Why do the rich get richer?

Secure the future of your offspring

Have you ever wondered why it seems that the rich get richer? Why do some people get dealt a better hand in the game of life? Whilst I can't answer these questions I can offer one small contribution. The rich are really good at Intergenerational progression.

Intergenerational progression - what is it?

It's a phrase that I made up to describe something that hasn't been explicitly identified before. Intergenerational progression refers to the growth in wealth within a family as wealth is passed on from one generation to the next.

The foundation of it assumes that your children should be given a better start in life than you had. By that I mean that they should be provided with better education, and more resources in the form of assets. The intention is that by giving your children a better start in life then they should hopefully achieve more as a result. The goal being that they will live a more comfortable life and set up their children with better education and resources than you were able to provide for them. This cycle continues down the generations and as so your family grow their wealth together.

This isn't a new concept. It's something that the rich have been doing for a long time. There's an old saying that the rich get richer and it's true. There are very rich families that have learned how to pass on wealth to their children. These families appear to be born into wealth and continue to grow their wealth. So how do they do it?

Wealth equals assets

The key is to keep assets. Try your hardest to not sell assets. Assets produce cash flow and with cash flow you can grow your wealth. If you sell assets then your wealth will decrease. Another consideration when trying to preserve assets is to shelter your wealth from tax. Aside from hiring tax advisors to help to structure their assets in order to be tax efficiency the rich concern themselves with passing on wealth.

Passing on wealth to the next generation is key to Intergenerational progression. The rich take full advantage of the tax system in order to do this. I know a very wealthy family who own a lot of London property. As children are born to the family they receive shares in the property company in trust. Boom! In that instance wealth has been transferred to children. 

I'm aware of other wealthy families in London that have begun to buy their children properties when they're still in school with the idea being that the children will move out after  University. Care is taken to ensure that the property is in the children's name in order to pass on wealth.

Investment in the tangibles and the intangibles

The rich families invest in education for their children. They generally pay for private schools, send their children to University and ensure that they are debt free before entering the world of work. I know of other families where cash rich grandparents have paid for their grandchildren's eduction in order to save their children the money and pass on wealth.

In essence if you want to build a legacy then focus on Intergenerational progression. Ensure that you pass on wealth as early and as soon as possible.

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Unknown said...

The book The Millionaire Next Door goes into great depth about how the rich become rich. One key characteristic of the rich is their consistent investment of time in managing their wealth and in continually educating themselves regarding finance.

A colleague of mine gave me a great quote regarding personal finance: Why do we spend so much time earning money but so little time learning how to manage and use it? The wealthy know that we must learn to be good stewards of our earnings and wealth.

Mr. Moneybanks said...

Amen to that Dollars and Saints. Have you read my book review of Millionaire next door: