The Coming Wealth Transfer

Cornelius “Commodore” Vanderbilt died in 1877 and left his kids a fortune of $100M ($2B in today’s dollars). Eighty years later, 120 of his descendants were at a family reunion at Vanderbilt University and there was not one millionaire among them. How is that possible?

The quintessential story that displays the foolishness of the Vanderbilt family came six years after the Commodore’s bath: The infamous Vanderbilt Ball in 1883. The Vanderbilt’s were considered “new money” so they didn’t get to socialize with some of the most elite “old money” families in New York. So what did they do? They spent $3M ($70M in today’s dollars) to build the largest mansion in New York and hosted a lavish party there. After 3 years of construction, the mansion was ready. They spent another $250k on the party ($6M in today’s dollars) and invited 1,000 of the richest families in New York. The investment generated the expected return. For $76M, New York’s elite finally accepted the Vanderbilt family as one of their own. A prudent investment.

The Vanderbilt Ball held at 660 Fifth Avenue

Over the years their family business continued to dwindle, however the Vanderbilt’s practical spending on luxury homes, expensive art, yachts, and cars continued. The nail on the coffin was their 130-room home known as the Cornelius Vanderbilt II House on West 57th Street being demolished. As of today, there is not one person in the Vanderbilt family that has wealth near what their father had left them.

Why do I tell this story? Because history often repeats itself. By 2030, all Baby Boomers will be over 65 years old. Over the next few decades, $68 Trillion dollars is going to be passed from Baby Boomers to Millennials – the largest transfer of wealth that we have ever seen. And so, it’s important to think about what the impact of this wealth transfer will be for individuals, families, and the future of our world. When your parents pass away and your bank account balance increases to $20M, what’s the first thing you’re going to do?

I’ll tell you what’s going to happen. Similar to the Vanderbilts, the uneducated and insecure will waste the nest egg that their parents worked so hard to build for them. They’ll immediately increase their lifestyle expenses and end up spending more than they can imagine. Think big houses, nice cars, and all of the other flashy items that encompass human folly. Along the way, we will certainly read some story in the New York Times of some couple building a $50M house to impress their friends. At some point, the uneducated and the insecure will realize that they need to invest their money! It’s at this point, after being taken advantage of by other grifters who latched on to their lavish spending, is when they will be taken advantage of by others who are going to provide them with the “investment of a lifetime!”

On the opposite end of the spectrum will be “The Prepared”. “The Prepared” will take this inheritance from their parents and make them proud. They will view their inheritance as a sacred gift resulting from the hard work of their parent’s lives. And they will not squander the opportunity. but in fact will look at this money as a way to continue to improve and increase the quality of life for their future generations. They will continue to grow the wealth for their children and grandchildren. On top of that, they will teach their children the importance of personal finance, rationality, and how to avoid status-seeking. For all of the Commodore’s business savvy, it’s been said that he was not a great parent – and so it’s no surprise that his children didn’t have the values or rationality to not burn the money that was given to them.

Are people prepared for their inheritance? Broadly speaking, no. And you can’t wait until you have a big balance in your account to start learning. So the time is now. If you’re a “younger” person reading this, then you should start learning about personal finance and investing. I’d also recommend reading about people that have went bankrupt or lost all their wealth, so you can learn from their mistakes. If you’re a parent who’s planning on leaving money to your kids and you’re not confident in their ability to grow that wealth, then the time to have that conversation is now. All of these things have helped me and my family, and I hope it helps you.

Ultimately, as Americans, and Millennials in particular we’re going to be receiving large inheritances over the coming decades. We can light a match and burn that money or we can use that capital to invest in our children, grandchildren, as well as the projects and businesses that will continue to push humanity forward.

As the Commodore once said, “Any fool can make a fortune. It takes a man (or woman) of brains to hold on to it after it’s made.”