There is an old saying often used when discussing family businesses: “Shirtsleeves to shirtsleeves in three generations.” The saying represents the idea that older generations started with nothing, worked hard and amassed wealth, and by the time their great-grandchildren are in charge, the family is back where they started, with nothing. This proverb is not unique to any one culture and data may even back it up. About seven in ten wealthy families lose their fortune by the second generation according to a study of more than 3,200 high-net worth families by the Williams Group wealth consultancy. By the third generation that number has jumped to 90%. How do wealthy families make sure this doesn’t happen to them?  James E. Hughes, Jr., a renowned author on generational wealth, suggests there is an antidote for this proverb in his book “Family Wealth – Keeping it in the Family.”  He writes “to successfully preserve its wealth, a family must form a social compact among its members reflecting its shared values, and each successive generation must reaffirm and readopt that social compact.”  Seems simple enough…but how is this accomplished in reality?  Communication is the clear driving force – through the form of family discussions, family meetings, and engaging all generations in all aspects of the family and business.

Communication can come in many forms. One of the most important is keeping family stories and history alive so that younger generations can understand the efforts that their grandparents and parents put in to build the wealth and business of the family.  Families need to know where they came from. Archived videos and photos, stories of how the business started, and what it took to grow and maintain the business should be showcased for younger generations.

Communication of the family’s mission statement and values is vital.  A family value statement communicates who the company and family are and what they  stand for. When younger generations hear stories of their older family members, they can better relate to the values reflected in the history of how their family wealth was created. Younger generations need to be reminded of who they are, where they came from, in what way they are different, and how those differences can benefit the family and support their  values.  A family cannot be connected only by money and legal structures if they want to survive.

Communication also comes in the form of discussing money with the younger generation.  Too often the discussion of money is considered taboo and wealthy families wait too long to have discussions with younger generations about the financial wealth of their family. In facilitating a discussion with the younger generation, you don’t have to give the answers to all of their questions. A commonly asked question by the younger generation is, “Are we rich?”. Turn the tables on them and ask them what it means to be rich, what would make them happy, and what would they do with money if they had it. Let the younger generation manage money and allow them to fail, just as their grandparents did when building up their current wealth.

Communication can additionally come in the form of discussing philanthropic endeavors for the younger generation can participate in. The younger generation can learn how to give money away by researching and discussing gifts for various organizations. Allowing all of the members of the younger generations to make charitable decisions, with guidance from older family members, can get the younger generation used to making financial decisions together as a family. By discussing the charitable opportunities and how the donations will affect the charities, the younger generation can learn the value of money, as well as the power and responsibility that come with it and form a cohesive bond with their respective generation.

The shirtsleeves-to shirtsleeves proverb serves as a warning to families that the younger generations of the family are the ones that will help the family continue to succeed and grow.  Communicating with them will contribute to the survival of the family business and wealth, allowing the business and wealth to prosper.

Want more information? Check out this Forbes article and this MarketWatch article!