Paging Paris Hilton...
Why Rich Kids Don’t Stay Rich
July 30, 2007
By Robert Frank
WSJ.com blog The Wealth ReportRich 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.
posted by Oroborous at 5:09 AM
11 Comments:
Two things come immediately to minds. First, the old saying "shirt sleeves to shirt sleeves in three generations," meaning that a poor man works hard, gets rich, leaves his money to his kids who spend it all over the next two generations, leaving the grandchildren poor, but not hard working.
Second, the genius of the common law against perpetuities, which says that a trust can't last longer than a life in being plus 21 years (that is, not longer than 21 years past the death of someone living at the time of the trust). As a result, money can't be tied up forever by the dead hand of the past -- or protected from spendthrift heirs.
(Two side notes on my two notes.
1. The law against perpetuities is one reason so many rich men set up charitable foundations. Charitable trusts can be perpetual, and provide an income for future generations who act as officers and directors. Charitable foundations should also be subject to the law against perpetuities.
2. The measuring life doesn't have to be anyone related to the trust, so lawyers tend to use youngish people who are likely to receive excellent health care as the measuring life. For example, members of the British royal family. So, whenever a royal dies, a bunch of family trusts start a 21 year count down to dissolution.)
2(2) is both fascinating, and wacky. Why set up a system that relies on chance to measure the length of the arrangement? Why not just a set time period, like 75 years?
Also, it's a bit hyperbolic to say that it's "harder" to stay rich, than it is to become rich. What I should have written is that it appears to be almost as hard.
You know you've been blogging too long when...
Here's a comment at BrothersJudd that is, in part, about why judges won't just pick a number. Also, you'll now understand, if you didn't before, the obscure tangential law joke at the bottom.
Both acquiring and keeping wealth (if you're gonna be aggressive about it) require luck as well as some talent and tenacity. Luck always runs out eventually.
Aren't congratulations in order for getting published in the LAT?
I haven't examined the entrails of the Forbes 400, but I predict the turnover has to do with owing god a death, not profligacy.
For example, Barbara Anthony, who was #43, kicked the bucket this year. Her two children get half each of $12B. I don't know where that puts them on the list, or if $6B will even get them on it.
Second, the genius of the common law against perpetuities, which says that a trust can't last longer than a life in being plus 21 years ...
That is why I enjoy blogging.
I had no earthly idea perpetuities worked like that.
Although, I do wonder why they aren't called tempotuities.
I don't know where that puts them on the list, or if $6B will even get them on it.
If they did get $ 6B, that would put them quite high on the list. A billion dollars is still a lot of money.
Last year's list was the first on which the required minimum was one billion dollars, and the median was "only" three billion.
Hey Skipper, who's in line for congrats for being published in the LAT's?
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