By: Douglas J Utberg

In the financial planning profession, there is a cliché known as “shirt sleeves to shirt sleeves in three generations.”  The moral of this cliché is that there is a tendency for fortunes that are accumulated by one generation to be dissipated by the next three generations through wasteful spending and laziness until their posterity is back to working in their ‘shirt sleeves.’

The importance of this insight is that it helps to dispel the ‘rich get richer’ belief that many people use as an alibi to avoid taking action.  It is certainly true that making money is much easier if you start out with money, but it is also very easy to become lazy about your investments when you start out with money.  In addition to this, people with money tend to acquire expensive habits that become a drag on their ability to produce more wealth.

Over time, the discipline and desire of somebody who started without resources will result in success that compounds on success.  Similarly . . . over time, the laziness of somebody who started out with a silver spoon will result in waste that compounds on waste.  One does not need to look any further than the tabloids in the supermarket cashier stand to see this principal in practice.  This phenomenon also takes place in the business world as well, when large companies with established markets and lots of capital become so bureaucratic and inefficient that they are eventually displaced by smaller, more nimble competitors.

It is important to note that people who are born into wealth can still realize long-term success.  In order to accomplish this goal, they must develop and maintain the discipline of a poor person in order to keep their edge.  In a similar fashion, people who are ‘working their way up’ would do very well to remember the behaviors that created their success so that they do not lapse into the wasteful habits that dissipate the wealth they have accumulated.