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The Generational Wealth Effect

January 16th, 2007 at 03:23 pm

My financial situation is a living example of the generational wealth effect, whereby the financial successes of one generation gives the next generation an easier start in life. I owe a great debt of gratitude to my parents, grandparents, and even my great-grandparents for my start in life.

Family lore as told to me by my maternal grandfather:

"Your great-great grandpa [this would be his wife's grandfather] was a very successful farmer. He had 4 sons, and gave each of them $5,000. [I'm not clear if this was an inheritance or money to start out in life. In either case this would've been around 1900, so $5,000 was a huge sum of money.] 3 of the boys ran through all their money very quickly, but your great-grandpa was tighter than bark on a tree. He saved all his money and worked hard all his life. He gave your grandmother and I the downpayment for our first home, and your mother and father the downpayment for their first home. Even though he lived to be 90, the money he left us made a big difference when I retired."

Another bit of family lore was told to me when my family were celebrating my college graduation. My parents married at the end of their junior year in college (although they didn't tell their parents at the time, I'm sure everyone knew the story when I arrived six months later.) At the wedding, my mom's father went over to my dad's father and said, "You know, I'd really like to see my daughter finish school." My dad's father replied, "Well then, let's put them through." And the two fathers shook hands on it.

As a result, my parents started life with no debts -- they even got a used car for a graduation present. I'm sure this made it a lot easier for them to put my brother and I through college, and we also each received a used car as a graduation present, and $20k toward the downpayment when we bought our first homes.

Without a doubt, this debt-free start in life made it a lot easier to start investing as soon as I started working, and I plan to do the same for my children.

2 Responses to “The Generational Wealth Effect”

  1. living_in_oz Says:

    What a neat story!

    Our story isn't nearly as good. My parents and DH's parents didn't have any money. No free ride at all! But, both parents taught us to be frugal and make good decisions. Hopefully we're teaching our kids the same thing. Knock on wood, all three of them have a good head on their shoulders and aren't sucked into what their peers deem "normal". They all think normal is weird!!LOL

    I love your story though! I wish mine was as good!

  2. monkeymama Says:

    I worry often about the generational effect spoiling our kids though - hehe. I posted about that in another blog - seems every generation further out from the depression loses something in knowing what it is like to be really bad off. My mom's grandparents had it very hard through the depression and became middle class. My dad was extremely poor and made it to middle class, so I was the first generation in my family to truly have an easy start. My parents pushed me out on my own, I paid my own college, etc., etc. But you can't deny the effect of having middle class parents - started with all the hand-me-downs, health insurance through them until I graduated, etc. & if I fell splat on my face my parents would have been there. I think about that often because even to this day we have a lot of equity in our house AND our parents to fall back on if worse came to worse. BEcause of the generational effect it gives us a big cushion to fall on if nothing else. I even ponder our inheritance sometimes - it could be HUGE. Not because they are wealthy, but because they saved well and the insane home equity they have living in California. I'd rather them live to 100 and never see a dime, but the fact is between our entire family odds are we will receive some money in this life.

    My parents pretty much put me out on my own at 18, and have never been big on giving me things (which I think overall is good for me knowing how to take care of myself). But dh's family likes to shower him with gifts - cash and vacations all the time lately - moreso since we had kids. I can not deny it is pretty sweet. Thinking further I have to admit my parents gave us a $10k interest-free loan as well when the bank wanted us t have more money in the bank for our first mortgage. What would have been our option otherwise - credit card? IT was silly and we turned around and paid it back right away. But a tremendous help all the same.

    I discuss this a lot with my friends back home, most of our parents came from very poor backgrounds and became very middle class. We just reel at not only how easy our life was compared to theirs, but even moreso how much easier our kids lives will be. We try our best to instill what we can, but they will always have family to fall back on, which kind of takes the edge off really having to do it all on your own 1000%! & what can you do when grandma wants to take you to HAwaii every year and shower the kids with gifts, etc. Grandma wants to take the kids anywhere they want in the world when they turn 12 or something. Frankly I am a little jealous - hehe. They will have a very good life most likely...

    I think the thing is our parents have more money now than they ever imagined they have and they want to make it up to our kids somewhat what they could not provide for us. It is just compounded that we are that much further ahead at 30 than they were with an easier start.

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