Wealthy Families Often Lose Their Money After Three Generations Due To A Few Grim Causes

Of course, there are many reasons why wealth can disappear quickly over a relatively short space of time. For example, while many families made their fortunes during the Great Depression, periods of economic recession can also tear through savings in record time. And that’s before we’ve even got onto the subject of tax.

But external factors aren’t always to blame when it comes to families losing their wealth. And there’s a reason that the old adage “shirtsleeves to shirtsleeves in three generations” is popular in one form or another around the world. Essentially, it means that family riches seldom last for long — but why is this the case?

One explanation, of course, is that family fortunes simply become diluted over the years. Take the case of John Werner Kluge, an entertainment tycoon who was once named the richest man in America by Forbes magazine. Back in 1987 he made a staggering $4 billion by selling off his television stations to what would become the Fox Network. 

Kluge’s vast fortune, though, was significantly reduced when he divorced his third wife Patricia in 1990, leaving her with maintenance payments of $1 million a year — plus ownership of the family estate. And when she went on to make some poor financial decisions, the couple’s lavish former home was repossessed.

In fact, history is littered with stories of once-great riches that have dwindled as successive heirs have stepped forward to claim their share. But often, this depreciation is down to the individual choices of those concerned. After all, experts estimate that about 90 percent of family fortunes will have disappeared by the third generation. So what is going on?

Sometimes, it seems, the children and grandchildren of wealthy individuals simply make terrible business decisions. In 1864 the penniless Joseph Pulitzer left his home in Hungary and traveled to America, where he set about making his fortune. And within a few decades, he had established a vast publishing empire and become a leading player on the political scene.

After Joseph’s death in 1911 his fortune passed to his children, with a significant chunk eventually ending up in the hands of grandson Peter. And in 1982 he was reportedly worth a staggering $25 million — the equivalent of roughly $60 million today. But unfortunately, he did not inherit his ancestor’s business acumen.

Instead, Peter opted to invest his fortune in a citrus grove — a decision that he would soon come to regret. When the trees on the property succumbed to a devastating disease, the associated costs quickly ate through his savings. And in the end, his ex-wife had to step in and prevent the failing business from going to the wall. 

And Peter wasn’t the only heir to make a bizarre, ultimately catastrophic, decision regarding his family’s wealth. When oil magnate Clint Murchison Sr. died in 1969 his son Clint Jr. inherited $200 million, or $400 million in today’s money. But the shrewd investor gene appeared to have died out with the first generation.

Clint Jr., you see, chose to enjoy his fortune. And in 1960 he fulfilled a dream: a former fan of the ill-fated Dallas Texans American football franchise, he founded his own — the Dallas Cowboys. Meanwhile, as well as investing in more traditional assets such as oil and real estate, he splashed his cash on more esoteric businesses such as a pirate radio station. 

Unfortunately, Murchinson’s investments did not prove wise, and in 1985 he had to declare himself bankrupt. But sometimes, even seemingly smart decisions can burn through family fortunes in record time. After all, when the sons of brewing tycoon Bernhard Stroh took it upon themselves to expand his business across America, it must have seemed like an excellent idea.

On the surface, it appeared, things were going great. But by the time that Bernhard’s great-nephew Peter took charge, the business was beginning to struggle in the face of an increasingly competitive business environment. And despite borrowing heavily and seeking out new markets, he found himself at the helm of a sinking ship. 

Eventually, in 1999 the Stroh Brewing Company, by then under the control of Peter’s cousin John, was sold off to its competitors, ending the family legacy once and for all. Were Bernhard’s heirs simply outwitted by bad luck and an unpredictable market? Or were they unfortunate victims of the third-generation curse?

Sometimes, there are more personal reasons that cause a family’s financial good luck to turn sour. According to experts, one explanation is that heirs who were born into money are ill-equipped to manage that wealth. In other words, their comfortable lives have left them without the drive and determination that allowed their forebears to make their fortunes in the first place.

“There is a risk of entitlement that comes to the fore, and that is where things tend to go off the rails,” wealth management specialist Thane Stenner told Canadian newspaper The Globe and Mail in 2017. And nowhere is this rich-kid syndrome more evident than in the story of the Vanderbilts, who once held the title of America’s richest family.

The good fortune of the Vanderbilt family began with patriarch Cornelius, who rose from humble beginnings on Staten Island to become a pioneer in the shipping and railroad industries. Reportedly, he started off with a loan of just $100 and was worth roughly $100 million at the time of his death.

Before he died, the story goes, Cornelius told his son William, “Any fool can make a fortune; it takes a man of brains to hold on to it.” But sadly, this advice ultimately went unheeded: while the second generation managed to build upon the Vanderbilt wealth, things went steadily downhill after the third took over.  

Indulging in luxuries such as mansions, race horses, yachts, and art collections, the Vanderbilts soon burned through much of Cornelius’ fortune — just as the family business was beginning to decline. And although there was enough left over by the fourth generation for great-grandson Reginald to live a playboy lifestyle, the money had begun to run out. 

By the time that journalist Anderson Cooper, Cornelius’ great-great-great-grandson, was born in 1967 the Vanderbilt’s ancestral wealth was long gone. And today, barely a trace of their property empire remains. If even America’s wealthiest family can succumb to this troublesome curse, then, what hope remains for the rest of the world’s elite?

And these misfortunes don’t just plague those families with historic wealth, either. The child of Jewish immigrants, film director Aaron Spelling had little in the way of riches when he embarked on his career. But by the time that he died in 2006 he left behind a fortune of $600 million.

While Aaron worked to earn his wealth, though, his daughter Tori enjoyed the easy lifestyle of a socialite. In fact, she was so careless with money that her father put a $800,000 cap on her inheritance. All the same, she wasted the cash on luxuries such as designer clothes, eventually ending up broke with debt collectors at her door.

Sometimes, though, it is not mere frivolity that sees the children of rich parents burn through their fortunes. When British television personality Clarissa Dickson Wright’s mother died, for example, she was consumed by grief — and even a $3.4 million inheritance could not console her. Instead, she developed an alcohol addiction and soon frittered away her fortune funding a hedonistic lifestyle.

Similarly, American politician Maureen O’Connor was left heartbroken when her husband Robert, a fast-food tycoon, passed away. Later diagnosed with a brain tumor, she became addicted to gambling — specifically playing poker online. And within a few decades, she had burned through her $50 million inheritance, winding up destitute and accused of money laundering, though those charges were eventually dropped after missing funds were repaid.

There are plenty of reasons, then, why the dreaded third-generation curse eats up the wealth of even the richest of families. And often, it’s a combination of them all. Take Huntington Hartford II, who inherited $90 million from his retail tycoon father at the tender age of 11. In this case, bad investments, frivolous spending, and family disputes all played a role in his eventual decline.

Despite having received an expensive education, Huntington didn’t know much about running a business. And after years of bad investments, such as a failed modeling agency, his fortune began to disappear. Add into the mix an expensive lifestyle and four financially disastrous marriages and it’s easy to see why the A&P heir declared himself bankrupt in 1992. 

A similar fate, it seems, befell Barbara Hutton, the socialite and heiress labeled the “Poor Little Rich Girl” by America’s press. When she turned 21, the daughter of retail magnate Frank Woolworth inherited a $50 million fortune, making her one of the richest women on the planet. But the money bought her neither happiness nor success.

Like Huntington, Barbara lived a lavish lifestyle, dipping into her fortune to fund designer shopping sprees and outlandish gifts for her family and friends. And over the course of seven marriages, she lost much of her initial inheritance. But rather than bad business decisions, it was ultimately her generosity that proved her undoing, dying virtually penniless after giving away much of her estate.

This curse, then, seems to affect everyone, from entrepreneurs and tycoons to entertainment industry pioneers. And in some cases, it kicks in even before the third generation is born. But is there any way for the world’s wealthiest families to escape this unfortunate fate? Or are their children and grandchildren destined to fail?

Happily for the potential Vanderbilts and Huttons of this world, there is a way to break the curse — and there are several families who have managed to avoid its clutches. The Rockefellers, for example, remain one of the richest dynasties in America well over a century after patriarch John became the first billionaire in the world.

After launching the Standard Oil Company back in 1870 John Rockefeller went on to become known as “the wealthiest American in history”. And while he made some generous donations to charitable causes while alive, he still left behind an estate worth more than $26 million after his death in 1937.

Today, that fortune would be worth over $500 million — more than enough to set anybody up for life. But rather than rest on their laurels, Rockefeller’s heirs worked hard to grow the family’s wealth. And they succeeded: as of 2020 the dynasty is believed to be worth somewhere in the region of $8.4 billion.

So how did they do it? According to experts, an interest in charitable endeavors lies at the heart of the family’s success. Speaking to The Australian Financial Review in 2016 Joan Di Furia, who co-founded financial consultancy the Money, Meaning & Choices Institute, explained, “The Rockefellers organized themselves around philanthropy.”

Interestingly, it’s an approach that many advisors recommend to those looking to avoid the third-generation curse. Di Furia continued, “Families need to be able to answer, ‘What is the purpose of this wealth?’” What’s more, she added, an ethos needs to develop to ensure that values are respected and adhered to through the generations. 

Speaking to The Globe and Mail, Krista Kerr, another wealth management specialist, agreed that a philanthropic foundation was a great way to empower younger generations. She said, “You can get adult children to sit on the board… so they learn how to invest the assets and how to give them away.”

In fact, philanthropy seems to be at the heart of many successful dynasties who have seemingly escaped the curse. Although they are known mostly for their political campaigning, the Koch brothers, heirs to a multi-billion dollar fortune, also operate a number of charitable foundations. And today, the family is worth something in the region of $100 billion.

Similarly, the Hearst family, whose wealth came first from mining and then from publishing, have managed to keep their fortune safe over the years. And despite the wayward nature of some of the later generations, they are still worth approximately $21 billion today. Again, they’re a dynasty known for their philanthropic pursuits, which might help to explain their continued success.

But it’s not all about charitable donations — there are other factors at play when it comes to dodging the third-generation curse. According to Stuart Morley, head of family business and wealth at multinational PricewaterhouseCoopers, such firms need a solid succession plan in place if they hope to seamlessly pass their assets down the generations. 

“People tend to forget the ongoing success of a family business isn’t just about the balance sheet,” Morley told The Australian Financial Review. “It’s also the family dynamic — the respect and sense of tradition built into the family. Succession planning is a process not an event.” And Di Furia went so far as to call the situation a “global and hidden crisis” — although not everyone would agree with the hyperbole.

Today, reports claim that the richest 1 percent of the population own 50 percent of the world’s wealth. But how many of these families will retain their fortunes over the years to come? Will their children and grand-children hang on to the money — or will the third-generation curse of bad choices, lavish living, and complicated personal lives render them penniless in the end?