Generational Wealth

A few years back I read an interesting article about generational wealth and how 70% of families lose their wealth by the second generation and 90% lose their wealth by the third generation. The link to the article Generational Wealth.

In Indian context, I have actually seen this happening within my mother's family. My maternal grandfather was a farmer, he had inherited an Agrahara from his father (almost 120+ acres of land). Over the years, some of this land was sold to marry the daughters, some to take care of debt, and so on. When my Grandfather passed away, in 1987 he had about 50+ acres of land which were inherited by the four sons. Each son (my mama's) got approx 15+ acres of land. Within 15 years, two of the four sons lost everything (gambling, drinking, cigarettes, petty loans, carelessness etc.). While the other two retained whatever they got. 

Since the other two Mama's were employed in outside the state, they would give out the land to other farmers on contract. Their kids were born in the city and never ever have a clue of how to farm, since last 10 years, these kids have migrated to US and Australia. Last year one of my mama's passed away, and the kids who came from US had no clue of where the land was and what to do with it. It has been a year and my cousins are still figuring this out.

My take on this wealth, save enough for the rainy day, and of the rest spend a little on yourself and your family (take care of your needs, but never let your needs increase endlessly), and rest give to charity (good karma always comes back). Never get stressed by thinking about setting something aside for the next generation. If you have invested in helping the next generation learn and grow, inculcated the value of money, and reinforced living within their means to the next generation they will be self-sufficient and may never need your wealth.

Many people struggle in quantifying how much to keep aside for retirement or rainy days.  There is no correct answer but keeping at least 8 to 12 months of monthly expenses as emergency funds should suffice for rainy days (losing a job, shifting jobs, sudden medical expenses, etc) and building a corpus of 400 times your current monthly expenses should suffice for your retirement. The assumption is that you are not paying rent and you have taken health insurance that covers some portion of your expense. If this corpus of 400 times your current monthly expenses is invested in various assets, it brings in enough return each year to enable your corpus to outlive you even after considering inflation. 400 times means approximately 30 years of expense at the current expense level. As years pass there will be inflation, and monthly expenses will increase, so combined with the returns that the corpus brings in each year, we should be able to manage for at least 25 to 30 years post-retirement.

Back in the 1970s and 1980s, the public sector was the only major employer in the country, employees used to work 25 to 30 years and retired at the same place. They used to get pensions and other benefits like health coverage. Today in the private sector, only a minuscule fraction of employees stick around for more than a few years and there is no pension. Also, people tend to withdraw their provident fund when they change jobs. Post-retirement, with no pension/income coming in, People struggle to make ends meet.  They fail to get to a corpus of 400 times their current monthly expense by retirement primarily because they have not thought this through, not planned enough, or increased/improved their lifestyle so much that they can't maintain the level with the corpus they have. It is always easy to upgrade the lifestyle, but difficult to step down when the regular salary stops coming in. 

Times have changed, Never expect kids to take care of you in your old age, and plan to live independently (physically and financially) as much as possible. Your kid may be the best kid, but you cannot guarantee that his / her spouse shares the same values.