The Toughest Financial Challenge of All
fu bu guo san dai
Affluent kids are, statistically, on the financial endangered species list.
And when, a few weeks ago, the business teacher at my school asked me to give some curriculum suggestions for a personal finance course at Singapore American School, I wanted to see if I could do my part to buck the trend associated with the Chinese proverb under my title:
fu bu guo san dai
If you don’t know what it means, you soon will.
Top insurance salespeople make great asset gatherers as investment advisors because they can punch just the right button to get clients buying insurance—or expensive investment products: the fear button. And that’s the one I’d use when teaching any personal finance course to affluent young people.
No, I wouldn’t be telling them that if they didn’t save enough money, they could end up destitute, eating dog food and dumpster diving. But I would say that for them, or their kids, the high socio-economic party will likely end soon.
Last year, we started a unit for 10th grade English students, focusing on what made them “outliers”. If you haven’t read Malcolm Gladwell’s book by the same title, Outliers (2008) the gist is this:
It takes more than just hard work to break from the pack of financial mediocrity — it takes luck. Take my students, at our elite private school, for example. What made them outliers? They’re generally wealthy, or at the very least, very well off. When I surveyed them, I found that only one of sixty kids came from old money. By old money, the suggestion is that their grandparents—when they were kids– enjoyed the same relative level of lifestyle that my students do. But they didn’t. Their grandparents were generally middle class, or poor. Keep in mind; some of these grandparents are still in their late 50s, so we’re not talking about the Great Depression era anymore.
Our “Outliers” unit was a lot like a family history compilation, but the written/researched focus was on specific moments that turned the tables for these families. In nearly every case, some stroke of fortune enabled middle class (or in some cases, extremely poor people) to succeed and grow wealthy. Only one of the kids had a grandparent who was well-off, and when he went back a single generation further, his great grandparents were only one step removed from the slums of India.
My good friend, James Dalziel, once told me about a U.S. based study suggesting that there’s a 3 generational cycle of wealth:
- One generation builds the wealth
- The next generation maintains the wealth
- The third generation squanders the wealth
I told some of my students about this, and a Chinese boy raised his hand to tell me this, “fu bu guo san dai“.
Like gunpowder and bi-focal lenses (Benjamin Franklin didn’t really create the first bi-focal lens) the Chinese discovered something thousands of years before we had a study revealing the same thing.
fu bu guo san dai
- Literally: Wealth does not pass three generations.
- Meaning: It’s rare that the wealth of a family can last for three generations (the 2nd may see the value of hard work, but the 3rd forgets it).
- Explanation: In business, the first generation works extremely hard, so that the second generation reaps the benefits. By the time the third generation arrives, the wealth is squandered.
To maintain wealth, affluent children have to be part of what goes into it. They have to see the struggle, understand the sacrifices, understand the value of money.
Most of my students are in the second or third generation of wealth. They don’t deliver newspapers or take part-time jobs while growing up, like most kids. It’s not the kind of thing wealthy kids (or wealthy international kids) in Singapore do. They’ll have their college educations paid for. And most of them will be able to choose the colleges they want to go to, rather than their parents choosing the cheapest or most convenient place to educate their kids.
And for many of these kids, the very first dollar they earn will be made at the ripe old age of 22. What to do, what to do? Used to flying around the world, staying at luxury resorts and riding in nice cars, that’s what they’ll want. So they’ll buy on credit once the pay checks start rolling in and they’ll try living the lifestyle they were accustomed to as kids.
According to the Chinese proverb, even if they can maintain the wealth (and the standard of living they’re accustomed to) their children won’t.
So I’d put on my insurance salesperson’s hat when creating that first personal finance unit for affluent high school students. I’d press the fear button, give them the history, tell them about the outliers, the Chinese proverb, and then challenge them with this, because people rise to challenges:
“Your parents had the easy part. They grew wealth. Now comes the hard part: maintaining it. Are you up to the challenge?”
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