The right way to do intergenerational wealth

Existing in a community requires accepting a sense of obligation and responsibility

The Kennedy family in 1931. Credit: John F. Kennedy Presidential Library

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One of the issues I think a lot about is the relationship of wealth and community building.

In my last post, I argued that I’d like my kids to be nepo babies. My point wasn’t that I hope they’re entitled jerks who can’t do any hard word. Rather, the idea is that I’d like them to inherit a pre-built infrastructure that helps them lead better lives. And money is a big part of that infrastructure. Sure, you can have a supportive community without money. But it also probably doesn’t hurt to have for example a house, the means to host gatherings, or — especially as you age into a leadership role — the resources to lift up and support your fellow village members. The “nepo” (short for nepotism) here implies that there’s an intergenerational element to pulling all of this off.

But this raises questions: At the individual or family level, is intergenerational wealth actually a good thing? Does it actually bring people together more than it rends them apart?¹

I think the answer is a qualified yes. Or in other words — and to explicitly state today’s thesis — wealth can be a tool for building a supportive family community across multiple generations, but success also depends a lot on how that wealth is used and the family’s sense of self.

That wealth moves across generations is fairly obvious, but it’s worth revisiting some of the research to understand the nuances. Here, for example, is a 2017 study revealing that not only does parental wealth increase the prospects of offspring, but also “that grandparental wealth is a unique predictor of grandchildren’s wealth.”

Here’s another one, from 2014, in which researchers set out to answer the question “who becomes rich?” They found that “recruitment into the top wealth groups is extremely restricted” and that “having wealthy parents, and especially top wealth origins, is important for wealth attainment.”

And here’s more research documenting “a substantial degree of intergenerational rigidity in the wealth distribution” and hypothesizing that “adult wealth will more closely resemble that of their parents as both generations enter middle and late adulthood.”

One of my favorite entries into this genre, which I wrote about once before, is this paper from 2016 that looked at Italian tax and surname data. It found that people whose families were rich in Renaissance Florence still had a financial advantage as of 2011, centuries later.

One of the takeaways for me is that it’s not enough to simply tell my kids to go to college and get good jobs. I also have to accept that my choices and their outcomes may mirror those of my kids.

While this research isn’t shocking to me, I tend to get (welcomed and interesting!) pushback whenever I argue that intergenerational wealth can be a positive thing. That’s probably because I don’t run in especially blue-blooded circles where trust funds are common. Most successful people I know are self-made.

But also, there are plenty of examples of intergenerational wealth not working. I’ve debated long into the night with people who bring up families like the Vanderbilts or the Gettys who burned through vast fortunes and in some cases ended up living tragic lives. There are also cases in show business such as Colin and Chet Hanks, sons of Tom Hanks, whose careers have been middling and who clearly wouldn’t have made it at all without their famous name. Freddie deBoer recently highlighted a similar situation involving the son of LeBron James, who seems to have a basketball career thanks to his family not his talent. And of course, it’s common for non-famous families to fracture over even modest inheritances. I know people who are basically estranged from their siblings over sums in the mid five figures.

The list could go on. Indeed, a significant segment of the tabloid press exists (sadly) to expose famous heirs and heiresses who have squandered opportunities and lives. Clearly being a nepo baby doesn’t guarantee success.

So why do some families succeed and others fail?

MIT Professor John A. Davis has looked into this and found that “wealth tends to grow rapidly in a single generation — either in the founder generation or one of the early generations.” Then after that point families follow one of three paths: Their wealth gradually wanes, it declines quickly, or it regenerates.

Davis believes families on the third path “follow a number of philosophies” including staying unified as a family, staying focused on their family mission, and developing family talent. Here’s his conclusion:

When a family decides to continue something together, family members unite around a common mission and purpose for another generation. These families take on a long-term perspective in the way they treat their assets, one another, and the community. They may move in and out of industries and regions, or buy and sell different companies, because successful multigenerational families do not focus on the success of their legacy company as the measure of success; they shift their mentality to grow the family’s overall financial wealth.

When I read this, I immediately thought of the Ballerina Farm controversy that sparked last week’s post, and by extension this one as well. More specifically, I was reminded of Mary Harrington’s argument that the influencer running the Ballerina Farm social media empire is a “trade wife” not a “tradwife.” Harrington didn’t quite put it this way, but she was essentially arguing that the Ballerina Farm family is engaged in a shared enterprise, a trade, and thus resembles the old idea of a “corporate family” — or a family that engages collectively in a shared enterprise.

The classic example of a corporate family is one that runs a farm together. Unlike many modern families in which two parents might earn wages at unrelated jobs, or one spouse might function as a breadwinner while the other handles domestic tasks, everyone in a corporate family engages in labor that supports the shared enterprise.

Davis seems to be saying that families tend to avoid squandering their resources when they adopt this sort of mindset. Though their specific enterprise may vary or evolve over time, they share a unified purpose or mission.

I reached out to Davis with questions about how often this actually happens, and the email bounced back. So Professor Davis, if you’re reading this, please get in touch.

But anecdotally, Davis’ conclusions ring true to me; most of the people I know who grew up in, and into, family businesses have tended to be alright. On the other hand, I can think of many cases — both that I’ve seen first-hand and in the media — that involve someone blowing an inherited chunk of cash that didn’t come with any sense of shared family purpose or mission. Inheritance without a corporate family framework seems to be a risky proposition.

All of which is to say that family wealth exists, and that it can be a boon to people, but success apparently depends on the family’s sense of itself as a unified community, or village.

At the end of the day, wealth in and of itself matters very little to me. I went into journalism after all, an exciting but not terribly lucrative career. The accoutrements of money are not something I think much about.

But when I ponder what I want for my kids, it’s obvious that there is a relationship between wealth and the amount of support they get from their loved ones. Their ability to live near kith and kin, to have family members share in the burden of childrearing, or simply to spend late nights debating in a cozy house all depend on financial decisions made over multiple lifetimes. I’m not going to just wake up one day as a grandpa with sufficient leisure time to watch my grandchildren, or with a house that can accommodate a 25-person dinner. My grandkids’ ability to enter adulthood debt-free is being determined now, decades before they even exist.

But more than that, being part of a community means accepting a sense of obligation to and responsibility for that community. And I hope both I and my kids are able to think deeply about the role of resources, including across generations, in meeting that obligation.

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1. From a policy perspective, we could certainly do more to promote equal opportunities and a more equitable society. That’s not really the focus of Nuclear Meltdown, though, so I’ll save that discussion for another venue. At the same time, I think most people who have kids or younger family members generally want those youngsters to have the maximum number of opportunities. I don’t think it’s a contradiction to want both a more equal society but to also realize that you have to fight for your place in the imperfect world we actually have.