Along with owning a home and the ability to retire comfortably, many people dream of being able to build generational wealth, or wealth that can be passed down to their children and grandchildren.
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However, famed personal finance expert Dave Ramsey recently told his 6.2 million followers on Instagram that money isn’t the greatest inheritance; it’s the wisdom to manage it.
In his social media post, the best-selling author explained that many families pass down money only to see it disappear within a generation or two because they don’t pass down the discipline necessary to properly manage it. He noted it is not just about what is being left, but rather, more about what is being taught along the way.
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When Ramsey refers to the fact that generational wealth can disappear quickly, he isn’t wrong. According to Soteria Trusts, research has shown that as many as 70% of families lose wealth by the second generation, and 90% by the third. Known as the “third-generation curse,” this statistic highlights the reality that wealthy families don’t always remain wealthy. Experts point to a lack of financial literacy as one of the primary reasons this phenomenon occurs.
Ramsey, who is known for advocating a debt-free lifestyle, understands the importance of financial literacy. Unfortunately, less than half of Americans surveyed could answer basic finance questions. According to the World Economic Forum, only 48% of respondents in the U.S. correctly answered questions related to basic financial principles.
While many people lack financial literacy, they believe that they have a firm grasp on the subject. Despite less than 30% being able to answer all questions correctly, respondents rated themselves a 5.1 out of 7 for financial knowledge.
While it is sound advice to pass down basic financial principles, such as paying off high-interest credit cards and establishing an emergency fund — both of which are advocated by Ramsey — generations may have differing ideas about how to build and keep wealth. Today, the world looks significantly different from how it did 30 years ago.
Younger generations see influencers becoming millionaires and the death of what were once guaranteed retirement sources like pensions. These changes have prompted them to think differently about how to generate income and even what to invest in.
