Have you ever wondered why there is so much angst and anxiety from some high-income earning households that seem to have it all? Based on my years of research, the three main reasons are: 1) never-ending comparison, 2) a lack of generational wealth, and 3) having children.
Generational wealth is next-level wealth. If you have generational wealth, you don't have to stress as much about the future of your children. Great colleges and well-paying companies can shut your kids out. But it doesn't really matter because your children are already set for life.
The problem lies in accumulating the vast sums of money needed to be considered truly rich. You also don’t want to just give your kids a lot of money either.
In Search For How Much Money Is Enough
Since 2009, I've been writing about the angst of the upwardly-mobile middle class in big cities such as New York and San Francisco. After all, I've been grinding away in these two expensive cities since 1999.
My first 13 years after college were about figuring out a way to save and invest enough money to escape the rat race. The next 11 years were about trying to maintain a comfortable lifestyle without being sucked back into work due to the desire for money, prestige, status, and fame.
During these time periods, I encountered many wealthy individuals who often seemed stressed out of their minds. Despite their obvious wealth, they didn't seem to be content, let alone happy. I found this puzzling.
Today, I've come to realize the key to happiness is to quit the pursuit of maximum money and stop the comparisons. And if you decide to have kids, know you will inevitably feel more stressed. Here are the top 10 financial moves I recommend to help reduce stress and anxiety.
The Desire For Generational Wealth
For five years after I left work in 2012, I felt relatively at peace about having given up the pursuit of making maximum money. We even moved to a less dense and cheaper part of San Francisco in 2014 to get away from the hyper-competition.
However, after my son was born in April 2017, my feelings about money changed again. Once you have children, unless you're a deadbeat parent, you will naturally want to make more money to provide more care for your family.
I couldn't escape this biological pull. As a result, I shifted more towards entrepreneurship and focussed less on retirement in 2018. Then, when the pandemic began in 2020, I decided I might as well write a book given I was stuck at home for who knew how long.
The desire for generational wealth comes about when you have children. Every parent wants the best for their children. But given the world is ultra-competitive now thanks to technology and globalization, there's a constant fear by parents their kids won't be able to replicate their financial and lifestyle success.
Therefore, one solution to lessen this angst is to provide them with enough money to never go hungry should they be shutout from one too many opportunities.
But creating generational wealth is hard. It means accumulating enough assets, not active income, to provide for everlasting financial security. After all, once you retire or die, your active income will cease to exist.
The Easiest Way To Create Generational Wealth
Once you have affordable housing, life gets much easier. If you can bring your housing expense as a percentage of income down to 10% or less, financial freedom is an inevitability. Food, clothing, shelter are relatively inexpensive when compared to housing costs.
Therefore, the easiest way to start creating generational wealth is to buy a rental property for each child you have. Ideally, you buy one when they are born to give yourself more time to pay down the mortgage and let the asset appreciate while your child matures into adulthood.
Imagine buying a property when your baby is born.
For the next 18 years, you diligently pay down their mortgages and manage their properties for rental income.
By the time each child is officially an adult, the property should be able to spit out enough rental income to provide for their basic living expenses. The property can also provide shelter for your child. Finally, the property can be sold and reinvested for whatever else your child desires.
Letting the powers of inflation and compound growth work their magic while your costs largely stay fixed is wonderful. Real estate is the easiest way for the common person to build generational wealth.
If your child ends up attending a great university and landing a high-paying job, they might have their own living ideas. In this case, then excellent! The median income earned by Ivy League graduates is significantly higher 20 years after graduation. According to PayScale, the median pay is roughly 59% higher at $160,888.
You no longer need career insurance for your children. The property you earmarked for them can continue generating semi-passive rental income for your retirement.
With a paid off rental property portfolio, you've started your path to creating generational wealth. You're not crazy rich, as some might imagine the definition of generational wealth to be. But you've got housing security for your children, if needed, which provides enormous stress relief.
The Not Rich Enough Class = HENRYs
If you live in an expensive big city, you will regularly encounter households that make $300,000, $400,000, $500,000, and even $1,000,000+ a year. To most Americans, such household incomes are considered rich.
Curiously, many such income earners don't feel rich due to the high cost of living, constant competition, and the responsibility of raising children. These are the High Earners Not Yet Rich (HENRYs) with kids.
Most HENRYs are highly educated people who don't have a high net worth yet. Their jobs pay well, but they also require long hours and cause enormous stress. They might still be paying off student loans while trying to figure out how to save for their children's college education.
If HENRYs can just hold onto their uninspiring jobs for the next 20 years, they'll be rich! Alas, 20 years is a long time to grind. Why not do some YOLOing instead?
Be careful about wanting everything: a high-paying job with lots of status, kids, a loving partner, and lots of freedom. The desire to have it all will lead to misery.
Needing To Trade Time For Money Is Not Rich
We've discussed how households earning over $400,000 will face potential tax hikes under President Biden. If you're already working long hours at a job you don't love, you're not going to feel great about paying more taxes as you struggle to save and invest more for retirement.
However, the main reason why some $400,000+ households don't feel rich is because they are still trading their time for money. So long as you need to trade time for money, it's hard to feel rich because you will never be free.
There are many ways to feel rich. But one of the most fundamental ways to feel rich is to not have to work for money anymore. With enough passive income, you get to work on things because you want to, not because you need to.
The problem I constantly witness is the inability of people to forecast their misery. As a result, people spend too much today without thinking enough about tomorrow. By the time they are miserable at their jobs, they are trapped because they do not have enough money freedom fighters.
Too Much Competition And Comparison
The angst and anxiety of the not rich-enough class yet comes from too much comparison.
Now that my son is in kindergarten, I've had to inject myself back into normal working society. And inevitably, at every gathering, parents will discuss their vacations, businesses, work achievements, child achievements and more.
What else are parents going to talk about if we spend the majority of our week working? These topics are totally natural and not to be dismissed.
However, the more people discuss their days, the more you will question whether you're doing enough for your family. You may also question your own career and wealth trajectory. Therefore, the constant comparisons may make you feel less rich or even poor and maybe even a bad parent!
Here are some examples that may cause anxiety and stress:
- A parent who puts their kid in soccer, basketball, ski camp, and karate, at the same time. You might question whether you're providing enough opportunities for your kid. Even though the kid has less than a 1% chance of getting a sports scholarship, what if?
- A parent mentioning they got a raise and a promotion. If you're working in a similar industry, you will naturally compare their career trajectory to yours.
- A couple who mentions they plan to live overseas for two months this summer so their kid can experience full language immersion. As a result, you might want to find a job with more flexibility.
One of the reasons why I like to talk about pickleball and tennis during parent gatherings is because it's a way NOT to talk about career, business, and kids. These are fun sports many people can do that don't elicit envy.
After being away from regular society for so long, it is so clear to me how too much comparison creates unhappiness. If you live in a city that attracts the best college graduates who work in the most lucrative industries, you can't help feel like you always need to grind just to keep up.
Minimum Net Worth Needed To Have Generational Wealth
Now that we understand how comparison and kids can create more anxiety and angst, let's define generational wealth.
Based on a previous survey of roughly 10,000 Financial Samurai readers, achieving a $10 million net worth is the ideal amount to retire with as an individual or couple. Therefore, we could say $10 million is also the minimum net worth needed to have generational wealth.
If you have two children, you can leave $5 million to each and they'll be set for life. Even if you have five children, you could give each of them $2 million, enough to live well for decades.
But as the saying goes, “from rice paddies fields to rice paddies fields in three generations.” Those generations that didn't work hard to make their own wealth tend to squander it. It's hard to appreciate what we didn't earn.
If you're a high-income earner who wants to feel less anxious, increase your patience. Run some numbers through a retirement calculator to give yourself an idea of how much money you'll have if you stay the course.
If you live long enough, you will eventually get to this $10 million minimal generational wealth figure. Alas, most will not live to see that day.
A More Dynamic Generational Wealth Amount
Thanks to inflation and changes in government laws, let me introduce a more dynamic generational wealth amount to help reduce the anxiety you have for your kids.
Given the government is astute with a tremendous amount of data, the ideal generational wealth amount is the estate tax threshold. This amount is $12.92 million if you are an individual or $25.84 million if you are a couple in 2023. As the estate tax threshold increases, so does your target generational wealth amount figure and vice versa.
What's the point of accumulating more than the estate tax threshold each year if the government is simply going to tax you 40% on every dollar over? Instead, it's best to spend all your money above the estimated estate tax threshold to enjoy life more and take care of your children while living!
If you're feeling even more anxiety due to a higher generational wealth amount target, feel comfort knowing we can consider this the maximum, not the minimum threshold to shoot for.
Ways To Feel Richer And Less Anxious About Your Kids
The implosion of Credit Suisse, my old employer, reminded me of the importance of legacy. As you get older, you will wistfully review all the things you did in your life. And if you spent decades working at a company that went under, you may feel terrible about your life choices.
Hence, to feel more rich and less anxious about your kids' futures, consider two things:
- Spend more time with your kids so you minimize regret if they turn bad
- Start a family-run business so you are more in control of its destiny
You don't need generational wealth to do these two things. You just need effort. And whenever you make an effort, you will gain satisfaction knowing that you tried.
I doubt you'll ever regret spending more time with your kids before they leave the house. You will also likely not regret starting something of your own and teaching your kids about how your business works.
The combination of owning a rental property free-and-clear for each child plus owning a family business will reduce your anxiety about your children's future. Generational wealth is not needed because you've plowed a clear path for them, if needed.
With a family business, your child will always have a job in case they can't get a good one on their own. You don't need to worry about them getting into a good college either. By the time they're 22, you will have taught them everything there is to know about the business.
Downward Mobility Is Still A Good Life
Every parent wants upward mobility for their children. However, the more parents make, the lower the chances their children will make an equal or greater amount. Downward mobility for children of rich parents is more likely!
A $400,000 household income is a top 2% income. A $500,000 household income is the start of a top 1% income. Therefore, by definition, 98% – 99% of new households and existing households won't make those amounts.
You might look at the downward mobility chart below by Brookings Institute and fret about your child's future. However, I challenge you to think differently.
Instead, think about downward mobility as the result of upward mobility by households earning higher incomes. Not only are households earning more, our standard of living is higher thanks to technology and medical breakthroughs.
A Positive Generational Wealth Transfer
Let's say your child earns $50,000 a year for the rest of their life while you average $100,000 a year for your career. A 50% drop is significant. However, so long as you gave them love and support, as well as named them in your inheritance, they should be good to go!
After all, a middle-class person today lives much better than a king from the year 1800. Perhaps we just need to be reminded how good we really have it.
Since we can't go back in time, we can simply travel to see how 99% of the population that doesn't make over $38,000 a year lives. Then, perhaps, we'll appreciate more of what we have and not need generational wealth to feel less stressed.
Finally, if you don't want to feel as much anxiety, don't have children. You won't experience the joys of parenthood, but you won't experience the sorrows and angst either. No amount of money will ever completely stop you from worrying about the well-being of your children.
Reader Questions And Suggestions
Why do you think many households that earn multiple-six figures are year are not happy? How much do you think is enough to have generational wealth? Is generational wealth necessary if you don't have kids?
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67 thoughts on “Generational Wealth And The Angst Of The Not Rich Enough Class”
With the lifetime giving exclusion as high as it has ever been, many UHNW families (often flush with cash from selling their companies during the PE boom over the last few years) are simply gifting away their money to irrevocable dynasty trusts, that way they never get estate taxed, ever. It’s wild. We won’t see the results of this massive wealth transfer outside of the estate tax regimen for another generation or two, but there are going to be hundreds, if not thousands, more dynastically wealthy families in the US. This is the result of the confluence of the high lifetime giving exclusion, the PE boom in middle market companies, and irrevocable trust planning.
Thanks for mentioning irrevocable dynasty trusts. I will look more into this and write a post about it!
The key ones currently are Spousal Lifetime Access Trusts
Generational wealth is a mindset, not money. You mentioned it, “from rice paddies fields to rice paddies fields in three generations.” If you are taught financial principles, you could inherit $50,000 and turn it into 1 million over a lifetime. All the while, you were teaching your children the power of a dollar, so they take that 1 million and turn it into 5-10 over their lifetime, and so on and so forth. If there is no understanding or respect for financial principles, it doesn’t matter how much money you pass down, it’ll be burned through as soon as they receive it.
You mentioned the extremely high rejection rates for elite colleges. Give the number of college applicants overall is down, I wonder if the real dynamic is that more students today are applying to more colleges than in decades past. It is so much easier today, with the common app and such, to apply. So today, many students are applying to a much higher number of colleges, vs. in the past when each college required a separate application package. Colleges love the common app, it allows them to publish a very high rejection rate when in reality many of the applicants were only marginally interested, i.e. they had 20+ safe schools.
To me generational wealth isn’t having enough to pass along so the generation does not need to work, but enough to give them a meaningful safety net and some freedom – not freedom from work. So 1mill per child is plenty to help them pay debts and change careers if unhappy in current career. Stuff like that.
My parents helped me graduate college with minimal debt and I’m extremely grateful for that. I’ll do the same for my son. Anything inheritance is a bonus for him. He needs to be independent and fight for himself. He can have our house if he can’t handle the real world.
My friend got a rental house for each of his kids. That’s a great idea. It can help pay for college.
Good post – I’m going to share it with a 30 something in our family who is on the HENRY track and dealing with some of the challenges you outline here. fwiw I think it may be easier to come from an actual middle class family and work your way to success vs. come from the top 5% world and deal with all the expectations and hedonic adaption – if you grow up with money the world you grew up in is hard to replicate.
This article on generational wealth is the best article I have ever read in the subject !
I have written you before, but to review context, I am 74, not one of your young bucks!
I went to dental school in your area and graduated in 1974. Presently I am a voluntary professor at the school, teaching a seminar on finance and tax, which means wealth creation.
I fully and totally endorse your financial acumen.
Instead of buying a rental property, you can also just max out their UTMA each year.
For me generational wealth it’s not about putting your kids on easy street. It is the recognition of how cruel and arbitrary life can sometimes be. If you don’t have money as a resource a loved one can go in the ditch and stay there for the rest of their life. As somebody who grew up poor I understand how many opportunities and resources are withheld if you do not have money. Personally myself or my family has experience the death of a spouse, a handicapped child that will need assistance for the rest of her life, expensive high stakes litigation being tortured by our legal system, and two grandkids with genetic issues that may lead to blindness. Bad luck can and does happen. I could care less about a Rolex or a Lambo in the driveway. What I do care about is being a firewall so that myself and my family have the economic resources to recover and eventually thrive. I’m actually a very optimistic person and feel incredibly blessed that I was fortunate enough to be born in this country and have the opportunities to prosper. I’ve seized those opportunities and have built a firewall. It’s just a recognition that bad things can happen unfairly and trying to be as prepared as possible to perform admirably.
Not counting the value of my business, I have 10M net worth with 50% real estate and 50% stocks. I also make a bit over 1M per year so I technically have more than I will ever need. Having 1 kid and just turning 50 recently, my main challenge is to make sure my child grows up to be normal and understands the value of money. So far, I am thinking of selling my real estate assets at discount to my child when he grows up at a steep discount so he has to work for it. And if I manage to live a longer life then set up a family trust where the trust will match whatever income he makes 1X or 2X up to 3% of the fund. That way, the incentive to stay productive will always be there and I can have some peace that all the work I have put it will not be wasted away. Ideally, in 30 or 40 years, the family fund will be large enough that dividends alone will pay for trust distributions and the fund can continue for future generations with the same formula.
I think it is psychological.
If things feel “tight”-ish at 400k. Bc almost no one feels like they have crap tons of money they don’t know what to do with.
Then You think “man, I wonder if my kids will be able to land a job(s) like I/we have”
you then think “oh shit! If they don’t, how will they live?!?” And you jump on the hamster wheel. Bc you can’t imagine the math working at a different level.
I have this where I wonder how we legit paid our bills ten years ago with a fraction of our current income. The higher the income the more I feel like I need to squirrel away. What if?!? Are we saving enough?!? How would we replace these jobs?!?
And I worry that we are setting our kids up with expectations and a life style that may be out of their reach. But, I bet They will start out broke and happy, just like we did.
This exactly my thoughts and my irrational fear and why I basically still work with more NW than I ever will spend. It’s fear that they won’t have I now have and in supposed to ensure in the family patriarch. Growing up poor and becoming what most considered rich is a blessing, but scarcity mindset and wanting to protect your kids can be a huge curse…
High income and rich are not one and the same to me. They often coincide, but not necessarily. To me rich is about accumulated wealth not income.
There’s plenty of rich people who have very little income because they inherited or cut back on working, etc. And there’s also a lot of very high income people who have almost no accumulated wealth because they either just started earning well, have massive debt (including student loans) or live beyond their means.
There are a lot of families making multiple six figures and while they are way more fortunate than average a lot of them are living a lifestyle not so dissimilar to most other working Americans. They take nicer vacations, sure, but probably don’t fly first class. They pay out of pocket for their kid’s college and don’t get any aid. They have a bigger house but likely still have a 30 year mortgage. They usually can’t got more than a few months without work before things look grim.
Of course it’s all relative. 150k/yr sounded rich to me when we brought home 30k/yr. To a median earner $500,000 probably sounds rich, but it’s also hard to see when you make 50k that someone making $500,000 pays $190,000 in taxes in a place like CA, and that’s not including any local taxes. They’re also funding retirement with mostly post tax dollars. I’m not saying they’re struggling- they’re not- but not struggling doesn’t equal rich to me.
I can really see both sides. We’re just under $400k, and thats with me being a SAHM and DH working 80% time. We are hella privileged. But simultaneously, it feels like there should be more disposable cash. That’s not private school money, or cash flowing college money, although it sounds like it should be.
I agree with others that healthcare is a MAJOR factor. If DH couldn’t work, boom, no more income that high. He has disability insurance, but for way less than his salary. We’re one cancer diagnosis from potentially losing this lifestyle if DH couldn’t work. No universal healthcare means $$$$ COBRA. All kinds of co pays and deductibles. Covering things insurance doesn’t cover. We have ample savings that could EASILY be wiped out in a couple of years with the wrong diagnosis.
Even now, a ton of money is sucked up on healthcare. Over a thousand dollars a month on weekly therapy for both kids, thousands of dollars out of pocket when 1 kid needed in patient mental health care, thousands out of pocket when both kids needed to see the pulmonologist and have ongoing treatment to get their asthma under control, a couple hundred on Rx copays a month, etc. And we have good insurance. I know people making less than us have similar expenses, and I really feel for them. I guess my kids wouldn’t get acupuncture or art therapy if we had half the income. They’d have to take whatever services are offered on a sliding scale or do without. And that’s really scary because even with having plenty of resources, I have struggled and been on endless waitlists to get my kids help. Medical care shouldn’t be a privilege, but that’s really the biggest place where our disposable income goes.
My kids are in public school, but I have a lawyer on retainer to assist with one child’s IEP. Cheaper than private school, but a big expense. It sucks that kids whose parents can’t afford it just get screwed by the system.
I guess our income doesn’t feel excessively high because so much of it seems to go towards things that really don’t feel like luxuries. Those things just wouldn’t be attainable sadly on a regular income.
I also think loss of benefits/ job security over time has worsened this.
My parents were both teachers in NY, so they made more than an US average salary, probably over 200k when they both retired as administrators.
They both qualified for large pensions and retiree healthcare to supplement Medicare. Most younger workers are getting none of that.
DH and I make around 300k. We save 20% of our income, 60k a year for retirement. This was disposable income for my parents.
Also higher earners tend to have had more education. This at times requires moving for school, traning and niche jobs.
My parents were paying $16,000 a year for daycare, or $20 an hour for a date night sitter. My grandparents watched us when we were little and then we would stay overnight occasionally as we got older. Our families now live 2 states away, that’s not something we have.
Do I think people over exaggerate being “poor” at higher incomes. Yes. Lots of times it’s just bad choices.
But the changes in retirement/ pensions, healthcare (people didn’t used to have 10k a year deductibles), family support to child care, etc, has reduced the percentage of truest disposable income. The ridiculous increase in housing and college costs are a huge part of this too.
We’re above $400,000 and have been for the past several years. Husband drives a Ford sedan and I drive a Volkswagen SUV. Is it because we can’t technically afford more? No. It’s due to the fact that as this income level we feel a greater responsibility to be smart with our money. That means saving extensively for retirement, having a large emergency fund for a rainy day, shoveling money into 529’s x4, and so on.
Does it feel like we should feel “richer” than we do? Yes. Especially given the immense wealth we are exposed to through DH’s line of work, the country club a mile over, peers in the area, etc. Taxes are huge at this income level – we pay a significant amount and it feels like there’s a new tax that pops up every year (see no longer being able to itemize state taxes due to the most recent measure).
That said, we fully recognize we have *choices* at this level of income that we did not have before. We are choosing to save and not buy expensive cars, the biggest house, or new gadgets. The fact that we can choose to do those things is at its very essence rich.
Part of it I think is a disconnect from the lines we heard growing up – $100k meant you were set! A $1m house meant you were swimming in money ala Scrooge McDuck! And then you graduate college, get a real job, get hit with the expenses of living in a big city, and reality sets in. $400k+ certainly doesn’t feel like we imagined, but that’s, again, because we choose for it not to.
We are very aware that we are high income and do not complain. I do have to say that it doesn’t go as far as someone might think because you are sharing a higher and higher percentage of the income with taxing agencies.
Not everyone falls into the trap of private school, competitive colleges, home in best school district, high end cars, etc. If someone is uber concerned about that to the point it is stressing them out, that is on them. hey have more than enough for a comfortable life, but might find more happiness living with less lofty goals.
We lived very happily on our income in a lower income area, sending our kids to Title 1 schools, driving “Camry” level cars, and not pushing highly competitive colleges. Our kids are all adults now and happily living their average lives.
We make almost $500,000 a year and don’t feel rich as I perceive rich should feel.
I feel very comfortable and I have a lot of things – we almost have our house paid off, we have a paid off rental, paid off cars, a kid we put through college and another on the cusp with savings for him too.
We live in a nice area and have a nice house. We eat out and eat well. We can go on a couple of vacations a year. We pay $400 vet bills and aren’t worried that we’ll have to dip into savings. We can absorb inflationary costs without giving up something else.
Rich to me feels like you never worry about money, that you can afford things without thinking/saving/working toward it, that you don’t have to be selective about where your kid goes to college, that you can drive whatever you want and live where ever you want.
At $450,000+, we still think about every dollar. We have tons of insurance to make sure we aren’t devastated by a major incident, we save and save to put our kid through college, our cars range from 2013 to 2017. We don’t ever buy new cars.
The family business is a good idea until you end up forcing your kids to work in it to keep it going (which is the situation I’m in). Lack of freedom is one of the most stifling feelings that money can’t fix.
In terms of your kids’ education, maybe you need to consider countries other than the US. Education in many parts of Europe is almost-free, even for foreigners. I studied my Masters at ETH Zurich for a tuition fee of 1500USD/year and moved there with zero knowledge of any German. Cost of living then was 20,000USD/year and inflation has been under control so I don’t think it will cost a lot more today. For extra spending money, I tutored international school kids for 100USD/hour!
Sending your kids to German or French language classes will increase their options of unis that don’t cost a million bucks – a good investment i think!
Hi CH, are you the parent with the family business or the kid forced to work at the family business. Sorry, I can’t tell. If you are the kid forced to work, can you just tell your parents no and do something else?
They are learning Mandarin, so hopefully that will help.
Really? Everyone depends on their parents to set them up? My parents told me early on that they weren’t paying for my college so I made sure I had a way to pay for it by getting good grades and then getting an Air Force scholarship. My four kids all went to community college, and then to top University of California schools via the honors transfer program. They all graduated, paid off their college debt, and have good jobs now. There is a lot of satisfaction and freedom in making your own way in life. I’m glad my parents gave me unconditional love and spent a lot of time with me but that we were never financially intertwined. Also, people who think they have family money coming their way often make a lot of bad decisions.
Not at all. But as a parent, I just plan for the worst and hope for the best. This way, there is an insurance policy in case the worst does happen. Life really is about managing expectations.
Congrats on your success and your kids’ successes! The way I see it, if they can go to community college and public school route like your kids, then they or I will have a surprise $+ million financial windfall per child to do whatever we want.
I think it’s a good challenge to save and invest for the future.
I’m also impressed you didn’t have much, if any anxiety or worry about your kids’ futures. What would you attribute that to and any tips for parents to feel the same way? Thanks!
Thanks, Sam. You’ve thought a lot recently about the future cost of college for your kids. Do you have a way that you estimate the costs of kids in their pre college years? Or if you’re open to sharing, how much more would you estimate you spend v. if you did not have kids?
I ask as someone in the market for kids, so to speak.
I think stress and competition have such a huge impact on a decrease in happiness even with a lot of money. More money, more responsibilities, more stuff, more problems if you don’t actively manage stress and work life balance. Planning and prioritizing what really matters to yourself and your family is so important to happiness. And also really appreciating what you have.
Editing my own comment.
You did say you were planning on setting up a substantial 529 fund for your kids’ education. So that indicates you are advocating the point of my previous comment.
Again, I think this effort to pass on a debt free education is the best way to pass “generational wealth” on for most of us who are not wildly rich.
Yes, I agree. However, there is this other anxiety that no matter how good of a student you are, you won’t get into a good enough school to land a well-paying job.
Paying for school is one thing. But actually being able to show a solid return on all that education is another.
May I ask whether your children are gainfully employed after receiving their degrees? How did you pay for their colleges and how much did it cost?
Perhaps the anxiety from parents dies down once their kids graduate college, no matter what type of job they do since they are 4+ years into adulthood now?
Thanks for your insights!
So I’m not Steve, but I do have a PhD in biomedical engineering. I’ve now been working 17 years post PhD, 5 before that. My parents had saved $50k for my undergrad, which was at an out of my Virginia state private school, and with scholarships, there was $18k left over. I majored an engineering, and minored in communication, the latter being a major lift in my career. Graduate school had a stipend, no tuition. Throughout my working career, 2 jobs before grad school, 3rd job since graduate school), i I feel very positive about the accomplishments I had in each job, the work life balance (except current job right now, but it’s all things that I’ll be proud of later on), and had plenty of money..
in fact, I’d have a hard time NOT working, because I’ve invested so much into skills that help at work. But I’d love more time off.
For my three kids, I’m targeting 200k in the 529 for when they reach college (7 – 14 years from now)
It makes sense to feel like you need to work or want to work longer the more education you get. You want to maximize the return on that education.
$200,000 per kid for 529 plan right?
I did not see in your article what I consider the primary (and most attainable) way of passing on generational wealth.
The ability to provide your kids with a good education without leaving them with student debts. Both of our kids have recently graduated – one with a law school degree and one with a bio-medical engineering degree. Both now have a solid foundation to succeed without the burden of college debt. I guess an alternative to this would be ensuring the kids have a strong background in a trade or family business (I know several people who have very lucrative small businesses as plumbers or electricians).
I hope we have also provided them with the mindset to be successful and not squander their opportunities. But as you say, each generation must work, simply spending the parents’ money is not a model for success.
Both my wife and I received the same debt free educational opportunity from our own parents- neither of whom anyone would have considered “rich.” And that gift has definitely been the springboard to our own success.
Best wishes to all.
If you worry about making it too easy on your kids, ruining any motivation to work hard, or that they will simply be lazy or blow the fortune fast, simply place it in a trust with some guidelines in place. We have all seen generational wealth dry up and trust fund jerks, but also wonderful, giving, thoughtful beneficiaries of trust funds. It has a lot to do with the family values, but also the guardrails that may/should/need to be in place.
So with our kids, we moved some generational wealth into trust through the high lifetime giving limits right now, use income in the trust it to purchase and own life insurance policies to ensure additional future transfers in a tax advantaged way. Then we set up what we call incentive trust guidelines. So if the child decides to be a teacher and makes X they can pull out 1X from the fund, effectively doubling income. If the other child makes 3X, the fund allows up to 1X of that with a limit of 5% of the total value of the trust. There are of course flexible rules for healthcare/medical, buying a first home, etc.
This way, the kids can have extra funds to try new experiences, help with expenses, yet cannot blow through all the money due to the withdrawal cap, but they are given a leg up with essentially a doubled income. Complicated with the insurance, limits and cap – Yes. Thoughtful, protective and ensuring the next gen also ends up with some of the Wealth – also Yes. So they can’t buy a Ferrari…Good!
I personally saw family members go from rags to riches to rags again. So we took action when we had a liquidity moment and set up this plan. Did it restrict us from doing some things or buying a second home in some fancy place like Hawaii, Yes. However, we know our kids kids will have a nest egg. We share the plan with the kids and explain how they can do this for their kids too. College, first home down payments, and a lifetime supplement for their future help us sleep at night. Note we didn’t do this with tens of millions, but it will be in the future.
Note to Andy above, this can work for you too. Make sure to set up in a trust friendly state like South Dakota or Washington so they can last generations.
Great article; really hits home bc I struggle with stressing about my kids. Someone once said love is when your happiness is directly tied to another’s happiness. I constantly fear for my kids’ happiness especially as the world is in decline and not growth. I am trying to accept that life in this universe is a series of experiences, and our kids need to experience things and we should not interfere. I have decided to help them get an education, buy them a house to live in when they get FT jobs and can maintain it, and just be there for them. Life will be full of ups and downs, who knows maybe even war and economic collapse, but if we band together as a family we will get through it. They do not need to repeat the ‘good life’ we used to have; they need to move forward and experience the future – and that way they will be part of the change that is necessary in society to get over the ‘hump’ we are experiencing and create a better future.
There’s a saying.
“You’re only as happy as your least happy child.”
The good thing is, their experience of a good life is all they will ever know. They can’t compare it to when we were growing up, so the point is moot. As long as we are there for them, that’s the most important thing we can do.
Overall good article. I especially liked how you talked about downward mobility and that being perfectly fine. I worry about my kids having less than me and often don’t stop to think that less than me is still a lot.
Once part of the article I disliked and found overly sensational was:
“Once you have children, unless you’re a deadbeat parent, you will naturally want to make more money to provide more care for your family.”
That is personally true to you, but not everyone. I actively choose to make LESS money and have MORE time when my children were born. Before they hit 1st grade, they don’t value much above having your time and attention. I don’t want to take your point out of context which is “we all want to give our kids the most when they are born” …. but that doesn’t always mean monetarily.
Also, as someone with a small business and 2 kids (6 and 3) who HAD rental properties, I can say from experience the WORST time to buy a rental property is when you have a baby. Again, it goes back to time, stress and juggling it all. Again, the point you wanted to make was build an asset for your kids and I agree with that. But to a reader who may take that point more literally, do NOT buy an income property when you get a new baby lol. I had 2 income properties, our family home, my wife’s career and my company….when my daughter was born we got rid of one income property that was a real cash cow, but had required a ton of time compared to the other property. We rolled the equity into our other property. Then 2.5 year later my 2nd kid was born. 2 kids is about 4-5x harder than 1x, not simply 2x harder….in my opinion. So while we had a really nice cash flow with the “easy” income property …. we were spread thin. We sold that property before our 2nd kid was 1 year old.
Let me tell you, it was a great call. We had less income, less tax break but also a fair deal more simplicity which helped us keep our careers together with 2 small kids. Sometimes, something has to give. I DO recommend getting an income property for your kids, but do it before they are born OR after 1st or 2nd grade. And if you have a rental while you have small kids, try to be as low key while they are young (meaning no big renos, maybe even take a slightly lower rent if the tenants don’t bug you much).
But the value of time when you kids are young is INSANELY understated. There is a time to hustle and get ahead…but that is NOT when the kids are young. That time is just before the kids or AFTER your kids value of your time starts to drop.
Excellent point. My wording is probably too harsh and not clear enough to capture nuance. My goal is to capture that biological pull to provide, especially from a man’s point of view.
I’m not sure if we differ, though, because I, too, wanted to spend as much time with my kids as possible for the first five years, as I mentioned in this post. As a result, I didn’t go back and get a day job as I thought I would in 2019.
So I definitely gave up a lot of money to be at home.
Did you leave your job as well to be a stay at home dad? If so, for how long? If not, what type of job did you do that enabled you to work less for less money? I think a lot of people would love to have a job with this type of flexibility for years.
I wonder if part of your feeling about not wanting to make a lot of money after your children were born was because you already were relatively financially secure or were highly confident in your financial modeling?
Also, a good point on the trouble of owning rental property. You can certainly get unlucky, as it sounded like you did for one of your properties. Everybody has a different situation and limit regarding how much trouble they can take. My limit is managing three rental properties, myself, which is why I sold one when my son was born.
Did your partner work while your kids were babies? Maybe that’s another reason why maintaining rental properties was more difficult for you. The combo of babycare and managing rentals can be tough.
Personally, as soon as I mentally designated a rental property for one of my children, the hassle of maintenance and Tenant issues declined because it felt good doing this work for their future.
I really would love to meet more stay at home dads and hear about their experiences, and how the financial strategy was set in place to provide. Thanks for sharing!
Excellent Article! I can directly confirm many of the suggestions. They have worked in my life.
We bought two properties and another small place for one of my children, who has challenges. The properties have doubled as both investments and quasi bank accounts, and generate income in retirement. While we have not yet paid them off, we are well on our way, and it has been one of the best things we did, along with saving for retirement. We will eventually pass them to our kids.
We have been lucky with tenants. But have made renting to reliable people a priority. We don’t necessarily get the absolute top rents, but sleep well at night.
Finally, we try not to compare ourselves to others. That includes buying expensive cars. George W. Bush was president when we purchased one of our modest cars, and we will replace it soon.
Glad things have worked out. Buying one property per child really good work and investing more meaning doesn’t it? So long as we have a purpose to work, we will work with great vigor.
Get a whole life insurance policy and leave it to your kids
Not a bad idea. Will think more about this plan, given the cost of a whole life policy, and the time it takes to build a cash value.
Buy term life and invest the rest will come out ahead every time
This is another amazing article. I can totally resonate with so many aspects of this, especially the one on anxiety, on comparisons with others, and on the perennial desire for money and status. Let me elaborate.
Long post alert!
I was always an above average student (wrt academics and extra curriculars) in school. I attended college at Vanderbilt and got my MBA at Cornell. I worked in finance in NYC, Singapore, and Toronto. I thought I was intelligent and driven.
Now I’m 40 and my net worth is still barely 3 million $. My wife is 36. She’s a lawyer and her net worth is around 1.5 mln $. Between us, we have around 4.5mn$. I’m not complaining. But when I compare myself with my friends/peers from school and college, I find that some of them (and their spouses) have made way more than we have.
For instance, one of my buds from middle school runs an emerging markets hedge fund in NYC and is worth around 80 mln $ liquid! This is a guy who never managed to get anything close to my grades throughout school. He’s obviously an outlier but there are plenty of other classmates who have made way way more money than I have. There is absolutely no correlation between grades and money making ability, I guess.
This habit of frequently comparing myself with my classmates / cohort makes me feel miserable/ like a low-life cockroach sometimes.
We recently relocated to Mumbai from Toronto and I’m in the asset management industry. I’m getting around 240k$ annual base salary. I’ve grown up with a super frugal mindset (money was always tight when I was a kid). So I bought a 15k$ used Hyundai Elantra for myself and a 30k$ used Volvo XC40 for my wife, given we need a safe ride for our kid.
I wish I had more drive / guts/ optimism when I was younger. In Mumbai, when I see the 25-27yo young guns at the office, I am simply stunned by their terrifyingly high levels of intelligence/ IQ coupled with their ferocious ambition & drive. I thought I had IQ and ambition when I was a 27yo young gun armed with my ivy league swag working in NYC. I realise I didn’t know jack compared with the kids over here today.
Sometimes my wife and I stay awake at night thinking how the heck is our little boy gonna be able to compete at school/ college/ the workplace when he grows up? Or are there even going to be relevant jobs? Or will robots rule the roost by the time he goes to college? Will college even be relevant in the future?
I wish in my youth I had found a mentor who had the guts, wisdom, and optimism that you have, Sam. I would have been far better off, at least financially. I’m glad to have atleast found your writing since a little before the pandemic started.
Anyways, for the next ten years, I resolve to outwork the young guns, and if it means putting in 60-70 hours a week, then so be it. I realise if I don’t outwork the kids, I’ll get booted out sooner rather than later!
Sorry for the rant. Sam, if you’re still reading this, thank you! Any advice on how to get rid of the perennial anxiety would be appreciated.
To reduce anxiety, an easy way is to get out of big cities, or live in the suburbs of a big city if that is where you need to work. If you were constantly surrounded by type A, gung ho, highly motivated people who just want to climb the corporate ladder, and make tons of money, you are always going to feel that anxiety.
Ideally, you can do your investing job from home in a sleep your town where you are surrounded by people to work to live not live to work. Surround yourself with nature and live in a place near the water or with water views that has helped me a lot ever since I moved to the western side of the city in 2014.
Spending more time with your children and teaching them as much as you know, based on their tolerance, also helps tremendously. After all, you are an educated person. Why not teach them everything you know?
These are all good suggestions. Thanks! I will attempt to incorporate them in our lives.
I spend tons of time with the kids. I’m talking as much as they’ll allow now that they’re teens, but mostly every day we play games outside. As such, my daughter has a superb chance at a D1 soccer scholarship. When I moved to DC metro area, I learned early that playing a sport well young is the key to success. Gone were the days of multi-sport athletes unless they are just that gifted. Now my time for past 13 years will pay off with very likely a big scholarship package. Thank God… not only can’t I buy that time I would’ve missed had I been a lazy parent, but now it’ll save me and her a fortune. With that, I get to pass my Post 9/11 GI Bill to other kids… and the circle continues.
We had a rental property and it was hell. Renters are mostly trash tenants who DGAF about the property and we ended up putting more money in that we got out (from rent). I understand equity and all, but man, what a headache. Will skip that one.
Good portion of the ‘wealth’ we plan to transfer is in our home in the DC metro area, which in 10 years has risen 50% in value while we enjoy at 2.65% APR fixed. THAT is where wealth will come and thank goodness we remortgaged and just kept paying down. We’re easily in the $300k range for equity today, let alone another decade in this market area (Amazon HQ2 down the road).
Time is everything. I’d work for far less if I was given more time… no one wants a 32 hour worker though unless it’s a starter job, but I have limits. I don’t even want over $100k, just a job that’s mentally challenging and 32 or less hours. I’d probably do better than 90% of their workers in that shortened week. Oh well…
That’s great your daughter is getting a scholarship to play Division I soccer! Definitely less than one percent of high school students receive athletic scholarships. What school are we talking about?
I was thinking about something else. A full ride currently is equal to about $235,000 in tuition. Hence, if a family, who cannot get a full ride scholarship can mentally just bake this into their future expenses, that anxiety should dissipate because they will have no expectations for getting any free money.
Playing sports in college is incredible, but it is still a job to some extent.
I live in Silicon Valley and I saw some coworkers spend the money as fast as it comes into the checking account. It was typically the immigrants that saved a lot. I just bought a house from an acquaintance that got downsized and had no strategy for how to live in this area on a budget. But, he left the area with an RV, a huge truck and a couple of luxury cars and 6 pods full of basically crap accumulated from impulse purchases.
Achieving Generational Wealth without relying heavily on luck? Just some quick thoughts on that.
Your kids, your grandkids, your great grandkids — someone is going to blow it once you are gone, unless you already have the money to set up something on the scale of one of the 400 families. So rethink that.
Don’t get killed (avoid war zones, extreme sports, roaming city streets alone after dark, taking long hikes in the wilderness alone, etc.) and live in a place where wild animals won’t get you as you leave the house. Hopefully you already got all this out of your system when you were younger and poorer. I know I did.
Don’t get greedy. That makes you wide open to getting conned.
Don’t get over extravagant.
Don’t become a public figure.
Build up a few million dollars.
Don’t invest any major part of your fortune where any one person or organization can get their hands on it. This especially includes relatives and friends.
Don’t get divorced. And if you ever marry again, give serious thought to a pre-nuptial agreement.
Protect yourself from potential law suits well in advance of actually being sued.
Avoid dangerous sex stuff, illegal porn, don’t pick up hitchhikers, don’t open the door to unexpected strangers without a plan, eschew unnecessary surgery, don’t post anything on social media that you aren’t prepared to see on the front page of the newspaper if worst came to worst, avoid fad diets and homeopathic cures, stay away from non-mainstream religions.
Don’t become a martial artist, but learn two to five really effective moves you can do in an instant, and practice them until you can almost do them in your sleep (it’s way unlikely you would ever need more than that).
Follow the news enough that you don’t get blindsided.
Get medical assistance as needed, along with regular checkups, skin cancer checks, etc. and take your prescriptions (don’t run out of them), work out, eat healthy, drink little, don’t smoke, and don’t get overweight.
Don’t ever draw from accumulated savings and investments at a rate higher than what it is earning, less inflation, taxes, and managerial costs.
Know the tax laws as they affect you and long term planning!
Stay alive until radically extended lifespans are available — maybe by 2030, 2045 at the latest.
Use the radically extended lifespan to stay alive until rejuvenation\regeneration make death by old age a thing of the past. Maybe another 20 to 30 years after the radical life extension starts.
Avoid living in tornado alley, along coastlines in general, in wildfire prone areas, on riverbanks, on fault lines, around potential mud slides, below dams, in very tall buildings, on busy roads, and so on.
Another rule of thumb is to never go any place where you might no longer be at the top of the food chain (this includes places with lots of kidnapping or any that are deficient in the rule of law). Certainly don’t visit countries where the term ‘government’ is synonymous with the name of a single morally bankrupt individual (Russia, Belarus, China, North Korea, Iran, etc.)
You can own guns, but you really, seriously, have to know how to keep them safe and secure, as well as how to handle them. And then actually do that.
Consider always having a serious safe room close at hand.
Be a kind and generous person that others in your life will treasure and respect, but know the limits, set them, adhere to them, ensure others adhere to them, and don’t let anyone over the age of three (maybe four) take advantage of your good nature.
THAT WAS AWESOME!!!!!
I was afraid this was going to end with you living in a bunker in Kansas, as it’s April Fool’s week. I’d say to avoid all religion, as too much of it has been weaponized to take your money.
On another subject concerned with living forever, Ray Kurtzweil and his ilk not withstanding, don’t bet the farm on living much beyond 100-120 as biology just doesn’t support it. Genetic engineering isn’t at the level where the basic human substrate can be mostly replaced – if it were, changing gender could be done in a few weeks with a retrovirus.
And as Arthur C. Clarke pointed out decades ago, the biggest problem with living forever is boredom and entrenched fear disguised as “rational” conservatism.
Old Man Bush had the right idea, skydiving/bunjie cord jumping as a 90th birthday present.
It was half in jest.
Moderation in all things, including moderation, eh?
I’m also a science junkie (which has helped my investing hugely once I eventually realized it could) so on life extension? Meh. Someone is alive today that will live a thousand years. The question then being, how old are they now? Even so, they will likely be outliers as the half-life of a population not constrained by old age is still likely to be considerably less than that (car wrecks, murders, suicides, wars, meteors, botulism, whatever). Speaking strictly for myself, all of my hobbies are exceptionally time-consuming, so I could probably fill a few centuries, given the chance.
The main gist of that though, was that since your family is unlikely to build on what you built for very long once you are gone, to really lock in generational wealth, delay going. Warren Buffet supposedly didn’t make his first billion until he was 57. Now in his 90s he is worth over 100 billion. If he had even an extra century, I’m not sure the planet could stand the strain of that kind of concentrated wealth. (Presumably another 80 years would give him around a quadrillion dollars.)
I can see where you’re coming from. I think you might feel better if you went and made friends with those perhaps not in your socioeconomic circle. Hanging out with people bragging about business accomplishments or their kid in 5 sports sounds like a drag. Perhaps volunteering at a food bank, and inner-city school, or a youth development program will make you feel that your kids are actually very lucky, and as you say, spending time with them and helping the along the way is the most they can ask for.
“Therefore, one solution to lessen this angst is to provide them with enough money to never go hungry should they be shutout from one too many opportunities.” – This is good in theory, but would you want them to feel like they are dependent on that? Look how some celebrity kids turn out. Kids that grow up in a two parent household with no student loans and plenty of opportunity in the US are already given a head start. Teaching them things, helping them along the way, providing experiences. There will always be ways to earn money and provide value in the future, it just may look different today, as it always evolving.
That’s why sports is so great. When we are on the court, whether playing pickle ball or tennis, it doesn’t matter your social economic background. What matters is your positive attitude and your ability to play.
Did your feelings about the future and experiencing anxiety change once you had kids, if you have kids? Who are the people you hang around with?
I found spending time with foster children and the people who work at foster homes provides different perspectives.
Agreed. And yes we plan to share more experiences with our kids that ground them, and make them realize all the different walks of life people come from, hopefully that instills a sense of gratitude for the opportunity this country provides. I don’t think we have anxiety about them not having enough money, as there are many people won’t grow up with the same privileges they will.
I volunteer with a lot of outdoors/conservation groups. It’s a nice break from the tie-wearing finance folks I talk to daily, and those rugged outdoor types are the kind of people that will make sure you’re feeling welcome even if you can’t do the same level of work as them. Some people truly inspire me at the level of effort they put into things that don’t impact their own wallet.
And personally, I want my kids to struggle a bit. I want to help them out and give them a hand up, but I don’t want to deliver everything on a silver platter. They say one’s grit is the biggest factor is determining whether one is successful in life. But you never get a chance to develop grit if you never have to work for anything. Having modest means and working out for yourself how to earn more is character-building in my opinion.
When I was in Silicon Valley and it’s sister city Redmond, I rubbed elbows with many high earners and honestly they mostly seemed happy, just not content.
I saw one exec retire at least twice only to be laid off several years later. They kept coming back (according to my sources) because they couldn’t afford their lifestyle without the high income.
Besides not having the fanciest car/house they could imagine, the majority of the stress they discussed seemed to be the absurd performance reviews their employers forced upon them.
Additionally, I’ve run into a fair number
of people that sold their stock awards as soon as they vested, but then saw the stock appreciate exponentially creating an alarming amount of gains that they missed. This is one of the bigger money regrets I’ve heard these folks talk about.
There are just as many of us, probably more, who held on to it then saw it tank.
Sam thank you for the articles, you always provide intresting insights to real personal finance challenges. I was thinking about this generational wealth topic a week ago and was going over some strategies to give my son a trust income rather than he simply inherits everthing when we pass. I am thinking about a multiple generation strategy or maybe a dynasty trust arrangment… what would be the best way to set this up, how much do we need and who is best to manage a generational trust like this. The goal is to modestly support several family generations and they too can benefit from the boom we have had over the past few years. Any thoughts or even an article would be awesome.
1st I want to say I enjoy reading and often going back and reading your old articles. I read your article and agree with your statement that it’s hard for children to appreciate what they didn’t earn. My mom didn’t know alot of things about finances and investing and didn’t make alot of money when I was growing up. Therefore, she couldn’t help me with things like buying my 1st car or putting me through college. I had to earn a football scholarship and learn about investing and finances on my own. While my income is a far cry from the top earners, I manage to make over 6 figures with overtime working as prison guard. I started buying stocks for my daughter when she was born, and buy stocks in a brokerage account every time i get paid. she is now 4 years old and her account is sitting around $8,000. Hopefully by the time she is 18 years old, with my constant contributions, her account grows enough to allow me to help her pay for college or put down on a house. thank you for the articles, keep up the good work! I sell fitness t shirts and hoodies, check out my website and see if you like anything.
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You wonder how the Rockefeller family manages to keep the wealth through the generations unlike the Vanderbilt family. Would be an interesting read.
Great message of the importance of diversifying into HARD ASSETS!
I’ve been turning funny money into real assets for the past 20 years and I’m glad.
Funny money comes and goes. Hard assets tend to last.
Sam, great article. I think 5-10 mil (5 being the low end), is a solid target for generational wealth. I bought my first of 3 SFH rentals in 2010. My oldest (3 daughters) just turned 20 his year. The youngest is 16. My plan was to have all 3 rentals paid off by my age 50 (corresponding with youngest daughter turning 18).
We are on pace to accomplish this goal and do this within the next 20 months. In addition, I added the second goal of having my small office building paid off at the same time.
I’ll leave each daughter a paid off home and I’ll keep the bonus office building for my wife and I.
The current cash flow from rents, helps pay for my daughters’ college expenses and our living expenses. Ultimately, to be transferred to them.
Good timing buying your first rental in 2010! Sounds like everything has worked out. If you would do anything differently, I’d love to hear it.
I would’ve bought more real estate!
That’s most usually the case!