October 3, 2023

Generational Wealth And The Angst Of The Not Rich Enough Class

Have you ever wondered why there is so much angst and anxiety from some high-income earning households that seem to have it all? Based on my years of research, the three main reasons are: 1) never-ending comparison, 2) a lack of generational wealth, and 3) having children.

Generational wealth is next-level wealth. If you have generational wealth, you don’t have to stress as much about the future of your children. Great colleges and well-paying companies can shut your kids out. But it doesn’t really matter because your children are already set for life.

The problem lies in accumulating the vast sums of money needed to be considered truly rich. You also don’t want to just give your kids a lot of money either.

In Search For How Much Money Is Enough

Since 2009, I’ve been writing about the angst of the upwardly-mobile middle class in big cities such as New York and San Francisco. After all, I’ve been grinding away in these two expensive cities since 1999.

My first 13 years after college were about figuring out a way to save and invest enough money to escape the rat race. The next 11 years were about trying to maintain a comfortable lifestyle without being sucked back into work due to the desire for money, prestige, status, and fame.

During these time periods, I encountered many wealthy individuals who often seemed stressed out of their minds. Despite their obvious wealth, they didn’t seem to be content, let alone happy. I found this puzzling. 

Today, I’ve come to realize the key to happiness is to quit the pursuit of maximum money and stop the comparisons. And if you decide to have kids, know you will inevitably feel more stressed.

The Desire For Generational Wealth

For five years after I left work in 2012, I felt relatively at peace about having given up the pursuit of making maximum money. We even moved to a less dense and cheaper part of San Francisco in 2014 to get away from the hyper-competition.

However, after my son was born in April 2017, my feelings about money changed again.

Once you have children, unless you’re a deadbeat parent, you will naturally want to make more money to provide more care for your family.

I couldn’t escape this biological pull. As a result, I shifted more towards entrepreneurship and focussed less on retirement in 2018. Then, when the pandemic began in 2020, I decided I might as well write a book given I was stuck at home for who knew how long.

The desire for generational wealth comes about when you have children. Every parent wants the best for their children. But given the world is ultra-competitive now thanks to technology and globalization, there’s a constant fear by parents their kids won’t be able to replicate their financial and lifestyle success.

Therefore, one solution to lessen this angst is to provide them with enough money to never go hungry should they be shutout from one too many opportunities. 

But creating generational wealth is hard. It means accumulating enough assets, not active income, to provide for everlasting financial security. After all, once you retire or die, your active income will cease to exist.

The Easiest Way To Create Generational Wealth

Once you have affordable housing, life gets much easier. If you can bring your housing expense as a percentage of income down to 10% or less, financial freedom is an inevitability. Food, clothing, shelter are relatively inexpensive when compared to housing costs.

Therefore, the easiest way to start creating generational wealth is to buy a rental property for each child you have. Ideally, you buy one when they are born to give yourself more time to pay down the mortgage and let the asset appreciate while your child matures into adulthood.

Imagine buying a property when your baby is born.

For the next 18 years, you diligently pay down their mortgages and manage their properties for rental income.

By the time each child is officially an adult, the property should be able to spit out enough rental income to provide for their basic living expenses. The property can also provide shelter for your child. Finally, the property can be sold and reinvested for whatever else your child desires.

Letting the powers of inflation and compound growth work their magic while your costs largely stay fixed is wonderful. Real estate is the easiest way for the common person to build generational wealth.

If your child ends up attending a great university and landing a high-paying job, they might have their own living ideas. In this case, then excellent!

You no longer need career insurance for your children. The property you earmarked for them can continue generating semi-passive rental income for your retirement.

With a paid off rental property portfolio, you’ve started your path to creating generational wealth. You’re not crazy rich, as some might imagine the definition of generational wealth to be. But you’ve got housing security for your children, if needed, which provides enormous stress relief.

The Not Rich Enough Class = HENRYs

If you live in an expensive big city, you will regularly encounter households that make $300,000, $400,000, $500,000, and even $1,000,000+ a year. To most Americans, such household incomes are considered rich.

Curiously, many such income earners don’t feel rich due to the high cost of living, constant competition, and the responsibility of raising children. These are the High Earners Not Yet Rich (HENRYs) with kids.

Most HENRYs are highly educated people who don’t have a high net worth yet. Their jobs pay well, but they also require long hours and cause enormous stress. They might still be paying off student loans while trying to figure out how to save for their children’s college education.

If HENRYs can just hold onto their uninspiring jobs for the next 20 years, they’ll be rich! Alas, 20 years is a long time to grind. Why not do some YOLOing instead?

Be careful about wanting everything: a high-paying job with lots of status, kids, a loving partner, and lots of freedom. The desire to have it all will lead to misery.

Needing To Trade Time For Money Is Not Rich

We’ve discussed how households earning over $400,000 will face potential tax hikes under President Biden. If you’re already working long hours at a job you don’t love, you’re not going to feel great about paying more taxes as you struggle to save and invest more for retirement.

However, the main reason why some $400,000+ households don’t feel rich is because they are still trading their time for money. So long as you need to trade time for money, it’s hard to feel rich because you will never be free.

There are many ways to feel rich. But one of the most fundamental ways to feel rich is to not have to work for money anymore. With enough passive income, you get to work on things because you want to, not because you need to.

The problem I constantly witness is the inability of people to forecast their misery. As a result, people spend too much today without thinking enough about tomorrow. By the time they are miserable at their jobs, they are trapped because they do not have enough money freedom fighters.

Too Much Competition And Comparison

The angst and anxiety of the not rich-enough class yet comes from too much comparison.

Now that my son is in kindergarten, I’ve had to inject myself back into normal working society. And inevitably, at every gathering, parents will discuss their vacations, businesses, work achievements, child achievements and more.

What else are parents going to talk about if we spend the majority of our week working? These topics are totally natural and not to be dismissed.

However, the more people discuss their days, the more you will question whether you’re doing enough for your family. You may also question your own career and wealth trajectory. Therefore, the constant comparisons may make you feel less rich or even poor and maybe even a bad parent!

Here are some examples that may cause anxiety and stress:

  • A parent who puts their kid in soccer, basketball, ski camp, and karate, at the same time. You might question whether you’re providing enough opportunities for your kid. Even though the kid has less than a 1% chance of getting a sports scholarship, what if?
  • A parent mentioning they got a raise and a promotion. If you’re working in a similar industry, you will naturally compare their career trajectory to yours.
  • A couple who mentions they plan to live overseas for two months this summer so their kid can experience full language immersion. As a result, you might want to find a job with more flexibility.

One of the reasons why I like to talk about pickleball and tennis during parent gatherings is because it’s a way NOT to talk about career, business, and kids. These are fun sports many people can do that don’t elicit envy.

After being away from regular society for so long, it is so clear to me how too much comparison creates unhappiness. If you live in a city that attracts the best college graduates who work in the most lucrative industries, you can’t help feel like you always need to grind just to keep up.

Minimum Net Worth Needed To Have Generational Wealth

Now that we understand how comparison and kids can create more anxiety and angst, let’s define generational wealth.

Based on a previous survey of roughly 10,000 Financial Samurai readers, achieving a $10 million net worth is the ideal amount to retire with as an individual or couple. Therefore, we could say $10 million is also the minimum net worth needed to have generational wealth.

If you have two children, you can leave $5 million to each and they’ll be set for life. Even if you have five children, you could give each of them $2 million, enough to live well for decades.

But as the saying goes, “from rice paddies fields to rice paddies fields in three generations.” Those generations that didn’t work hard to make their own wealth tend to squander it. It’s hard to appreciate what we didn’t earn.

If you’re a high-income earner who wants to feel less anxious, increase your patience. Run some numbers through a retirement calculator to give yourself an idea of how much money you’ll have if you stay the course.

If you live long enough, you will eventually get to this $10 million minimal generational wealth figure. Alas, most will not live to see that day.

A More Dynamic Generational Wealth Amount

Thanks to inflation and changes in government laws, let me introduce a more dynamic generational wealth amount to help reduce the anxiety you have for your kids.

Given the government is astute with a tremendous amount of data, the ideal generational wealth amount is the estate tax threshold. This amount is $12.92 million if you are an individual or $25.84 million if you are a couple in 2023. As the estate tax threshold increases, so does your target generational wealth amount figure and vice versa.

What’s the point of accumulating more than the estate tax threshold each year if the government is simply going to tax you 40% on every dollar over? Instead, it’s best to spend all your money above the estimated estate tax threshold to enjoy life more and take care of your children while living!

If you’re feeling even more anxiety due to a higher generational wealth amount target, feel comfort knowing we can consider this the maximum, not the minimum threshold to shoot for.

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Ways To Feel Richer And Less Anxious About Your Kids

The implosion of Credit Suisse, my old employer, reminded me of the importance of legacy. As you get older, you will wistfully review all the things you did in your life. And if you spent decades working at a company that went under, you may feel terrible about your life choices.

Hence, to feel more rich and less anxious about your kids’ futures, consider two things:

  • Spend more time with your kids so you minimize regret if they turn bad
  • Start a family-run business so you are more in control of its destiny

You don’t need generational wealth to do these two things. You just need effort. And whenever you make an effort, you will gain satisfaction knowing that you tried.

I doubt you’ll ever regret spending more time with your kids before they leave the house. You will also likely not regret starting something of your own and teaching your kids about how your business works.

The combination of owning a rental property free-and-clear for each child plus owning a family business will reduce your anxiety about your children’s future. Generational wealth is not needed because you’ve plowed a clear path for them, if needed.

With a family business, your child will always have a job in case they can’t get a good one on their own. You don’t need to worry about them getting into a good college either. By the time they’re 22, you will have taught them everything there is to know about the business.

Downward Mobility Is Still A Good Life

Every parent wants upward mobility for their children. However, the more parents make, the lower the chances their children will make an equal or greater amount. Downward mobility for rich parents is more likely!

A $400,000 household income is a top 2% income. A $500,000 household income is the start of a top 1% income. Therefore, by definition, 98% – 99% of new households and existing households won’t make those amounts.

You might look at the downward mobility chart below by Brookings Institute and fret about your child’s future. However, I challenge you to think differently.

Instead, think about downward mobility as the result of upward mobility by households earning higher incomes. Not only are households earning more, our standard of living is higher thanks to technology and medical breakthroughs.

Downward mobility and why $400,000 household income earners don't feel rich - they don't have generational wealth

A Positive Generational Wealth Transfer

Let’s say your child earns $50,000 a year for the rest of their life while you average $100,000 a year for your career. A 50% drop is significant. However, so long as you gave them love and support, as well as named them in your inheritance, they should be good to go!

After all, a middle-class person today lives much better than a king from the year 1800. Perhaps we just need to be reminded how good we really have it.

Since we can’t go back in time, we can simply travel to see how 99% of the population that doesn’t make over $38,000 a year lives. Then, perhaps, we’ll appreciate more of what we have and not need generational wealth to feel less stressed.

Finally, if you don’t want to feel as much anxiety, don’t have children. You won’t experience the joys of parenthood, but you won’t experience the sorrows and angst either. No amount of money will ever completely stop you from worrying about the well-being of your children.

Reader Questions And Suggestions

Why do you think many households that earn multiple-six figures are year are not happy? How much do you think is enough to have generational wealth? Is generational wealth necessary if you don’t have kids?

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