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Creating and Destroying Wealth

A capitalist system is a peculiar thing. No other economic system invented to date produces opportunities for creating as much wealth in so little time. And yet, no system allows wealth to be destroyed in so little time.

You may have heard the saying, “The first generation makes the money. The second generation spends it. And the third generation blows it.”

There’s another similar saying. “Rags to rags in three generations.”

Let’s explore why wealth is so frequently made and lost in fairly short order. This phenomenon boils down, I believe, to expectations among generations.

The first generation comes from nothing and works hard to create some sort of wealth. For those with the right skill sets, who work hard, and experience a little luck, impressive wealth can be accumulated.

The first generation’s attitude towards money, generally speaking, changes only mildly over time. By and large, the first generation consistently behaves like they have meager means, even after amassing significant wealth. They may make a few “vanity” purchases later in life – a nicer home, upgraded vehicles, steak instead of chicken at restaurants. But that’s about it.

Habits, after all, are hard to break.

The second generation starts from a higher base and faces fewer, if any, years of true financial struggle. They often get a leg up from the first generation – money, jobs, or connections. That being said, the second generation watched the first generation work hard. They understand how the family’s wealth was generated. But they also tend to believe the first generation worked too hard and enjoyed life too little.

The second generation often intends to shed the workhorse tendencies of the first generation. They splurge on things in a bigger way and at a younger age than the first generation.

Life, after all, is too short to simply work away.

The third generation never knows what it’s like to not have money. They are accustomed to nicer things from a young age. Bigger houses. Better vehicles. Fancier clothes. Nicer vacations. The first generation, knowing the second generation is already set, often gives to the third generation. So does the second generation. The third generation is totally removed from the initial struggle of building massive wealth. Aside from stories, they have no personal connection to the work it required.

Money is like oxygen to the third generation – plentiful and easy to consume. Their spending tends to match that perspective. But also like oxygen, when supply is constrained, suffocation quickly ensues.

Nothing, after all, lasts forever.

Inherited money must be the hottest money of all. So hot, it seems, it’s not held for long.

And it’s all about expectations. The first generation has extremely low expectations in terms of wealth and spending. Expectations rise with the second generation, but often remain within reason. By the third generation, expectations detach totally from reality, resulting in the unraveling of wealth.

It doesn’t always play out this way. But it often does. Human nature is tough to tame.

And yet, this phenomenon is largely good for society.

There are no benefits to society from dynastic family wealth. Being set for life from the moment the umbilical cord is cut is more a curse than a blessing. Capitalism thrives on hustle and innovation. Unearned wealth, however, stifles the drive for both.

That’s not to say striving for more in life is bad. It’s not. It’s perfectly reasonable.

But substantial wealth won’t set future generations for life. It will simply set higher expectations. And that will ultimately be wealth’s undoing.

Justin Lueger is President of Invisor Financial LLC, a registered investor adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at

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