Why Families Lose Wealth in Just THREE Generations – and How to Prevent It
Most family fortunes don’t last beyond the third generation, often due to poor planning, lack of financial literacy, and internal conflicts. In this article, we discuss how structured wealth management, estate planning, and financial education can break the cycle and sustain legacies.
There is an old saying: “Shirtsleeves to shirtsleeves in three generations.” Across the world, wealthy families often see their fortunes dwindle by the time the third generation reaches adulthood. This “third-generation curse” is not just a scary bedtime story told to rich kids – it’s backed by research and real-life cases of wealth dilution, mismanagement, and, of course, family disputes.
We’ve seen it happen time and time again. Once one of the wealthiest families in the U.S., the Vanderbilts lost their fortune within a few generations. Cornelius Vanderbilt built a massive railroad empire in the 19th century, but by the mid-20th century, the family had squandered much of the wealth due to excessive spending and lack of reinvestment.
The infamous rift between Mukesh and Anil Ambani over Reliance Industries is a classic example of how family disputes can tear apart an empire. After their father, Dhirubhai Ambani, passed away without a clear succession plan, the feud led to a corporate split. While Mukesh flourished, Anil was not so fortunate.
The good news is that you can learn from these cases and apply those lessons to how you manage your own assets, however humble in comparison they may be to these multi-billion-dollar empires. A legacy is still a legacy —YOUR legacy—and it deserves to be well-managed.
What Causes Wealth Erosion?
We’ve listed FIVE main factors that contribute to families losing their wealth within three generations.
- Wealth Dilution– As families grow, wealth gets divided among more heirs. Without a structured plan, each subsequent generation inherits a smaller portion, reducing the financial foundation for future prosperity.
- Lack of Financial Literacy – Many heirs lack the knowledge or discipline to manage wealth effectively. Without financial education, they may make poor investment decisions, overspend, or fall prey to bad financial advice.
- Family Disputes and Power Struggles – Conflicts over inheritance and control can tear families apart. Boardroom battles among heirs often lead to legal disputes, expensive settlements, and the eventual disintegration of family businesses.
- Failure to Reinvent or Sustain Business Models – A business that once thrived in one era may struggle in the next due to market shifts. Families that fail to adapt lose their competitive edge.
- Overindulgence and Entitlement – Growing up in wealth can lead to a lack of appreciation for hard work and risk-taking. If the next generation only learns spending habits instead of wealth creation, the fortune may be depleted.
How you can preserve your wealth for future generations
- Financial Literacy and Leadership Training
- Heirs should receive structured education in investment, business management, and financial responsibility. MERGE by RHB provides informative articles and podcasts to strengthen financial knowledge.
- Estate Planning and Structured Succession
- Families must plan for smooth transitions by setting up clear succession frameworks, wills, and trusts. Professional estate planning services, such as those offered by RHB Trustees Berhad, help ensure the orderly distribution of wealth through both conventional and Shariah-compliant plans.
- Governance and Family Meetings
- Regular family discussions foster communication, transparency, and alignment of values. Establishing family councils or boards can create a sense of collective responsibility. RHB’s wealth advisory team facilitates structured family governance solutions.
- Risk Management and Wealth Diversification
- Families should not rely on a single business or investment. Diversifying assets across different industries, geographies, and financial instruments reduces risk. RHB offers a diverse range of investments and risk management solutions to safeguard family wealth.
- Instilling the Right Values
- Wealth should not just be preserved but grown. The next generation should be encouraged to build on family success rather than merely consuming it. It should be seen as both an incredible privilege and a major responsibility. The older generation should act as the role models for integrity and ethical behaviour, while remaining open to the constructive perspective from the younger generation.
- Seeking External Expertise
- Independent advisors, family offices, and professional trustees can provide objective advice, ensuring that emotions and internal conflicts do not derail financial stability. RHB’s wealth management experts provide objective guidance on estate and legacy preservation.
Don’t just preserve wealth, create VALUE
Preserving wealth is only half the battle—families must also go beyond that and focus on growing and creating value to ensure long-term prosperity. This means fostering a mindset of innovation, adaptability, and entrepreneurial thinking within each generation. Instead of merely safeguarding assets, families should invest in new ventures, emerging industries, and impactful businesses that align with their long-term vision. Structured mentorship, leadership development, and exposure to diverse investment opportunities will empower heirs to make informed decisions that extend beyond passive wealth management.
By embedding a culture of continuous value creation, families can future-proof their financial legacies. RHB offers bespoke financial solutions, including investment advisory and wealth structuring services, to help families transition from mere preservation to sustainable growth. With careful planning, education, and governance, families can break the cycle and ensure that their fortunes serve many generations to come.
Speak to your Relationship Manager today to secure your family’s financial future!
Disclaimer:
This article has been prepared by RHB and is solely for your information only. This article is strictly private, confidential and personal to its recipients and should not be copied, distributed or reproduced in whole or in part, nor passed to any third party, without obtaining prior permission of RHB Bank Sdn Bhd (“RHB”). In preparing this presentation, RHB has relied upon and assumed the accuracy and completeness of all information available from public sources or which was otherwise reviewed by RHB. Accordingly, whilst we have taken all reasonable care to ensure that the information contained in this presentation is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness and make no representation or warranty (whether expressed or implied) and accept no responsibility or liability for its accuracy or completeness. You should not act on the information contained in this article without first independently verifying its contents.
