What history says about the fleeting fortunes of America's wealthiest families

The line separating America’s wealthiest families from the rest of the population may not be as indelible as many think, according to new research.

A study from the National Bureau of Economic Research challenges the notion of a permanent upper class, showing how a major chunk of the richest Americans in history failed to hold onto their wealth over time – and their descendants rarely make it back to the top.

The working paper, titled "The Gilded Age and Beyond: The Persistence of Elite Wealth in American History," examined wealth mobility from 1850 to 1940, tracking millions of individuals across multiple generations.  

Based on their analysis of census records, researchers Priti Kalsi and Zachary Ward found that out of the top 0.1 percent of wealth holders from the period, 85 percent dropped out of the category within a decade. Even among the broader top 1 percent, nearly three-quarters (72 percent) fell out within ten years.

“Our findings challenge the notion of a persistent, entrenched wealthy elite and instead suggest a more dynamic picture of the extreme upper tail during this period,” the authors wrote.

The third-generation curse

The study also found that scions of ultra-wealthy households rarely maintained their family’s elite status. Among individuals raised in households with multiple live-in servants – a proxy for upper-class status in the 19th and early 20th centuries – over 90 percent did not have servants as adults.

The drop-off gets even steeper for later generations. A 93 percent majority of grandchildren whose grandfather was in the top 1 percent of wealth holders did not fall into the top 1 percent themselves. Even among those with wealthy grandparents on both sides of the family, 86 percent still failed to remain in the top tier.

"This finding supports the view that exceptional wealth stems from outlier entrepreneurial ability, and/or luck, which do not necessarily transmit across generations," Kalsi and Ward wrote.

One factor reducing the stickiness of extreme wealth was the disruptive impact of major economic events. The authors highlighted how the Civil War wiped out much of the Southern elite’s wealth, including plantation owners whose fortunes were tied to slave labor. The Great Depression also hit America’s wealthiest particularly hard as it crushed home values – one of the key measures of wealth in the study. 

"These findings show that elite wealth, even within the top 1 percent, matters," they wrote. "However, the relationship is not deterministic."

Still, extreme wealth seemed to pose an advantage. The authors found a nonlinear relationship between grandparental wealth and financial success. While only 4 percent of grandchildren of 98th-percentile wealth holders reached the top 1 percent, the success rate more than tripled to 13.5 percent for those whose grandfather was in the top 0.1 percent.

A self-fulfilling prophecy

The idea of fabulous fortunes getting whittled down across generations isn't new. One often-cited statistic, attributed to an ambitious study of 3,200 families by Williams Group, says 70 percent of wealthy families lose their wealth by the second generation. By the third generation, that failure rate grows to 90 percent. 

Family wealth consultant and author Jim Grubman, who has called that research into question, said wealthy families that have read it could still be unintentionally walking themselves into that spiral.

"It’s a natural human tendency to just believe a good story that seems to have solid backing," he said in a recent article published by the CFA Institute.

To avoid risking their wealth being eroded by future generations, Grubman said many parents respond by shielding their children from financial decisions, making those heirs less ready to handle wealth once it comes into their hands. "It then becomes a self-fulfilling prophecy."

Sustaining family money may be a priority among wealthy Americans, but a 2024 study by Bank of America revealed some concerning gaps in planning for generational wealth transfers. Out of 1,007 high-net-worth respondents, it found 52 percent didn't have a will, an advanced healthcare directive, or a durable power of attorney. And while 69 percent of parents with adult children said they have discussed their family wealth plans, those conversations didn't happen until their children were 31 years old on average.

For advisors looking to break the silence on generational wealth, family dynamics will be a key issue to navigate.That emerged as the top reason for inheritance-related strain in the BofA study, as it was cited by 59 percent of respondents, including 65 percent of older respondents who cited it as a factor.

"Indeed, wealthy families seek more guidance on family matters, issues that aren’t helped by technical advice about investing or tax strategies," the report said.