A New Look at Family Wealth
Professor John Davis’ multi-year study on multigenerational family wealth reveals surprising findings on the misconception that wealth vanishes in three generations. His study shows how family wealth is typically created, often lost, and sometimes regenerated over generations. The philosophies and practices that families use to build sustainable wealth over generations is at the heart of his findings.
“I like to remind people: Businesses come and go. But the families behind those businesses can endure for generations. Several years ago, I asked how successful families survive for generations and led a multi-year study to uncover the answer.”
– Dr. John A. Davis
Introduction to Family Wealth Research Concepts
To understand what keeps a family successful for generations, follow the money. A family’s joint economic interests provide a center of gravity around which the family orbits. 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.
Successful multigenerational families identify with their entire portfolio of assets (including the family company). They concentrate on how to grow the portfolio over time to meet the family’s needs and help the family achieve its mission from generation to generation. Successful multigenerational families rise above the “company view” to develop an overall family wealth strategy. That is how a family achieves multigenerational success and sustainability.
How does wealth move over generations? I researched hundreds of families to trace how wealth travels over generations—and it is not always lost by the third generation, as the “Three-Generation Rule Path” axiom leads us to believe. It turns out that family wealth follows three alternative paths over time. I created the “Family Wealth Paths” framework to illustrate how family wealth travels over time.
Path 2: It declines faster.
Path 3: It grows.
