You have heard the old adage “Rags to Riches to Rags”, or “Shirtsleeves to Shirtsleeves in three generations”. It is not just a dynamic of western culture; it is actually an old Chinese proverb “Rice paddies to Rice paddies in three generations.”
Breaking down the saying
(1) The first generation strives to better themselves, so they create new wealth through innovation and financial discipline.
(2) The second generation, having learned the value of investing and saving, attempts to be good stewards of the fruit of their parent’s efforts.
(3) The third generation often consumes the resources generated by the first two generations.
So what do we learn?
(a) Are you a Creator of wealth that has generated new resources for yourself and others?
(b) Are you a Steward of wealth who has managed well the resources you have been entrusted?
(c) Or are you a Consumer of wealth who has enjoyed the fruits of other’s efforts?
How to build your resources even during retirement
The IRS requires owners of retirement plans to distribute an increasing percentage of their accounts every year beginning age 72 (73 if you reach age 72 after December 31, 2022 and 75 in 2033). Roughly 4% must be withdrawn at age 70, 5% at age 79, 10% at age 92, and so on. This is to make sure you consume funds from these plans that qualified for the deferral of income taxes during your lifetime.
However, if you want to consider yourself a Steward of resources, you would only spend 1% or 2% of your resources to ensure that future generations of beneficiaries of your wealth could enjoy a similar standard of living. Such a low percentage reflects the impact of taxes, inflation and the increased number of people in successive generations.
Lessons we can take from the past century
In the U.S., over the past century, the Greatest Generation (born 1914 – 24) were the Creators of wealth, the Silent Generation (born 1925-42) were the Stewards of wealth and the Baby Boomers (born 1946-64) are the Consumers of wealth. This leaves the Millennial Generation (born 1981-1996) with the challenge and opportunity to be the new Creators.
Not about judgment
Our true legacy is the impact we have on people and the world, which is much more significant than the tangible stuff (including money) we leave them. So, whether you are a Creator, Steward or Consumer of resources is not about judgment, the data will simply reflect if you increased resources or depleted them.