Cycle of Family Wealth

11:23 PM Posted by SirMack

The Chinese have an expression: 富不过三代 (fu bu guo san dai) Literally: Wealth does not pass three generations.
Meaning: It's rare the wealth of a family can last for three generations (the 2nd may see the value of hard work, the 3rd, forget it).

Year zero: First generation: Wealth creation

Starting capital: Zero. The family income generators (2 parents) are hard-working and manage to invest 10% of their after-tax income equating to RMB150/month into the Chinese stock market.

Year 45: Second generation: Wealth preservation

The parents ensured that their three children didn't have to experience hard times. The children attended decent enough schools and were fortunate enough to mix with similarly privileged friends. There is general unease in the family however, as the second generation gain independence.

The pressures of wanting to keep up with the lifestyles of their wealthier friends, coupled with an unfortunate down-turn in the economy, results in a halt in savings and as a result the RMB 50.5m family wealth no longer enjoys any debit order increases. In addition, the capital base is required to maintain an income for the folks who have now retired.

Year 75: Third generation: Wealth destruction

The second generation finally inherit the family wealth and it is split three ways. By this time the RMB 45,000/month comfortable family living has ballooned to RMB 600,000/month as a result of inflation. Each family now only enjoys income from a capital base of RMB 110m and, because they themselves are approaching retirement they opt to de-risk their portfolios, which results in the capital invested unfortunately realising a more sedate 3% real rate of return.

After a torturous revelation later on in life, one of the 3rd generation children decided to carve out a career as a financial advisor. She made the following insightful observations:

1. Her grandparents did a fantastic job of consistently placing 10% of their monthly income into an equity investment over a 45 year period.

2. As they had generated sufficient capital to live off the dividend income there from, her grandparents had stuck with their equity investment throughout their retirement.

3. Unfortunately, her parents had failed to adopt a savings ethic and they had relied optimistically on their inheritances to generate their own retirement income.

4. The 3rd generation children (herself included) failed to comprehend the importance of generating an income and as a result were unable to adopt a savings plan or meet their own costs.

Time to start again.


  1. Stuff could always be worse said...

    It is true in my life, money did not make it to the third generation, my mom spent all that she inherited. I finally come to the conclusion, I have to make it myself. That's life.

  2. Anonymous said...

    Im in the Third generation: Wealth destruction, for shure.

  3. webbielady said...

    That is very true. Children who have not undergone the hardships of gaining money seem to not care at all how to gain it. Children who grew easy have different outlook in life who grew with difficulty and responsibility. Sometimes the hurdles force people to strive more and easy life helps many to fail.

  4. Anonymous said...


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