Generational Wealth Doesn’t Last Long

Maw Maw had Paw Paw.

My grandfather returned from World War II’s Pacific theater weighing 100 pounds, a shell-shocked version of himself. He was reared in the Roaring Twenties, became a man the year of the Great Crash, then narrowly escaped a grenade, a Japanese sniper, and an airplane crash before landing back in the USA. An army cook offered each solider anything they wanted for their first meal back home. A smartass asked for a bear steak. He got it. My grandfather remembered asking for a plate of sliced tomatoes. “It was the first thing that popped into my head.”

If they drew a caricature of the Greatest Generation it would look identical to Paw Paw. He possessed a mane of flowing hair, a wiry six-foot frame, a ferocious devotion to Douglas MacArthur, and lived in utter terror of debt. Surviving the Depression, he took out precisely one loan his entire life: a ten-year VA mortgage to move Maw Maw and my father out of the trailer park. The monthly payment was $64.64. She awakened one night to an empty bed, walked down the tiny hallway, and found him with pen and paper mumbling to himself. “Sixty-four dollars and sixty-four cents. Sixty-four dollars and sixty-four cents.” They paid it off in five years.

Alzheimer’s struck when he was almost eighty, and, at the nursing home intake, the family stumbled into the legacy of his Depression Era fears for the future. Paw Paw had assured Maw Maw that the VA and Medicaid would handle his old age, but the VA was backlogged, and then Medicaid told her she was too rich.

Wait. What? That was impossible. To everyone’s shock, including Maw Maw, my father, and anyone who saw his decrepit Buick station wagon sans hubcaps driven shamelessly around town, the man owned a bond portfolio worth nearly $700,000. Adjusted for inflation, it would be over $1 million today.

No one knew. The only hint, given just as he got sick, was the Saturday he awakened my startled grandmother and said, “Come on, we’re going to see the grandkids.” But he wasn’t there to see me. He told my mother to get in the car and drove two mystified women to a hardware store. There he told my mother, whose used appliances were falling apart, to buy anything she wanted. He paid cash, and they left. A few years later, we found out he had been the half-millionaire next door.

I never saw a dime of that money. Neither did anyone else in the family.

For that, I am forever grateful.

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For early Americans, generational wealth was their “why.” Some version of “a better life for my kids” is the most common answer given when investigators asked people why they were moving to or around the United States. Whether in the exit interviews of English colonists, notes from Ellis Island, or the Chinese family songs that “Daddy has gone to Gold Mountain,” people wanted a future for their families. This experience knows no distinction of ethnicity or race: Ahluwalia. Smith. Wojokowski. Zhao. Leaving generational wealth may be the most American dream there is.

Each wave of land-grabbing farmers—from New England to the Dakotas—intentionally purchased more land than they could ever farm in hopes to pass some to their children. One New England farmer tripled his real estate holdings in his life by carefully underspending, investing wisely, and working extra hours clearing land and selling timber. Why? He had nine children. Records show him in his seventies, desperately trying to buy more land for his remaining brood to the very year he died.

You can find generational wealth advertised in 1790s land brochures, in ethnographic interviews of Caribbean and Cambodian immigrants, in 1980s no-money-down real estate seminars, and today’s social media influencers. Jay-Z shifted the end game of rap music to generational wealth in his 2017 song “Legacy,” discussing what a will is with his daughter. CNBC wrote an article¹ about the money lessons from rap’s shift to a future-orientated genre.

A poor Laotian woman named Cer Vang felt much the same. She explained to researchers that she had only modest ambition for herself in America. “I have a home. I have a car. I think that’s all I ask for.” But for her kids, she was thinking generationally. “Maybe next five or six generations they will be in the upper class, but if you don’t think ahead this will not be.”²

Inheritance matters more for the working and middle class than for the wealthy. The wealthiest Americans get about 17 percent of their total lifetime wealth from inheritance. For the middle class, it’s nearly a third.³ This makes intuitive sense. For two kids inheriting Mom’s paid-for home worth, say, $300,000, the total windfall is about $150,000 each. That would roughly double the net worth of the typical forty-five-year-old American. For an only child, it would triple it. The wealthy inherit more, but statistically it matters less.

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Where there is desire, there will be product. Selling a family future became big business in America. That dream could grow as large as anxious parents could imagine. One of the earliest investment guides, from the 1840s, assured bond buyers that putting aside small amounts of each paycheck into bonds and leaving it for a mere century “makes grandchildren millionaires.”⁴ A hundred years of not using your money was all that stood between poor people and the Vanderbilts.

Two marketing professors arrived at the same conclusion, only this time about the rich in the early internet age. Most people read the runaway bestseller The Millionaire Next Door and thought, “See, I can be rich, too!” But that wasn’t the authors’ main point. They were, after all, marketers. The culminating chapter is all about selling these used-car-driving misers something they’ll finally buy: opportunity for children and grandchildren to get ahead. Millionaires were impervious to ads for Rolex watches, but giddy to blow money spoiling the grands. Selling the hope that youngsters today could start where enterprising parents ended was, and remains, big business.

Generational wealth, though, has a critical flaw. Many kids don’t stay on the path. The Millionaire Next Door noted how much easier it was to sell luxury goods to rich kids instead of rich parents. That insight was hardly new.

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The chief problem with inherited wealth is the next generation’s propensity to lose it. A developer who made his fortune selling to early American farmers, William Cooper, raised his kids with every privilege he never had. They rewarded him by squandering the entire estate. One son was so spoiled he got kicked out of Yale for sneaking a donkey into class. The only thing left of the fortune he built from scratch is the town bearing his name that houses the Baseball Hall of Fame: Cooperstown, NY.⁵

Generational wealth feels big to the first generation that earns it. Knowing how carefully you had to spend, aggressively you needed to save, and hard you had to work gives strivers a particular view of how far money will go. Surely this amount could last forever, right? But divided up amongst people who are both used to having it and unsure how it got here, the half-life of inheritance is quite short.

Nowhere was this reality more clearly displayed than with the world’s most famous millionaire miser, Hetty Greene. Greene lived a life of almost perverse thriftiness. She neither dressed, dined, nor drove anything but the cheapest options. She refused to turn on the heat in the New England winter. She died in 1936 worth $100 million ($2.2 billion today). The world’s richest woman lived like a pauper, loathed charity, and instructed her children not to give a dime of her money away.

That legacy could not last. Half of her fortune went to her son, who promptly bought a sixty-person crew yacht, married a prostitute, sailed the globe, built a mansion, filled it with young girls, acquired one of the world’s largest collections of pornography, and bought a stuffed whale penis to display at house parties. After he and his sister died, what they hadn’t blown passed precisely to what Hetty hated—charities.⁶

P. T. Barnum, the circus mogul who knew well how to separate fools from their funds, noted that young adults “loaded down with other people’s money are almost sure to lose all they inherit.”⁷ Sometimes the sins were less about spending and more about incompetence. A stockbroker and market commentator who survived both the Roaring Twenties and Depression-era Thirties noted that most of the great family fortunes managed on Wall Street were eventually lost. “Occasionally the heirs spend all the money; more often they lose it in the course of investing.” He advised families to put their trusts in the hands of the laziest grandson instead of the ambitious ones. “Otherwise, he is liable to try his hand at doubling the estate, and that might be the end of the estate.”⁸

Some of this is psychology. Some is sociology. Some is simple math. Most people don’t consider how the combination of profligate spending, ill-prepared investing, and long division destroy inherited wealth. When whaling merchant Gideon Howland died in 1847, he’d left bequests to thirty-odd family members pending the death of his last children. That took a very long time. When the estate was finally divvied up, there were over 400 descendants with various claims. One person received 1/1,440th allotment of an inheritance he had known nothing about, which, after fees and taxes, was $715. This holds true today. Of the infamous 1 percent we hear so much about, 90 percent of their grandchildren aren’t particularly wealthy.⁹

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These are not simply problems for the rich. Take Jeffrey Murrell, who died in 1824 in Tennessee. Jeffrey and his wife, Zipah,¹⁰ had worked hard all their lives, braving the move to western lands close to their congressman, Davy Crockett. They paid off their borrowed homestead. When Murrell died, he left a paid-for profitable farm to his wife and sons. He had done it, rising from abject poverty to the independent Jeffersonian. Just three years later, the farm was sold off to pay his wife’s debts. His sons kept getting into trouble with the law rather than farming Dad’s land. Without the work ethic and knowledge to keep the family’s upward march moving, it was all gone by 1827.

One of the saddest episodes were the Irish immigrants of 1850s Newburyport, Massachusetts.¹¹ An extensive study of these workers came to the surprising conclusion that, despite low pay, harsh conditions, limited skills, and potato-famine poverty, they made shocking financial improvements in a single lifetime. About two-thirds of the families moved ahead, and around 50 percent became property owners. Arriving landless and penniless, they had hoisted themselves up into the American dream by their own bootstraps. What could be sad about that?

The price they had paid. Most immigrant families pulled their kids out of school early, proud that they weren’t spoiled like “the Yankee children” who idled away their early teens figuring numbers and reading. Irish lads moved from learning to earning, actively contributing to the bottom line. Then, the bill came due. The families that gained the most in one generation gained the least in the second. They had paid off their mortgages by cashing out their families’ futures. One paid-for house can only be divided once, leaving many more locked out of upward mobility.