The Psychology of Families Who Stay Rich For Generations

The psychology of families who stay rich for generations. 70% of inherited wealth is gone by the second generation, 90% by the third. That's not a market problem. That's not an investment problem. That's a human problem. See, money doesn't disappear because the returns failed. It disappeared because identity, because of values, because of decision frameworks that were never upgraded as their money started to grow. So in this episode, I'm going to break down the 5 psychological modes that families have to master to move from survival to stability, to stewardship, to legacy. I've spent over 3 decades as a CPA, as a money mentor, as an entrepreneur, and walking this journey myself. And I've seen what works and I've seen what doesn't work. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice because Earning more doesn't make you free. A money machine does. So if you're ready to master the psychology and the path to generational wealth, you're in the right place. Let's do this. The psychology of families who stay rich for generations. Here's the truth that most people miss. And that is this: families don't lose wealth because They make bad investments. I mean, sure, there are some that have done it, but they lose it more because they never upgraded the way they think about money. And if you're sitting there thinking at this point, oh, well, we're talking about generational wealth, and you say, Mel, this doesn't apply to me. I'm simply trying to make ends meet and pay my bills. Oh no, this applies to you more and not less because the way you think about money when you have very little is the same psychology that determines whether your money's going to last when you finally have more. So, if you don't get this right early, getting rich doesn't fix it. More money at the problem doesn't fix it. It just makes the problem louder. So, there are 5 wealth mindsets and psychologies that families actually grow through. And they're not income levels. They're not net worth brackets. They're literally how we think. They're mindsets that we need to think about. And if you don't graduate through this, then that's where we start to have problems. And it's not graduating by earning more. You graduate by thinking differently. And every family moves through these, or they get stuck in one and never know why. So let's start with mindset number 1. And this is what I call the survival mindset. This is where money becomes the oxygen for their life. Here's what's happening in, in this mindset, in this kind of stage of growth, money isn't the tool yet. You're, you're still trying to figure it out. And it's like oxygen. It feels urgent. Your bills feel urgent. There's unexpected expenses that feel threatening. And you just feel like you're on this tightrope walking, going, gosh, one big gust of wind and I'm blown over. The nervous system is running the show, that angst, that anxiety. Okay? This is where we many times start. It's where I started. I started out with a negative net worth. I started out in debt and I was trying to figure out this whole thing out. And it doesn't make you irresponsible. It simply makes you human. See, what people will focus on here and why it hurts them is this: they focus on income spikes. How do I get my income? How do I, how do I get that overtime? How do I get more, more money? And it is important to increase your earnings. Earnings. But if you're just increasing earnings, if that's your sole focus, that's the problem. Or you focus on hustling more, just work longer, work harder, work faster. That's what I was doing when I was working for the firm. What that does is it leads to short-term relief. And you think, you think that, well, once I make more, everything changes. And what happens is that you start to make more and nothing changes. In fact, it's how your survival turns into burnout. And what we really need to do, if you're in this phase of thinking, and we all start there because survival, existence, it's the lower rung of Maslow's hierarchy of needs. We need to survive. That's our nature. What we should be focusing on here is this. The goal here isn't wealth. The goal here is stability. Stability means that all of a sudden you find breathing room. You have liquidity in your finances. In other words, you have that emergency fund, you have that peace of mind fund in place, you've got your debt under control, and you're not driven by demands to make decisions. You get to slow down, slowing the decisions down enough so you can think through them. They're not panicked because panic is expensive. And this control buys you some thinking time. It's a point where when we get this right, we start to get ourselves some space and a place to think more strategically. Okay. When you do this, what you need to think about avoiding, and this is a challenge because it was a challenge for me, is first off, lifestyle inflation, lifestyle creep. I know that when I first came out of school and I got my job and I was getting raises and I was getting bonuses, I was spending it all because, woo-hoo, I got extra money. And maybe that goes on with you. And so this lifestyle inflation, all of a sudden, Your income goes up, your spending goes up, but there is no margin left at the end of the day. And you still feel like, wait, my income went up, but I'm still in survival mode. I'm still barely breathing. What's going on? The other thing that happens a lot here is comparison, but not comparison from an aspirational standpoint, but comparison from a lack standpoint. What do they have that I don't have? That is never a good recipe for us to transition and build something. And it leads to desperation investments. Now, investments need to be made based on logic, based on analysis, and based on a plan. Desperation is not a way to make an investment. And what, what we end up doing is we start to cater to emotional spending and we use debt as emotional relief. We start to buy things to make, make us feel better. And here's the trap that most people miss. Wealth itself is a personality amplifier. Okay? If you have that angst, if you have that fear, if that is running the show now, when you start to build wealth, when you start to build something beyond this, it actually runs a lot louder later. Okay? And this reminds me of, kind of Sam Walton's story of what he did with his children, what he did with his wealth. Sam Walton, you know, was famously frugal long after Walmart was successful. He still drove old trucks. He still lived modestly. He had his kids actually working inside the business early. They didn't, they didn't just inherit the wealth. They didn't just say, well, I'm part of Walmart and Walton and, and a Walton family. So he didn't raise wealthy kids. He focused on raising capable kids, and that discipline started before the wealth exploded. Okay? This is your time where we start to look at things and let's get habits in place. Let's get systems in place. Let's start to build the things that will actually give you the unshakable foundation. That's debt management. That's putting yourself on a debt plan, not taking on destructive debt, not taking on high credit card, high interest debt in, in that process. And making sure that if you do have debt balances, that you have it on a debt payment plan, paying it down using the avalanche method or a snowball method to get you out of it. And at the same time, building liquidity, getting your 3 to 6 month emergency fund or your 9 to 18 month peace of mind fund in place, as we talk about in my book, Building Your Money Machine. And, and Giving yourself that space to move, to breathe, that will allow you to start to transition to control. Okay? You leave survival and that survival mindset when you are in a position to absorb the surprises that life can throw your way. And money stops feeling like an emergency every day. You don't feel like you need millions. You start feeling like you just need a little margin. And that starts to move you to the second mindset. And the second mindset is control. This, the mentality here is to look at it and say, how do I not lose what I built? Okay. Control starts earlier than people think and earlier than people expect. Now, often we don't even get here because what I see is people just chasing income, income, income. Let me earn, let me earn, let me earn. Let's just keep increasing the income. And they're in this constant state of the survival survival mentality, but they need to graduate and transition to control in the next stage. See, often at the first 6 figures, you start to think about things like control or your business. You start to win and the business is starting to grow. And here's what happens psychologically at this stage. You're not panicked anymore, but instead of a mentality of, am I going to make it? Now, all of a sudden the mentality shifts to, I'm afraid I might lose ground. I'm afraid that I might fall backwards. What if it doesn't last? See, now money becomes something to protect, and that's a good mentality to a point. See, what people focus on here and where they mess it up is this: they focus on hoarding, you know, a miserly perspective, because I don't want to lose, I don't want to lose. So, so the things that got them the building, the growth, they stop doing them. Okay. And instead of playing offense, instead of being strategic and building financial plans and, and and allowing the plan to define the things that you want to do, allowing the vision for your life to define the journey that you're going on, you start to play defense only, trying to avoid risk completely, and you become silent about the money in the process. None of this works. And so these are elements that can come into play in this stage, but when you're aware of them, we can avoid them. See, when families stop talking about money because they think silence equals safety. Well, it doesn't. See, silence turns money into mythology, and mythology destroys trust. I see so many families that never have conversations around the money. My, you know, relationships, marriages where there's secrecy and the money becomes a control mechanism for individuals or for people. That's not the way it was supposed to be. Remember, it's a paintbrush to paint this masterpiece called your life. It wasn't a tool of leverage, and it's not something to be kept secret in the sense of not speaking to the people that matter. Now, I'm not saying that you broadcast it. I believe that quiet wealth is the way to go. Okay? This is the stage where you start to look at, how do I get clarity for myself, for my heirs, for the people I serve? This is the stage where families will start to establish simple rules around their money, rules around their spending, and they'll have open conversations about money. My wife and I, Stephanie, we have conversations around money, not around the money, but around the life that the money is generating. What do we need to do? What do we want to do? How do we protect it? And how do we make sure that it grows and is the generational wealth, the money machine that we want to, to create, co-create together. Not only do we talk about it, this is the time to set not just rules, but boundaries. Boundaries around things like lending and lifestyle. The things you'll tolerate, the things you won't tolerate. The things that money will go towards, the things that money won't go towards. There are certain charities, there are certain things that we will freely give our wealth and our money towards. There are things that we absolutely will not. I don't care. Okay. And we have those boundaries and we have those rules and we're clear about it. And now we start to look at things and work on teaching the concept and the ideas of decision-making instead of fear. Early on when Jeremy was younger, he's 35 now, but when he was 11, 12, 13 years old, I literally would take him with me to my wealth teams meeting at least once a year. And usually more than that, so he can be in on the meeting. Not so he understood the numbers, so he could start understanding the thinking. And Lord knows at that age, he didn't really understand all of it, but it opened up a dialogue to teach him and skill him up. Remember, we don't pass on assets until we pass on skill sets. So, he understood how to make decisions in there. Because when families get this wrong, it doesn't work out well. In fact, it reminds me of the Getty family, John Paul Getty. He built one of the largest private fortunes in history. But money inside that family was tense. It was unclear. It was silent. They didn't talk about it. In fact, his grandson was kidnapped and the family publicly fought over the ransom payments. And over time, the trust in the family was fractured. The relationships ended up collapsing. The wealth survived. But the family didn't. And that's the sad thing. Okay? This is the place where we need to put rules in. We need to put boundaries in. We need to start having conversations and really understanding where we're making our decisions, how we're making the decisions, and how to transfer that. Because then we can start to transition to the third mindset. And that is identity. See, and we move forward in this space when money stops becoming a secret, rules become clear, and conversations replace assumptions. See, control without clarity becomes a cage, but with clarity and direction, it becomes a springboard. And that leads me to mindset number 3, identity. And this answers the question for the family, Who are we with money? And this is one of the most dangerous stages that I think that we can go through because this is where money meets ego. And I think we've all been there where we see someone who has money and they got an ego to match their bank account. And that's never fun. It's never good. And it doesn't, it doesn't usually work out well. Okay. See, what's happening psychologically here is this money starts influencing. Self-worth. It starts influencing status if we're not careful. It starts influencing validation. And ultimately, it starts creating an identity. Now, remember, I believe that wealth is an amplifier of who you are. And if we are not secure in who we are, in our values, in what we stand for, and how we're going to show up in the world, then we can fall prey to influences, outside influences, and things like that. And this is where Money can influence that self-worth, the status, the validation, the identity. This is a place that we have to be really, really careful about. Now, I know in our world, in my world, we talk about this. What do we stand for? What's the right thing to do? Just because someone has money doesn't mean they have the right to do things that other people can't or shouldn't. They don't get to skirt the rules.. And so I think that there's a really important thing of, of instilling the values and the direction here. And what people will focus in on here, if they're not careful, is they're focusing in on image, they're focusing in on recognition, they're focusing in on external approval. And they ask themselves, what does this say about me? Well, when money stops being a tool and starts being the proof of an identity, that becomes a problem. And so the families that are successful and they focus on this identity, here's what they do. They create internal standards for the family. They create internal operations and systems for the family. It's where some of these family offices come into play. And they have clear values that define and dictate what they will and will not do. And those values direct their behaviors. And so, they have values-based behaviors, spending, investing, and everything. So now we see an alignment between who they are, how they show up, the standards, the rules that they follow, the values they have, the behaviors and the things they do, and how they contribute to society, to charities, to family. It's, it's, this is a powerful, powerful stage. It reminds me of a family that we are all familiar with, but maybe don't know much about. And that's the Mars family. See, the Mars family, Mars Corporation is the candy family, if you will. Okay. They stayed private despite massive wealth. It's one of the largest private companies out there. The, the kids all work inside the business and there is no entitlement. The way they built it is they instilled values, they instilled work ethic, they instilled behaviors in, in doing that. In fact, I saw the same thing when we were visiting in Italy, in Florence, and had a chance to sit down with James Ferragamo from the Ferragamo designer line and seeing the family values that have been passed down from his grandfather to him. Okay. See, they realized that they had to give the identity before they ever gave the inheritance. And their validation comes from inside the family. Not outside applause. And so this is where we start to look at the transition. And when families don't get this, now all of a sudden you start to see that things go astray where you see these spoiled children and heirs that start to have psychological problems, drug problems, addiction problems, because the values weren't there. Okay? Because here's the thing that happens. Money transfers faster than character. We've got to build character over time. And that gap is where wealth dies. If we're not careful. All right. So here's the thing. I've got a couple more to go through, but let me pause for a second because I think it's really important to start questioning some of this and saying, man, this one's hitting home. This one isn't hitting home. And it usually means that you're on an edge of transition. If something's pushing your buttons, if something's hooking you, you're on the edge of a transition. And the question is, where are you on this financial freedom journey? And many times we don't know. And that's exactly why I created this Financial Freedom Zone Quiz. It's totally free. It's going to help you answer a handful of questions, go through it. It's going to help you identify where you are on that financial freedom journey and what you need to focus in on, what wealth mindset you need to be actually operating in, and what are your next steps. Not someday, but now. So we're going to hook it up for you down here so you can grab it, but you can go to yourfinancialfreedomquiz.com to do it. It's quick, it's free. And it'll give you clarity without fluff. All right, let's keep going. So here's the thing that I think we need to avoid when it comes to this mindset identity, and that is using money to prove worth. This is where we start to broadcast, and this is where I see people, I see it so much because of where I live, people with their Lambos and they're revving their engines and it's just, look at me, look at me, look at me. It's public signaling and their identity's wrapped in the eyeballs that they have looking at them versus what really matters. And they're tying their self-esteem to net worth. That's a problem. And that leads me to this next mindset and mindset number 4. And that is this stewardship. Because when values guide decisions, access is earned, not assumed, money supports identity instead of defining it. Now, we look at it and say, how do we steward it?. And the families that move here, they're asking the question is, is what do I need to do to allow this to outlive us? Okay. You know, my tagline is to always, always strive to live, live a life that outlives you. That's the game I want you to play. This is where money stops being personal. It becomes relational. And in this stage, what we want to do is start to build on things, but here's where the cautions. Is that this is a place where families start to fall into this equal paradigm, if you will. And that is, what's the difference between fairness and equal? Where they have multiple kids, they have multiple constituents, and so they want equal checks, equal access, equal outcomes. Equal feels loving and all that, but it's lazy. See, equal may not be fair. I look at, like, Jeremy and said he had to earn the right to get the money machine. Blood wasn't enough because he had to earn the right by showing me he could steward it. And the families that navigate this and this mindset of stewardship, they realize that what they need to focus on is fairness, not equality, and allow those folks to work into the fairness equation, setting clear expectations on what is expected. I did that with Jeremy. Allow them to earn the responsibility, to earn the right. In doing this and define their participation in it. Okay. This is the thing that, that I think starts to allow the wealth to transfer for generations. Think about the Cargill family. They have hundreds of heirs, but they have a set of governance with clear roles that are really, really clear of what happens. And not everyone leads. Okay. Everyone in that family understands the rules. They're set up. Okay. And that's why the wealth and the family has survived for generations. See, this stage requires a lot of what I call emotional liquidity, meaning that we need to be able to have emotional intelligence in place wrapped with the finances. See, families that can repair relationships they can repair their wealth. Families that avoid conflict eventually explode from it, the avoidance of it. We can't avoid it. We need to have the conversations and be transparent in it. And the best way to do it is to start with transparency in your own relationships. And that allows you to transition to the final stage of mindset, and that's legacy. Okay? Because money then starts to serve Continuity and the governance that you put in place supports values and the relationships matter more than the outcomes. Legacy answers the question of what does this stand for? Legacy isn't the monument, it's a direction. What's happening psychologically here is wealth stops asking, how do we keep it? And it starts asking the question, what does this all exist for? For. See, I believe that our wealth should be measured in the moments of life that we impact other people's. The families that focus on meaning and impact and contribution beyond themselves, that's legacy, not some sign or some name on a building. I look at things like the Pritzker family that built trusts in place and everything. In fact, I just heard a story about Rolex, and when the person who founded Rolex in 1905 and his wife died, they had no he transferred that into a trust, a charitable trust. Rolex has no shareholders. It doesn't produce financial statements. And what it is is a big charitable trust. So when you buy a Rolex watch, they're expensive, okay? You are making a donation, if you will, to a bunch of charities over time because there aren't shareholders to bow down to. So, I mean, you start to look at things and say, what drives legacy? And I think this is where you start to look at life of its own on the wealth to transcend time, transcend generations in a big way. Because now all of a sudden in that legacy moment, I didn't know this about Rolex, okay? And I'm not a Rolex fan, but now just because of the virtue of the values and what it does, maybe I will be, okay? But because they avoid visibility-driven wealth. They avoid legacy as an ego play. And they have a purpose to do it. Legacy isn't about raising rich kids. It's about raising capable human beings. It's about stewarding resources wisely and making sure that they impact and leave the world and the people better because of you. Here's the thread that runs through all 5 mindsets. Earning more doesn't make you free.. It just makes the lease shinier. A money machine does something different. It funds life, it supports values, it outlives effort. And the mindset you're operating in today is shaping the wealth you'll pass on tomorrow, whether you intend to or not. So don't just build income, build thinking, build values, build the machine that outlives you because that's how families stay rich for generations. And I think that no matter your age, stage, or circumstances, take the lessons here and put them into your life. Let me understand which ones start to hit home, which ones you want to focus in on. No matter whether you're just starting out or you find yourself having a million, 2 million, millions of dollars, what are you going to do to make sure that that existence has a positive, indelible impact on the world. I know it's high thinking, but I think it's important that we think that way. All right. I hope that this helps. I hope that you start to think about wealth differently and your journey through generations differently. So you start to think longer term. And, and I'd love to hear from you. If you have comments or questions, do me a favor, send me a DM, drop a comment below. And while you're there, give me a thumbs up. And a subscribe. All right, YouTube likes it, and it certainly warms my heart too. All right, until I get a chance to see you on the next one, or on my path as I'm out there speaking, or on your path to financial freedom, always, always strive to live a life that outlives you. See you in the next one. Cheers for now.