Question

Many family businesses worry about this statement "Wealth cannot go through third generation"...in your opinion what is the solution for this?

Answer 1

The saying "Wealth cannot pass three generations" is more practical than just merely a superstition. There is a practical reason behind this. The first generation works hard to build the business from scratch, planning and organizing it to see it come to life. It takes blood, sweat and tears to establish a successful business. They work hard to sustain it. The second-generation (i.e., the children of the first generation) see their parents working hard to build the business. So, they take it upon themselves to see that they don't let down their previous generation. They take the responsibility of prospering the business and growing it even further, allowing it to flourish and reach great heights. The third generation (children of the second generation) are directly born into wealth built by their predecessors. They are unaware of the sacrifices and hardships their previous generations had to go through to bring the business to life and sustain it. They become the natural inheritors of the business and property without even trying. One cannot understand the burden of responsibility just by inheriting a business. The third generation becomes complacent due to the lack of financial responsibilities.

This occurs due to a lack of proper communication flow between the generations. Efforts must be made to make the new generation understand the hardships the previous generations had to go through in order to reach this stage. This will only happen if there exists uninterrupted and free communication between them. The third generation must not be made to feel as if the business is a burden upon them. Some of them feel like it is a curse to be born into this family where their individual talents are suppressed since childhood because it is assumed from the beginning that the child will carry forward the legacy. It is this mistake the parents make that impact the psyche and make the child make mistakes when he eventually inherits the business. Instead, the child must be made to understand how the business works and how he is to handle it in the future, instead of forcing him to take up the business. The child's individual interests must be encouraged too, so as not to make him feel coerced into taking up the responsibility of the business. It is very important for all the members of the family to be on the same page about the succession of the business because the decisions taken would affect all of them either directly or indirectly.

Parents can open up the discussion to the future generation by sharing intimate details about the business and the effort it took to accumulate such wealth over the years and make them understand. The parents must make it a point to make them sit down and discuss the future goals of the business in-depth and in what direction they want their children to carry forward the business. Future financial goals must also be discussed one-on-one. Bringing in a financial advisor at some point would prove beneficial. The financial advisor could help guide the next generation and educate them on taking the best decisions. The old saying "Wealth cannot pass three generations" can be overridden if the above suggestions are taken into consideration. This will only be possible through open and honest communication. This will develop deeper trust, respect and understanding with the family and help secure a legacy for generations to come.