, especially if each has a different stance on how to invest or manage the family finances. (Think of the family jockeying on Succession.) Some financial experts even recommend that—not unlike businesses—families come up with a “mission statement” to establish financial values and goals, in an effort to preserve wealth across future generations.
2. Their parents talk to them about money
You might think parents with money share their financial know-how with their offspring. But that’s not necessarily the case. “Some parents don’t want their kids to feel like they have a huge landing pad or that they may not need to work,” says Emily Green, a financial adviser at Sallie Krawcheck‘s investment platform, Ellevest. “A lot of times, they don’t talk to them about money at all.” That can mean parents not only don’t disclose how much their kids stand to inherit but also don’t necessarily offer guidance on how they should spend and invest their money.
“I find that a lot of them get to their thirties, forties, maybe even fifties and still don’t really know anything about money,” Green says. Sometimes, even financial advisers make assumptions about people who have money—presuming, for example, that they are well-versed in investing. In truth, the folks who inherit tens of millions of dollars may know less about money, and especially investing, than someone who saved a million dollars.
3. They know what to do with their money
Some wealthy folks don’t turn to financial professionals until they inherit wealth and have to deal with large sums of money. Advisers may throw around acronyms or sophisticated terms that they don’t quite understand. “Once these assumptions are made, it’s hard for them to speak up and say, ‘I have no idea what you’re talking about,'” Green says. “I have clients who’ve inherited a lot of money but may not even know [the difference] between a stock and bond.”
Working in the finance space also means little in the way of total financial literacy. Green points out that even people who work at hedge funds or in private equity—who are considered money managers—may not be particularly well-versed in personal investing. They’re not necessarily thinking about how to pay for college or give their children money down the road.
The weight of a hefty inheritance can also be a source of stress for the beneficiaries of generational wealth—even more so if they aren’t financially savvy. “Depending on how wealth is inherited, it can actually be very complicated and cause a lot of financial stress,” says financial planner Ian Bloom. “Inherited individual retirement accounts require distributions and are taxed as regular income. Trusts may have very stringent restrictions on what the money can be used for, and if the money is not managed properly, there can be significant emotional and financial consequences.”
4. They’re irresponsible and lazy
Pop culture may tell us rich kids fritter away their family money with little regard as to how it was earned. And some certainly do. But Green says that doesn’t reflect the behavior she tends to see in clients who inherit wealth. “It’s an assumption people make—that just because you have money, you don’t need to work or think about it,” she says. “That’s not true, because you can actually very easily run out of even $20 million if you don’t think about it.”
In fact, Green says those who inherit wealth are often aware that their resources are finite, perhaps in part because the benefits of wealth are often passed down through, say, giving their children a good education, rather than showering them with money. “Most of the time, the next generation does have these values,” Green says. “They want to work hard and make sure the wealth does not diminish with them.”
Of course, clients who seek out a financial adviser like Green are more likely to be careful with their money in the first place. That may be especially true of the generations that lived through the financial crisis of 2008. “They saw how fast money can be lost,” Green says. “I do think they understand more that people lost their retirement savings, and that they feel more responsible—to make sure they’re prudent and contribute to society in some way.”
5. They spend differently than their parents
Most people’s financial habits are informed by those of their parents. It’s no different for the children of wealthy parents, Green says—their habits don’t necessarily diverge as much as people think, even if they didn’t have to work for the money they inherited. As I wrote recently, people who build their own wealth are usually more frugal; often they feel lucky to have money they never expected to have and spend accordingly. Future generations born into wealth may spend more freely, but chances are they’ll take notes from how their parents approached money.
“How your parents act with money, whether you’re wealthy or not, is going to really shape who you are,” Green says. “Money is very tied to how you’re taught. If your parents were nervous about money, you tend to feel more nervous about money throughout your life.”
It’s possible wealthy children may put their family money toward, say, a down payment on a home. But by and large, she says, they’re thoughtful about their spending; Green finds that in families with generational wealth, parents may also discuss philanthropic giving with their children. Some people who inherit wealth may even feel some degree of shame for having that money in the first place. “Sometimes, there’s a sense of guilt if you received more than you feel you should,” Bloom says, “or a feeling of responsibility to make sure the money is used well.”