Succession planners work with families to avoid the dreaded ‘three-generation rule’ and ensure hard-earned wealth is preserved
- Cultures across the globe are filled with folklore on how wealth diminishes from a parent to child and then grandchild – but it all comes down to prudent planning and investing
- Two generations of Chinese families have built up sizeable wealth and now face the task of ensuring the next generation do not undo their hard work
This article was part of a special supplement on private banking which was published in the South China Morning Post print edition on October 20, 2021.
In their glossy marketing literature, private banks tactfully avoid any direct mention of the “three-generation rule”, but awareness of it can nevertheless be found between the lines.
It is, of course, nothing new, but rather a nugget of folk wisdom long passed on in cautionary tales told in family homes and clan gatherings all around the world.
Scots clustered close to a warming fire on dark winter evenings have been warned that “the father buys, the son builds, and the grandchild begs”. Young Chinese have heard from schoolteacher, patriarch or village elder that wealth does not pass three generations. And while Japan’s “rice paddies to rice paddies” and America’s “shirtsleeves to shirtsleeves” conjure up differing images for the same notional period, the essential message is identical: take the necessary steps to ensure hard-won wealth isn’t carelessly squandered.
For the private banking community, that imperative has translated in recent years into an increased focus on succession planning. It has been driven in the first instance by good financial sense, but also reflects the circumstances of a distinct historical turning point.
That is because, over two generations, roughly since the 1970s, many successful families in Hong Kong and mainland China have built up considerable wealth. Often from humble beginnings, they have worked hard, taken a generally cautious approach to savings and investment, and been able to benefit from escalating property prices and a mostly booming economy.
