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Why Rich Kids Don’t Stay Rich
July 30, 2007
By Robert Frank
WSJ.com blog The Wealth Report
Rich kids, we hear, have it all. Money. Connections. Top educations. Cars and clothes. For those who are part of what Warren Buffett calls “the Lucky Sperm Club,” life is supposedly one long shopping trip with an no-limits ATM card.
But what if it’s not?
What if growing up rich actually has disadvantages? And what if rich kids’ penchant for spending — and their lack of experience at earning — catches up with them, and that unlimited ATM machine winds up empty? (Not to feel sorry for these people, just to point out a reality.)
That’s the premise behind my article in the Los Angeles Times (reg. req.). [...] My conclusion is that despite all their supposed advantages, today’s rich kids have grown up in such bubbles of privilege that they’re not prepared for today’s increasingly competitive job market. They don’t make good investors, they don’t compete well for the top jobs, and they’re not hungry for success like kids who grow up in middle-class homes can be.
Eventually, I argue, their money will run out. And much of the inherited wealth in America will flow back to people who actually earn it — as it has throughout history. This is what makes wealth in America dynamic, rather than dynastic.
Some readers disagreed. One sent me a thoughtful email arguing that “the ultrawealthy are not stupid. They know their children. [...]”
In other words, rich parents don’t give their money to irresponsible kids. I’m sure this is true for some families. But in my experience, rich parents can’t help themselves when it comes to spoiling their kids, no matter how irresponsible those kids are with money. And those kids usually wind up squandering their money through bad investments, bad relationships or lavish shopping sprees...
Judging only by the turnover on the Forbes 400 list, staying superrich is much harder than becoming superrich.