Preserving Wealth Across Generations
Building a Legacy Through Smart Asset Management
Wealth rarely survives beyond the third generation. As I mentioned a few days ago, the middle class has all but disappeared. Additionally, statistics show that 70% of wealthy families lose their fortune by the second generation, and 90% by the third.
This phenomenon, known as "from shirtsleeves to shirtsleeves in three generations," is a common problem that has affected affluent families for centuries. However, the Medici family managed to counter this trend spectacularly.
The Medici accumulated wealth that lasted seven generations. Unlike many of their contemporaries, the Medici family created a financial dynasty that endured for more than 300 years.
Their success wasn’t based solely on making money but on creating a system that generated and protected wealth across generations. This approach differed greatly from the short-term thinking that often leads to the dissipation of family fortunes.
A friend of mine is the son of the owner of a multinational company. This company, founded by his grandfather, has a protocol that requires any family member wanting to work in the business to hold at least one degree and to have worked for at least 10 years in an external job (a lesson many politicians could learn from).
While this is not the worst measure, I believe it’s still far from ensuring the preservation of family wealth.
To sustain wealth within an organization, two factors are crucial: on one hand, the personality and drive to work, and on the other, luck and the ability to adapt to a changing environment.
However, money works a bit differently.
The Medici method combined diversification, innovation, and legacy planning. The Medici developed a comprehensive strategy for generating and maintaining wealth.
They realized that true financial security didn’t come solely from accumulating money but from a combination of diversified investments, continuous innovation, strategic alliances, and careful succession planning. This holistic approach addressed the common problems that lead to the loss of generational wealth.
The Medici approach created a cycle of wealth and influence that reinforced itself. By diversifying their interests, innovating in finance, and exercising soft power through cultural patronage, the Medici created a model for lasting success.
Their strategies not only built an empire that endured for seven generations but also shaped the course of the Renaissance. This approach offers valuable lessons for modern families seeking to generate and protect generational wealth.