Generational Wealth Behaviors

Looking back on some milestones in life, one might think of graduation, marriage, first job, clean living, or any other array of personal or professional achievements. During the lead up to our wedding, my now wife and I partook in a marriage prep course that walked through various scenarios and teachings to prepare us for a smooth transition into marital bliss. All sarcasm aside, the one area that we still talk about is the discussion around family of origin.

The Impact of Family on Your Financial Outlook

Family of origin in its simplistic form is the family unit in which you were raised. These individuals do not necessarily have to be blood relatives, but they held the most influence over your life from your early, developmental stages. This group of people helped care for you growing up and you learned from them most during your formative years.

Understanding your family of origin and how those early experiences shape who you are today can have a significant positive impact on how you approach life and relationships, and even the way you view and handle your own wealth.

Rather than ignoring the past, it is helpful to understand family attitudes and actions towards money to help improve your own decision making and mitigate stress in regard to your finances.

Inheritance is more than just eye color, self-discipline, passion for arts, or athleticism (or lack thereof). Most people, whether they like it or not, assume the ideas and attitudes of their family toward wealth. Money beliefs and actions – like saving, investing, spending, reliance on debt – are often passed down from generation to generation. How to manage, learn from, and positively implement healthy monetary habits can set you and your own family up for long term success.

Inherited mindsets about money can be referred to as “money scripts”, which are unconscious beliefs about money that are rooted in our childhood. These money scripts are often learned from our family of origin. Money scripts are not necessarily wrong, but there can be flaws that show early-on that develop from chronic stress or worry about financial decisions that turn into something deleterious if not adequately addressed. The following is an example of how money scripts can be one dimensional, contextual, and quickly become outdated, yet can permeate through generations.

The Story of John: A Lesson in Financial Adaptation

John was born in 1915 into a working-class family. In his early years, John consistently heard about the global power struggle in the form of World War I, which lasted from 1914-1918. John was taught by his parents to save and invest, as his parents had been able to see their wealth grow in the post-war era with the Dow Jones Industrial Average (DJIA) producing consistently positive annual returns – 26.16% in 1924, 30.0% in 1925, 0.34% in 1926, 28.75% in 1927, and 48.22% in 1928. Around the middle of 1929 though, John could tell his parents were starting to panic and talking more about a failing economy, and they were worried about their wealth.

From age 14-18, John learned from his family of origin to never trust anyone else with your money, to keep it in a personal safe without letting anyone know your true wealth, and to save as much money as possible without spending anything. This was a complete about-face from his younger years. This is because John’s family of origin just lived through a series of events referred to as the Great Depression, with bank runs, a sinking economy, and environmentally harsh weather. These few years permeated with John, and he was never able to trust banks or other financial institutions with his wealth. Between 1929 and 1932, the DJIA recorded the following results:

John’s distrust learned from his family of origin was reasonable at the time, and his money script was imprinted. Even President Hoover at the time was trying to keep a positive tone to the public, but the economy and market did not follow suit. The issue with John’s money script is that his wealth journey was just starting, and his time for saving and investing was much longer than his parents. For the next 20 years from 1933-1953 the DJIA had 14 positive years of performance, of which nine were double-digit positive. During that same stretch only three years ended negatively by double-digit figures. John had severely hampered his wealth growth by keeping his wealth locked in a safe, rather than investing for long-term savings.

Navigating Money Scripts: Adapting Financial Behaviors

There are various money script categories. Again, not all are necessarily bad, but they must be handled and curtailed appropriately to help you make beneficial decisions about your wealth.

• Money Avoidance: Stems from individuals not believing they deserve to have money, or just believe money is bad. For money avoiders, money is a source of fear, anxiety, or disgust.
• Money Worship: The opposite of the avoiders, in which the worshippers believe money solves all problems. These beliefs can lead to compulsive hoarding, unreasonable risk-taking, overspending, and other destructive financial behaviors.
• Money Equals Status: People who adhere to this idea seek a clear distinction between socio-economic classes, and their sense of self-worth is often linked to net worth. For those that believe in money status, their wealth is their worth.
• Money Vigilance: Believing it is important to work hard and save money. Most of the time these people are watchful, somewhat frugal, and concerned about their personal finances. The vigilant are often anxious about their wealth and seem to not be able to enjoy their spoils.

With the right guidance and support, anyone can be a diligent saver, reasonable spender, and strike an appropriate balance of enjoying their current life while knowing there is something greater on the horizon. The various money scripts learned from a family of origin should be understood and used as a tool for success, rather than a harmful dictator of one’s life. It is not uncommon for individuals to earn plentiful wages and still make untimely and poor decisions about their wealth.

At LGT Financial Advisors we meet you where you are and work to understand your goals and objectives, then set out to follow a plan of action that fits your needs to live your best life. It is possible to change your thinking and habits, but that is a difficult journey to undertake alone.

Our team is here to help you, and we want to ensure your health is holistically supported by a road map of success.