Generational Wealth: Deniers, Ditchers, & Adapters

Contrary to popular belief, most wealthy people are not born into wealthy families. Only about 20% inherited most of their wealth. In contrast, most rich people acquire their wealth over their lifetime. That move up the socioeconomic heirarchy can be a major shift from the culture that we were born into. Those of us who are accruing what could become generational wealth may encounter new and unanticipated problems. Will you become a denier, ditcher, or adapter?

Dr. Jim Grubman aptly likened the challenges encountered by those building wealth to immigration into The Land of Wealth. He also recently spoke about this on Rational Reminder Ep 282. Learn about some of the ways that people who grow wealth may struggle and adapt to this migration up the socioeconomic ladder. Consider how to apply that to your own journey.

Most people assume that more money makes problems go away. It does for things like basic needs, and even some common wants. So, it is no shock that happiness increases with income rapidly as you move from poverty to a level of wealth that meets your basic needs plus a few wants. However, there are diminishing returns with higher levels of income beyond that. Although your mindset can impact that. At some point, you may also find that the exchange rate for your time to earn money is leaving your time-poor.

money adaptation

Building wealth to a level that changes where you sit socioeconomically in a meaningful way also changes how you view yourself and how others view you. This can introduce different stressors.

You may struggle with your identity and the identity that your children are developing. Relationships may become strained with your friends and family who have not built wealth. You also have to develop new skills and learn how to meet new obligations that come with stewarding wealth. With no relatives or trusted friends to teach or mentor you.

Dr. Grubman likened it to immigrating to a new country. “The Land of Wealth”. While it overall has more opportunities, security, and other advantages. You must also adapt to the new culture and laws to thrive. This becomes especially important at generational levels of wealth. Not only must you adapt, but you must also help the next generation to integrate your values and skills into their lives.

Wealth is relative. It is very common that when you ask a person who they think the wealthy people are, the answer is usually people with more than what they have. Whether they have a net worth of zero or millions. Similarly, when you ask them how much they would need to be happy, it is often about 50% more. And a moving target. We compare ourselves to those around us and we also adapt to our situations. Even as they improve.

Obviously, how we adapt can be influenced by the speed and scale of our change in wealth. If you go from literal rags to riches overnight, you will have a harder time adapting. If you have gradual wardrobe upgrades over time, you have more of a chance to adapt. That said, we can still influence how well we adapt to our growing wealth by how we engage with it. What do we keep from the socioeconomic culture that we came from? What do we adopt from the culture of the wealthy people that we find ourselves amongst?

One reaction to a growing net worth that places you outside of the culture that you grew up in is to deny it. Ignore it. This is usually founded on some important beliefs. However, it is also the manifestation of not being open to developing new beliefs, values, and skills.

Negative Beliefs About Wealth

It is common for those with less or even average wealth to vilify “the rich people” in various ways. We see politicians leverage that all the time when considering how to sell their latest tax scheme to the majority of voters. This envy and distaste for those who have more are even stronger for those with generational wealth. Judgments about merit and stereotypes epitomizing maladaptive responses to wealth are part of that.

So, it can create cognitive dissonance when you find yourself amongst that maligned group, as someone with money that could last beyond your lifetime. One coping strategy is to try to make that feel better by ignoring your wealth.

Fear of Losing Positive Values & Skills

There are also positive beliefs and values that we want to hold onto and are afraid will be eroded by wealth. Most self-made wealthy people (ie most wealthy people) got there through some combination of luck, skill, and hard work. We usually emphasize the latter two. Still, even those who make lots of money only become wealthy if they also exercise some degree of frugality. That spending control is often boosted by more skills and hard work to be self-sufficient, rather than pay others.

We are terrified of straying from the value we place on the merits of hard work, skill development, and self-control. Or even worse, not hammering those values into our offspring.

Scarcity Mindset & Fear of Money

Another challenge related to the previous two is the scarcity mindset. When you come from a lower socioeconomic background, there is a thin line between having the necessities or not. There is a constant fear of financial disaster lurking around the corner. So, you learn independence and frugality. Two of the positive values and skills that I just mentioned.

scarcity mindset wealth

However, Deniers also fail to adjust to the reality of not being on the edge of disaster. This fear can cause them to pass up on opportunities that cost money, but would also put them or their children in a stronger position. Financially, educationally, or emotionally.

Wealth deniers sometimes also exercise extreme control over the spending and habits that they teach their children to eradicate any frivolity whatsoever. Out of fear that they will go off the rails due to the corrupting influence of wealth. That fear also gets passed on and hampers the next generation’s ability to manage their own earned money, let alone inherited wealth.

Relationship Roadkill

Wealth cannot be hoarded and hidden forever. Even if you live modestly, your friends and family know that you have a successful career or business. They will assume that you have money. Denial can become particularly problematic in several ways. Sure, you can hide your career from people, but the cagey answers that you give to conversational questions will make them think that you are either a criminal or a spy.

If you complain about the cost of things that they are struggling with, in an attempt to commiserate and maintain the image of normalcy, they will likely find it disingenuous and annoying. Your friends and family may also see your wealth as a resource. They may turn to you to help them out.

It could be with a business venture. A rough patch. Something that they want, but cannot afford. But you could. When you deny that you have the money, they will likely negatively take that response. Because it is a lie. Be honest.

There are very good reasons not to mix business with your most personal relationships. Being honest that you value the relationship too much to risk it by mixing it with business is one approach. In a business, tough decisions often need to be made. When you give people money, you start to scrutinize and judge how they spend it and the rest of their money. Others may also see how you are doling out the cash and bring their expectations and interests to the table. It may also be that you actually cannot afford to give them the money without endangering your own situation. If you do help them out with something that you can easily afford, consider it carefully. It may be helpful to mentally consider it a gift.

Lies Hurt Families

Even if you hide your wealth exceptionally well, the truth always comes out eventually. For example, when you die or there is a major crisis that requires financial action. This may play out in a bad way when the “big reveal” is later in life. However, it can be even worse in a lawyer’s office at the time of death. At that point, you aren’t even there to try to explain why you kept secrets.

Dr. Grubman works with high-net-worth families and describes how this often unfolds in both his book and interview. The wealthy parents may have thought that their kids would be surprised, but happy, to find out about the family wealth. Grateful to the parents for instilling their values and skills while shielding them from the corrupting influence of money.

However, the actual result is often bewilderment and anger. The adult children wonder why their parents didn’t trust them enough to share this information with them. Some may be angry about that or about opportunities that were missed despite hard work and all of the skills that they were taught. For the sake of a few dollars, due to a scarcity mindset. It wasn’t that they could not be supported. It was an active choice to deny them. The next generation is also left totally unprepared for how to handle the generational wealth. It has come as a windfall without the time to learn and adapt.

generational wealth problems

Some people loathe their humble origins. They chase wealth, and when they achieve it, they are more than eager to doff their rags. Or even just regular quality clothing. For the progressively more expensive wardrobe options.

It isn’t just a clothing metaphor. My wife would be quick to point out her desire to upgrade from a domestic car to a Toyota, and then to a Bentley. We are still at Toyota status and the yearning dissipated once we moved to an area where a Toyota is on the high end.

For The Ditchers, they see the status of those around them displayed and want to emulate it. And ditch the trappings of their lower status ASAP. Lest it taint them. The opposite of stealth wealth.

Out With The Old & In With The New

Compared to The Deniers, The Ditchers take the opposite approach to the values from their previous life. They readily abandon those old values to take on what they perceive as the values of the wealthy. “Perceive” is important, because it is about projected success. Some common perceptions are independence and freedom to do what you want, at just about any cost. Another is the notion that doing something that you don’t enjoy when you can just pay someone to do it is dumb.

Before you brush this off and swear that this would never be you. Just consider how often you hear people suggest that you should take more time off, travel more, or just do what you love. Because YOLO. On their own, those are not necessarily bad things to do. They may reflect some of your positive core values. However, when money doesn’t limit you, the checks and balances can become lost. There is no top speed on the Hedonic Treadmill. Using money to solve all of your problems or inconveniences also results in lost skills and values that probably helped to build the wealth in the first place.

Think About The Children

That loss of skills and productive values can become particularly problematic for the next generation. Even worse than that loss can be the new characteristics gained. One of the most powerful things that we do as parents is model for our children. Generational wealth is not only about passing on the money, but also the skills and habits to steward it.

With the emphasis on fitting in with other wealthy families, shows of wealth and spending often become dominant in the household. Parents who are spending freely without limitations or putting thought into it pass that on to their kids. However, without the skills that built the wealth, those kids are in a precarious situation. They are also under immense pressure to achieve status in a field of well-resourced and high-achiever peers.

That often manifests as self-esteem and resilience problems. Narcissism, lack of empathy, and entitlement are common descriptors used. Concretely, a study of children in affluent neighborhoods showed higher rates of anxiety and depression in girls and more legal troubles in boys. The troubles manifest in adolescence and accelerate towards college.

It is remarkably hard for generational wealth to persist and grow for multiple generations. The saying “shirtsleeves to shirtsleeves in three generations” is born from that. Looking over longer periods, it is even more remarkable. If you were to take the number of American millionaire families around 1900 and they just invested in the stock market and spent reasonably, there would be thousands of billionaire families in the US today. Even when you account for spreading the money out amongst a growing family tree. However, there are not that many billionaires. In fact, not one of the millionaire families of 1900 was on the Forbes billionaire list.

Victor Haghani and James White explored this in Missing Billionaires: A Guide to Better Financial Decisions, and discussed it on Rational Reminder. While they go into detail in the book, poor financial decision-making catches up to people. Luck likely plays some role, but poor management of risk in earning, spending, and investing is impactful. Eventually, luck runs out and big mistakes occur.

This could easily happen to deniers, ditchers, and their offspring. Deniers fail to acquire and pass on skills for managing large amounts of money. Ditchers lose and fail to pass on the essential values and skills that helped to build their wealth. Plus, both can easily fall prey to poor planning for the next generation because they have not addressed it. Not only in terms of estate planning for generational wealth and the taxes involved. But for the communication and skill development required to help them thrive and build the family enterprise for future generations.

In this post, I described two polar extreme maladaptive approaches to dealing with meaningful increases in family wealth. The Wealth Deniers and The Ditchers. I can identify with aspects of both. Not only from my own upbringing and journey but in how I am passing this on to my kids. Consider what parts of these responses to growing different levels of wealth that you can identify with. Re-examine them in light of some of the potential problems that I have described.

That awareness can help you to move towards a more balanced integration into the culture of wealth. As mentioned, wealth is relative, and a move up the socioeconomic ladder does not need to be to generational levels to be meaningful. Only you can navigate your journey. Speaking with your advisors might help as they do see how multiple families do this. Still, they are often on the outside looking in at the cultures of your original and current levels of wealth too. In my next post, I will describe some of the features of those who do integrate well – The Adapters.


  1. Hi LD, This was a great post that I really enjoyed reading. One question though, what is the minimum amount of accumulated wealth needed to be considered generational. i.e $1,000,000, $5,000,000 , or $10,000,000 and greater?

    1. Hey Eric,

      That is a great question and I think that there are a couple of answers. One that is common in the financial industry is high-net-worth ($5-$20MM) and ultra HNW >$20MM. However, I think that a more practical definition is wealth that will significantly impact the next generation. That could be much lower levels below $5MM, if the family has lower spending and independently earned income streams.

      We honestly, started encountering the issues described in this article when we became a dual income household making ~$100K/yr, and then definitely within about 5 years of my starting independent medical practice. Even though our net worth was well below those financial cut-offs, we had much more income than we spent on our usual needs,and were running in more affluent circles. I hint at it in my Dirty Little 10000 square foot secret and plan to write some more about it soon.

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