Tuesday, August 18, 2009

Finances and the Family: The Earlier Generations

Thank you all for your advice and kind wishes after reading my last post. Obviously the family finance issue is on my mind a lot, and one of the aspects I was mulling over last night was how these things slide from one generation to the next: my mother's finances will affect mine, and mine could affect my niece and nephew. But what about the earlier generations? How did my grandparents' finances affect my mom and dad?

I've mentioned before that my mother grew up quite poor, with parents who divorced when she was a teenager. Her father was a barber-- he died a while back, and I never knew him well enough to know anything about how he spent what little money he made. Her mother is still alive, and seems to live very simply on a small income, I guess from Social Security, plus occasional checks sent by my mother and her 3 siblings. She is remarried, and lives in a small house that her husband bought. The mortgage is paid off. My step-grandfather supposedly has a few thousand dollars saved, but he won't tell anyone where it is-- as in, it's not in a bank, it's just in a coffee can buried in a closet or something. I don't think my mother's parents ever had much spare cash-- but nor did they have debts, as far as I know.

As for my father's parents, I don't think I've ever gotten around to writing much about them, and they are quite a different story.

My father's father was a lawyer. His parents were poor immigrants so he put himself through college and law school. He may have been the only one of their 9 children who got an advanced degree, though one of his older brothers was also successful and was actually in the House of Representatives for a term or two back in the 1930s. Probably because of this government connection, my grandfather ended up working for the Veteran's Administration. I don't know how much money he made-- a decent amount, I'm sure, but nothing like what we hear about corporate lawyers making today. My father has expressed some resentment about the fact that my grandfather volunteered for the Navy during World War II despite being well over the age where he'd have been drafted-- if he'd stayed home, his political connections might have led to an appointment as a judge, but by the time the war was over, his brother was out of office and had no strings to pull.
My father's mother also came from immigrant parents of what I guess you'd call a white-collar working class background (her father was a machinist but became some sort of supervisor). My grandmother graduated from high school but never attended college. She never worked until after my grandfather retired, when she did some part-time clerical work for her sister (who has an interesting story herself, which I'll have to tell later.)

But here's the kicker: my grandparents had 6 children, my dad and 5 sisters. They put them all through college and may have made some contribution to graduate school/law school costs for at least one or two of them. (3 of my father's sisters have advanced degrees.) Can you imagine paying for all that in today's world, on a middle-class government lawyer's salary? Education just cost less back then, and though all the kids went to Ivy League/Seven Sisters colleges, most of them were able to live at home while going to school, which must have been a big savings. And I suppose my grandfather would have paid for some weddings too, though I imagine they'd have been small.

How else did they make ends meet? My grandparents definitely had a depression mentality, and never threw out a scrap of food. But they weren't crazily frugal-- my grandfather gave my grandmother plenty of jewelry, and he played golf (though at a public course, not as a member of a private country club), and they had a comfortable house in an expensive area. They didn't really travel much, but I remember them taking a couple of winter vacations. I'm sure there were many years when money was tight, but by the time they were retired, they had a nice life.

My grandfather went into a nursing home and lived there for a few years til he died at the age of 90. My grandmother continued to live at home for about 13 more years, with part-time care from an aide for about 2 or 3 of those years. Then she went into a nursing home for about 9 months before dying at the age of 94. In the later years of her life, she gave each of the 6 children a few thousand dollars a year, and after she died, they each got a share of the proceeds from the house-- it sold for about $500,000 at the top of the real estate market, so each of the kids ended up getting over $80,000 in the end. (This inheritance makes up almost 1/3 of my father's current net worth.)

It just boggles my mind that they managed to raise so many kids and live so long and pay for nursing home care yet still not run out of money. My grandfather may have had a really good government pension. Maybe he invested well. He definitely left everything set up for my grandmother after he died, with some kind of annuity in her name. I would not say my grandparents were wealthy, but they were definitely prosperous.

The "American Dream" is for that kind of prosperity to increase in each succeeding generation, not evaporate. Yet that evaporation is what seems to be happening in my family. My parents have savings now, but they'll likely be gone well before they're even in their 80s, and then they'll have to tap the equity in the house. My sister and her husband are in their mid-30s with credit card debt and have probably barely made a dent in retirement savings or college funds for their kids. Our family's situation could be far worse-- some of stories told by commenters on this site make me feel like I have no right to complain. I guess it's just sad to look back at those early generations, on both sides of the family: their hard work after starting from nothing, their frugality, their willingness to live with less. They passed on an amazing gift to us, a gift that went well beyond money itself. I think they'd be sad to see that gift wasted.


Anonymous said...

Madame X wrote: “The "American Dream" is for that kind of prosperity to increase in each succeeding generation, not evaporate. Yet that evaporation is what seems to be happening in my family.”

Make no mistake that is generally the path the US is on as a whole. So welcome to the party.

The tremendous amount of debt, both public and private, are going to have to be repaid somehow (think higher taxes or inflation). This fact will cause a “generational” step down in standard of living for Americans. We have spent future earnings (through borrowing debt) for far too long, both as individuals and a society. No one, not even governments, can spend more than they take in forever.

The story you tell for your family is the story of the US.

Anonymous said...

madame X: Chin up! You are feeling too sorry for yourself, but don't. Overall, things are not as bad for you family, as they are for most people in the world. On a global scale, your family is probably in the top 5% if not higher. Things will get better.

IRA said...

Your story is actually quite common. Have you ever heard the saying, rags to rags in three generations? If you do a google search, you'll come up with the following explanation...

"The first generation in a family makes money (goes from rags to riches); the second generation holds or keeps the money; and the third generation squanders or loses the money (and so goes back to rags)."

Sicilian said...

Madam. . . . I have come to believe that the way money is handled has nothing to do with how you were raised. There are 4 of us. . . The brother with the least education makes the most money and has gone bankrupt 2 times. The other two do fairly well with the money they make. I have the most education and make the least money, but have the most assets. Our parents saved all their lives to give to us. . . . Their parents did the same. Both my father's parents and my my mother's parents saved and saved and saved.
Looking back, I wished my mother and father had traveled and done things. My mother is gone, and my father is a shell of a man without her.
The money they wanted to leave to us and have saved all our lives will probably go to pay for a nursing home for my father.
Maybe your mom has the right idea.

Anonymous said...

People often wonder why the current generaton is struggling while their parents and grandparents did fairly well. It's often forgotten what role a long running bull market played in helping our grandparents and parents prosper in the years following WWII.

Chad @ Sentient Money said...

The final anonymous poster makes a good point about the big bull market after WWII. Plus, the depression and WWII made 95% of the population extremely frugal.

It should also be noted that those who had jobs during the Great Depression, and there were plenty who had jobs, were in a great position to expand their wealth by buying undervalued assets (property, stocks, etc.).

They also caught the sweet spot of this nation. We had enough people to be a heavy weight, but not enough to make the majority of land expensive or crowded.

Of course, they didn't take these opportunities for granted and they didn't bother to put 5 TVs in house that was 3x larger than they needed, with 3 cars for two drivers. They thought one trip to Hawaii in their life would be the pinnacle of their travel...but most never actually went through with it.

They rarely bought their kids anything.

They also didn't have the ridiculous options for spending money we now have. Just compare phone options. They had basically one option (black rotary phone) and we have an almost infinite number that have to be replaced every few years. My parents still have a black rotary phone that works in their basement, which is at least 40 years old. Is our phone even going to last us through 2010? Definitely not 2012.

Anonymous said...

Just do not forget,who is the NO 1 in your life....
It is you!!!!
Take good care of yourself....

Gord said...

You say at the end of your post that "they passed on an amazing gift to us"

But that's just it. Most parents don't pass it on. They may know how to be successful financially, but they don't really pass the philosophy on to their children. They pass on the money and the assets, but it's not enough. It's more than technique, it's a way of thinking and feeling.

Anonymous said...

you're not the only one to think like that. I too believe that we have it so easy and if anything we should be able to go above and beyond what the generation of our immigrant ancestors were able to do. Somehow visions/goals seem to have changed, is it because the hard working parents made it very easy for their kids?

Tracie said...

You are not alone...Each one of us face such type of challenging thoughts in our everyday lives but life isn't about how much money we make or what can we afford .I would feel the panic sometimes but my experience has taught me that what really matters is not calculated by numbers or totaled in our net worth..... of course Money and you by Habit Changer has provided useful tools in changing this perspective .http://www.habitchanger.com/moneyandyou/

iberwang said...

It's not how much we have, but how we manage our money is the most important things in life.

Anonymous said...

I agree with Gord. It's not enough that our parents bequeath their wealth to us. They too should pass the "formula" on to us to make this inherited wealth substantial.
My Well Of wealth