From a silver spoon to a sliver: why rich kids often lose it all

What's it like to lose it all?

For Geneen Roth, it was a cold day in December 2008 when a close friend called to tell her that Bernie Madoff had been arrested for running a multi-billion-dollar Ponzi scheme that left thousands of his clients' savings accounts worthless — including Roth and her husband's entire retirement fund of nearly $1 million.

"It was like hearing somebody you loved had died in a car accident," Roth, a health and wellness author, said in a phone interview.

James Altucher took a similar gut-punch after his bank account went from $10 million to nearly zero in a matter of months. After a string of initial successes as an entrepreneur and investor, some bad investments and excessive housing purchases left Altucher bankrupt, forcing him to sell his Tribeca penthouse loft and trade down for small home in a small town upstate, with just $143 left in his pocket.

"I was so ashamed and upset," he said in a phone interview. "I wouldn't leave my house for months."

Whether you're a victim of fraud, bad luck or your own mistakes, there's no good way to go broke. The only consolation? At least, people feel sorry for you. If you grew up rich, with the proverbial silver spoon in your mouth, and you lose it all? Well, then you got what you deserved.

That's the "weird duality" of our feelings about the born-rich, per wealth psychologist Jamie Traeger-Muney. We all want to be rich, and everybody loves a good rags-to-riches story about bootstrappers and self-made millionaires and billionaires — but the people who have everything handed to them get no love. "Inheritors are in the lucky sperm club or the lucky egg club," Traeger-Muney said in a phone interview. And whether it's class envy or just schadenfreude, we love watching spoiled heirs and heiresses left helpless when the money runs out.

Mo' money, mo' problems. Frances Stroh grew up on the other side of that weird duality. A fifth-generation member of the family behind Detroit's once great Stroh's Brewing Company, Stroh and her brothers were raised like royalty — only to see it all evaporate when the bottom fell out of the family business.

Stroh wrote candidly about the experience in her 2015 memoir Beer Money: A Memoir of Privilege and Loss, recounting not just the excess and bad behavior — from her coke-fueled teenage years to her father's "ever more aggressive spending sprees" — but also the emotional turmoil of growing up rich.

"Money was a part of one's identity. If you lost it, you lost yourself," Stroh writes. "'Shirtsleeves to shirtsleeves in three generations,' as the saying goes. Even as children, surrounded by so much abundance, we had been warned there wouldn't be enough to last. 'One day, the money will go,' my mother often told my brothers and me."

That "fear of impoverishment," Stroh added, "became a self-fulfilling prophecy."

Like the "shirtsleeves to shirtsleeves" adage Stroh refers to, what happened to her family turns out to be very common. According to a survey conducted by the Williams Group wealth consultancy, 70% of wealthy families lose it all by the second generation; 90% by the third. Part of an economic pattern known as the Kondratieff Cycle, family wealth accumulated over generations tends to wane and waste away with each successive, financially floundering generation.

It turns out what Biggie said about hustling applies equally to wealthy families: mo' money, mo' problems.

"Somebody could pull the plug and it could all be gone." And yet we don't consider those problems to be legitimate. According to Clay Cockrell, a New York-based therapist whose clients are often among the wealthy 1%, those raised with large family enterprises hanging over their heads struggle with motivation and their purpose in life.

"Why get up in the morning?" Cockrell said in a phone interview. "Why do anything because all your needs are met?"

Studies show affluent children are often more anxious and depressed than their lower- or middle-class peers. The perception that they have no right to complain about problems that aren't legitimate only compounds their problems. They end up running in social circles with fellow wealthy offspring, which puts them in a bubble that doesn't expose them to other kinds of people or even the real world.

The lifestyle and closed-off mentality becomes a "vortex," said Denver-based strategic wealth coach Amy Zehnder. "Whenever you're dependent on anyone and anything, you operate differently than when you're independent," she said in a phone interview. Once these children are thrust into the real world, they don't know how to get a job, pay rent or open a bank account.

Zehnder described an exercise she did with a twenty-something client in which the client drew a bathtub filled with jet skis and yachts to signify his fear that "somebody could pull the plug and it could all be gone."

Family before fortune. Often, the problems arise when families fail to confront the realities of wealth and the way it can skew one's sense of what's "normal." According to a 2016 U.S. Trust survey of people worth more than $3 million in investable assets, about 64% of them have yet to tell their children of their wealth. "You don't want to rock the boat with family," Zehnder said. “Or they don’t know how to go about having these conversations.”

For those whose family wells are now dry, there's a "stealth wealth" facade they feel pressured to uphold, Traeger-Muney said. Whether it’s the burden of a legacy name (like Vanderbilt or Woolworth) or just knowing your grandparents once had millions, it can cause all kinds of stress: shame, embarrassment, trust issues, to name a few.

In our modern economy, we're already prone to confuse identity and self-worth with the size of our account balance. But for wealthy families, it's an especially tricky emotional minefield.

Tom Rogerson has been on both sides of the issue. His great-grandfather Charles Rogerson was president of the Boston Safe Deposit and Trust Company, at one point the largest financial institution in the northeast. While the Rogerson line included investors and tax planners, the family fortune ran out because everyone continued to spend "normally" without knowing what "normal" even was. Now, Rogerson is a family wealth strategist in Boston.

The trick, Rogerson says, is to try to separate the feelings from the finances. For his own family, Rogerson makes his children stakeholders, to encourage them to make their own decisions and learn by working together — in other words, putting the family before the money.

After all, Rogerson says, "a preserved family preserves the money better."