We have been advising clients for more than 22 years and the saddest stories we encounter time and time again are the ones we call “riches to rags”. BizNews recently carried a very informative article by Mike Fannin, a financial advisor, in which he explains why being rich and being wealthy are two different things. He highlights the fact that a study conducted by the Williams Group wealth consultancy in the US shows that 70% of wealthy families lose their wealth by the second generation, and an even more astounding 90% by the third. We are of the old-school opinion that if you have not worked hard for every rand you’ve earned, you will not understand the value of money and squander it quickly and easily. Mike Fannin goes on to say that research done by Forbes has shown that only 22% of millennials demonstrate basic financial knowledge.
To illustrate the point, Mike gives the following examples: The rapper 50 Cent quickly earned a fortune of $155 million, but by July 2015 it was gone and he was bankrupt. Another young rap artist, MC Hammer, earned a $30 million fortune with his chart-topping hit songs in the 90s, but filed for bankruptcy six years later with debts of more than $13 million. Even Michael Jackson was in debt to the tune of $500 million when he died.
It all boils down to understanding value; whether of money, water, electricity, food, income security, or anything else. If a parent becomes very successful financially, it is his or her responsibility to educate the children about the value of that money. Warren Buffett once wrote that every time he was about to take a dollar out of his wallet, he understood that if he chose not to spend it at that moment, he could have two dollars in a very short period of time. So he always made sure that whatever he was going to spend his dollar on, would provide him with actual value.