Legacy of A Generation… Not the Millionaire Next Door

June 12, 2009

Sometimes individuals have those moments where they wake up in the middle of the night, and it hits them! It’s that thought, or idea, or realization that is so thought-provoking and so revolutionary that they can’t shake it. This is what happened to me a few nights ago!

I started thinking about the economy (as I often do) and about where the markets are currently and where they could possibly be heading. Are we in the recovery? Have the markets settled back into a nice equilibrium? If we are starting a steady upward movement, how is that possible when one considers all of the government obligations and the health of our overall financial system? What about Social Security, Medicare, and the trillions of dollars of debt?

After trying to wrap my head around all of these moving parts and complex systems, I honestly got angry! So then, rather than focusing on the uncertainty and confusion, I shifted my thinking to how did we get into this mess? And I’m not talking about excessive leverage, credit default swaps, black box investing, short-selling, crazy mortgage products, sub prime, or any number of ‘reasons’ for this financial turmoil. I wanted to figure out on a macro level, how in the world did we get here? How did we let America the Beautiful get here?

Then it hit me, and I mean it hit me like a ton of bricks! At first I got mad about how political our country has become, but then I realized that the partisanship is just smoke! Republican, Democrat, left, right… it is all smoke! The fire is actually something very very different! I want to go ahead and warn you, however, this theory and these thoughts are controversial, and it will not surprise me one bit if this upsets some of you. BUT, I think if you take a step back, and remove your individual self from the equation, you will realize how eye-opening this realization is!

As I was thinking and studying, I began to realize that there are some incredible correlations between the generations of the last 100 years and the cycle of personal wealth. Due to my background of working with wealthy individuals and managing wealth in general, I feel that I am uniquely qualified to make this connection.

Before you can truly understand what I am talking about, though, you need to understand what successful individuals have in common. It is these exact same principles that made us extremely successful and prosperous as a country. As you listen to the show, I will read a few excerpts from the bestselling book The Millionaire Next Door including this one:

“The large majority of these millionaires are not the descendants of the Rockefellers or Vanderbilts. More than 80 percent are ordinary people who have accumulated their wealth in one generation. They did it slowly, steadily, without signing a multimillion-dollar contract with the Yankees, without winning the lottery, without becoming the next Mick Jagger. Windfalls make great headlines, but such occurrences are rare. In the course of an adult’s lifetime, the probability of becoming wealthy via such paths in lower than one in four thousand. Contrast these odds with the proportion of American households (3.5 per one hundred) in the $1 million and over net worth category.”

As this passage describes, 80 percent of millionaires are first generation. So, with that being the case, what happens to the family fortunes? As you listen, I share a great case study that I think will help you understand exactly where that wealth goes.

‘But Brian, what in the world does this have to do with the economy, how our country got into the mess, and more importantly, what does this have to do with me?’ Well, I thought you would never ask 🙂

I want you for a second to think about the ‘Depression-Era’ generation. What were some of their common characteristics? They lived well below thier means and wanted their children to have a better life. But what did this ‘better life’ mean? Well, for most of them, it meant they wanted their children to live in fine homes and have a life style of consumption. HOWEVER, while working hard and saving and trying to make the world better for the next generation, that younger generation (the Baby Boomers) forgot or neglected to remember the elements that were the very foundation of what their parents built (aka the amazing and innovative powerhouse country of the United States). These baby boomers came to a point where they wanted to reject the life style of thrift they had grown up in and were no longer willing to subject themselves to a self-imposed environment of scarcity.

So then what were some traits common to this Baby Boomer generation? They lived lives with high levels of consumption, were under accumulators of wealth, subscribed to ‘head in the sand’ policies, and have somehow developed this idea of leaving the next generation to pick up the pieces. Somewhere along the line, individuals in the ‘Baby Boom’ generation lost the foundation that their parents subscribed to that allowed them to build this country to what it has become.

So how does this relate to wealthy families? In many cases (and not all, I know, there are absolutely some exceptions out there) the first generation builds the wealth, then the second and third generation blow through it. I can’t help but feel like that is EXACTLY what has gone on in America. The older generation, aka Depression-Era, lived below their means and had an amazing work ethic and built wealth and a wealthy country. Now, nearly two generations later, it would appear as though that wealth has been squandered.

What can we do to change it? My thought is that we can return to those same ideals that originally made this country great! We can begin to save for the future, live below are means, and defer gratification into future time periods. But I also want this to be a movement! I want to know what you think about this topic. Let’s turn this weeks show into a forum for discussion, whether you agree or disagree, leave a comment and lets see if we can come up with some effective ways to make a change!

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