Beyond Estate Planning: Understanding the Family Wealth Cycle and How It Creates Happiness for You and Those Who Come After

Part One

Are you someone who has worked hard to earn and save so you can build up a financial cushion and live the lifestyle you’ve always wanted? 

Or are you fortunate enough to have inherited a level of wealth from your parents? Wealth that you want to grow and add on to? 

Perhaps you’re someone who has seen your family’s wealth start to decline and wants to stop the bleeding?

Maybe you’re a blend of all three? 

Whichever category you belong to, you are experiencing something every generation must contend with in their own way: The problem of earning enough for today while building wealth for tomorrow…and then preserving it for those who come after you.

This is a topic many financial advisors don’t talk about, but it’s one we value strongly here at Hudock Capital. It goes beyond basic estate planning.  Beyond wills, trusts, and beneficiary designations.  This topic is about building wealth…and then turning that wealth into happiness. 

It’s called the Family Wealth Cycle, and understanding it is one of the single most important aspects of financial planning.

Not long ago, a neighbor of mine passed away. Before he died, he lived an incredibly frugal life. He only bought clothes secondhand. He tackled every problem with a DIY mentality, and he rarely bought food he couldn’t grow himself. But this frugality wasn’t enforced on him due to a lack of wealth. It was his method for creating wealth. When he passed away, he left a sizable estate and an enormous inheritance to a certain family member. A family member who did not share his frugal habits, but whose only plan was to try and spend as much of that inheritance as possible. Sadly, the values my neighbor applied to his own wealth did not extend to his beneficiary.  So, very soon, I expect the wealth he worked so hard to attain — wealth he thought would last for generations after him – will be gone. 

Having a better will wouldn’t have solved that.  Even naming a different beneficiary might not have solved it.  This goes beyond simple estate planning. 

It’s a common scenario for high-net-worth families, and a significant source of stress for many people as they get older. What will they leave behind for their children and grandchildren? How long will it last? Will their loved ones not only have the means, but the motivation to continue taking care of themselves? What about the generation after them?

Fortunately, there is a simple remedy for reducing stress.  A way to build, bequeath, and safeguard generational wealth for yourself, your children, and beyond. A way to transform wealth from a mere number in a bank account into actual happiness for your entire family.

All you have to do is understand the Family Wealth Cycle and your place within it.

You see, in almost every family, there are four distinct generations, each with a different relationship to wealth. These four generations make up the Family Wealth Cycle — a cycle that tends to repeat over and over. A cycle where some generations have a positive relationship with money, while others have a negative one. A cycle where some generations create happiness for themselves and their children, while others squander it.

These four generations include:

The Generation of Creation

This is the generation that initially builds wealth due to hard work and an unwavering commitment to earning, saving, and investing.  This generation is often the first in their family to graduate college.  Sometimes, they become wealthy themselves.  Other times, they make it possible for their children to become wealthy. 

The Generation of Observation

This generation sees firsthand what their parents did to build wealth.  As a result, they have a great appreciation for it because they know it’s not guaranteed.  Naturally, they use their wealth to enjoy luxuries the prior generation could not afford. However, because they have learned good financial habits, they still tend to add onto that wealth, or at least replace whatever they spend.

The Generation of Gratification

This generation, born into wealth and now further removed from the generation that created it, believes money comes from inheritance, not hard work and sacrifice.  They tend to have a very short-term view of money, spending far more than they save, which leads to…

The Generation of Lamentation

This generation can’t believe their parents blew all the money. 

Sometimes this generation will turn into a new generation of creation later in life. Other times, it’s their children who must do that, and the cycle begins again. 

Take a moment to think about these four generations. Which one did your parents fall under? Which do you fall under? Which one best explains your current situation?  Which describes the situation you most hope to avoid?

Here at Hudock Capital, we work to ensure that our clients know where they fall in the Family Wealth Cycle.  We help them understand the specific challenges they face.  We strive to give them everything they need to be good stewards of their wealth so that it last for generations after them. The reason this is so important is because each generation has its own challenges and responsibilities for building and preserving wealth. If you know where in the family wealth cycle you fall, you can better prepare to meet and overcome the challenges you will face. You can build your wealth in a way that ensures it will last long after you. Just as importantly, in a way that ensures future generations will preserve it, too.

This is so, so important. Not just because knowing your wealth will last is a major stress reducer.  But because it’s a major investment in your family’s overall happiness. It creates an environment where everyone in the family will have opportunities to grow and achieve. An environment where everyone is on the same page, all contributing in whatever way they can. An environment without resentment, confusion, or anger. An environment where everyone takes pride in the family’s wealth and their role in maintaining it. Like a community garden that flourishes under the watchful eyes and willing hands that nurture it.

And when you create that, you will have wealth that truly lasts.  Wealth that won’t end with you. 

Wealth that brings real happiness. 

Isn’t that the goal? 

So, that’s the Family Wealth Cycle in a nutshell.  In my next blog post, I’ll break down the specific challenges and responsibilities each generation has, so you will know exactly what must be done with your wealth to bring happiness for yourself and for future generations.

— Michael Hudock