Almost all cultures around the world have an expression that means the same thing. In Europe - clogs to clogs in 3 generations; in China - rice paddy to rice paddy. Their meaning is clear – that without careful thought the first generation will make the money; the second will become significant members of society and the third, having no experience of any other life, will spend what is left of it.
The primary reason for loss in the third generation is that they have no experience of work, in its broadest sense; no calling or sense of purpose. Only a sense of entitlement that results in the financial capital being spent.
Essentially there are 4 types of capital; human capital, intellectual capital, social capital and finally financial capital. If financial capital becomes the focus to the exclusion of the others then the decline outlined above is inevitable.
- Human capital refers to an individual’s knowledge, talents, experiences, personal and shared values and their ability to earn. Education and training are the best investments in human capital.
- Intellectual capital is developed over a lifetime and covers how we communicate, resolve conflict, interact with one another and make decisions.
- Social capital is about connection with the communities we live in. Our friends, networks and the trust we have in one another to achieve shared objectives.
- Financial capital refers to the more traditional concept of wealth; property, money, investments, interests in family trusts etc.
Children of wealthy families will likely inherit considerable financial capital but will they get enough of the other types to allow them to thrive? Of course most parents will try to ensure that they do and a great way of helping them is by involving them in giving.
Involving children in a family charity is a fantastic training ground. They have to learn to manage the funds prudently, to budget and to administer the fund. They will learn to reach consensus around joint decisions, to work together, to prepare arguments and to listen to others’ points of view. At a deeper level it will also allow them to express their family’s values by engaging with and giving back to society.
Becoming involved in a family charity can bring children greater wealth and fulfillment while making a valuable contribution to the world; and helps to ensure their family’s legacy avoids the third generation trap.