Can the middle-class build wealth across generations?

A 21-year-old M.Sc physics student recently told me his ambition is to gradually lift his family from a middle-class existence and build wealth over generations. We were discussing a career in physics, not money management or investing! When I shared this on social media, a few voices (as always) felt that building wealth across generations for the middle class is impossible.

In this article, I argue it is possible, albeit quite difficult.  In fact, many middle-class families have managed to do this!

First, we would like to highlight the difference between being wealthy and being rich.  A rich person has a lot of money. A wealthy person has money, time and health. Even if it is not a lot of each, they have found a balance.

Next, what does building wealth across generations mean? Sadly, many immediately picture the Tata’s, the Birla’s or, more recently, the Ambani’s and claim this is impossible.  I agree. I am not referring to them here!

Since I am the victim of my experience, allow me to give you my own example. My great-grandfather probably led an upper-middle-class (or better) life in the 1940s and ’50s, but later on, my family’s social station slipped down gradually and stayed firmly rooted in the middle class since the 1970s.

In the late eighties, we had to sell our huge bungalow in the heart of Mylapore in Chennai to relocate to flats. The emotional scar of that move affected my father (who was born in that house) quite a bit, and I cannot get over it to this day.

That is when I realised that one generation should earn more than the previous generation to try and hold on to what was bequeathed to us.

It is only because of my parents’ sacrifices that I spent 12 years after school educating myself, qualifying myself and increasing my ability to earn more. See, Our financial independence today is because of our parent’s sweat and toil. And O Captain! My Captain!

When my father insisted on marrying an employed woman, and my parents decided to have only one child, the seeds of financial recovery were sown. That may not sound politically correct to many today, but it was/is practical.

They then allowed me to study nearly 14 years after school without pressure. This allowed me to obtain a PhD, experience and, as luck would have it, employment at IIT, Madras. This is the only reason I reached the threshold of financial independence after 10-12 years. See My Journey: driven by the fear of making the same mistakes again And 15 years of mutual fund investing: My Journey and lessons learned.

Due to my father’s untimely demise, I was forced to learn money management and appreciate equity investing. Because of this, my family has moved back up the social ladder.

When we think about wealth across generations, we immediately think of a family business handed down from generation to generation. However, that is not possible if we are salaried. So how can the salaried build wealth across generations?

From one generation to another:

1. The children should be more qualified and skilled and earn more than their parents. The children should then become financially independent and build on that to leave an inheritance. This implies debts do not become a habit and are erased as soon as possible.
2. Their children should be qualified, skilled, and manage to earn even more. They should also be educated about financial shrewdness early on. From day one, they should be prudent with their inheritance and invest aggressively, preferably with little or no debt. Also, see: My 13-year-old begins his investing journey with an index fund.
3. Rinse and repeat.

Yes, this is extremely hard to achieve, but not impossible.  Many, many families have done this, building on the sacrifices of the previous generation. In my case, we are about halfway there. This took 50 years (from 1973 when my parents got married)! With the help of providence, it may take another 1-2 decades more. As Ted Lasso would say, “BELIEVE” and then get to work!