How often do the rich lose their wealth in the second generation? The Data shows that wealthy families get inexorably poorer over subsequent generations.
Second Generation Wealth
-By Franklin Parker
Data shows that much of the time the majority of wealth earned by the first generation doesn’t make it to the second. This concept is illustrated using the Forbes 400, which is a list of the 400 wealthiest people in the world.
Only 69 families from the inaugural 1982 list remain on the list in 2014—out of 400. Meaning the other 331 names on the 2014 Forbes 400 made their wealth in this generation.
83% of the wealthiest people in the world made their money in this generation.
We can also see that the share of dynastic wealth—wealth held by subsequent generations—has shrunk considerably over the past 40 years. This chart shows that the average wealth held by the original Forbes 400 has shrunk by 60% since 1982:
Further, we can see that inter-generational wealth is very difficult to maintain. Here is the evolution of wealth over time for the absolute wealthiest families:
It is pretty clear that wealthy families get poorer over the years, not wealthier.
Also of interest is the “wealthy tax” which appears to be present in the marketplace. That is, the very wealthy earn less return on their money than “the rest of us”, assuming “the rest of us” employ some simply indexed 60/40 investment strategy:
-GG
Sources: “The Myth of Dynastic Wealth”, 2015, The Cato Journal.
Time Magazine, Written By Franklin Parker
