How to avoid a rice paddy to rice paddy mess in your family

By Dian Vujovich

Communities where there are a large number of families who have passed their wealth down from one generation to the next know only too well how quickly one’s family wealth can be wiped out within a few generations. Fortunes that took literally one individual’s lifetime to build can be erased in what many might consider the blink of an eye. That’s the downside and reality of acquiring great wealth—it comes with no promise of or lasting guarantees.

Thought of as rice paddy to rice paddy in three generations, this phenomenon doesn’t have to happen to a family’s wealth. That is provided those who created the wealth within the family take the time to educate every individual who is likely to inherit some of that wealth to their shared sense of money-related values.

I asked Charles Richards, Ph.D., and author of “The Psychology of Wealth” (McGraw-Hill, January 2012) a #1 bestseller at Amazon.com and book lists like USA Today and The Wall Street Journal, about the rice paddy quandary. Here are his thoughts:

Q: Why does the rice paddy to rice paddy in three generations still happen?

A: Several cultures have versions of the “rice paddy to rice paddy in three generations” proverb. This is because, I believe, it expresses a universal principle about wealth and human behavior. The proverb relates the phenomenon of a couple who start life in a rice paddy and use ingenuity and hard work to create a financial fortune without significantly changing their own values, customs, or lifestyle. In the following generation, their now-wealthy children move to the city, run the business, wear expensive clothes and live in elegant homes as the family fortune plateaus. The third generation, with no experience of work, consumes the fortune. The fourth generation returns to working in the rice paddy.

The obvious lesson of this all-too-common tale is that it takes a family culture of self-discipline and hard work not only to create, but also to maintain, financial wealth. Yet I’ve observed that it also requires having a healthy psychology of wealth—which, at its heart, is a psychology of self-esteem and self-respect.

The ability to make our way in the world and to build and maintain true wealth depends on these internal “assets.” And none of them are necessarily inheritable!

So while money helps many things, it has little long-term impact on our sense of self-worth.

Fortunately, the steps we must take to create and maintain a prosperous life are most likely the very ones that will build self-esteem. They require accomplishing tasks that are challenging, creative, or nurturing. When we’ve accomplished such tasks, we demonstrate to our harshest critics—ourselves—that we’re capable of mastering our circumstances and achieving goals.

If, by the “third generation,” these experiences have been lost, it’s likely that the fortune will be, too.

This is why I believe that it’s important for wealthy families to create what I call a family operating system that includes requiring children to uncover their individual values and work for accomplishments they can be proud of. This doesn’t mean depriving them of the material advantages they’ve inherited. Rather, it means setting expectations that will allow them to experience the joys of real accomplishment and contributing to other people’s well-being.

To be effective, parents must model this behavior in their own lives. This is the family operating system in action, and it’s infectious for children. Regardless of what they say, children learn best and most from what parents do. The parents’ words, actions, and life must be congruent with their ideals.

(This is Part 2 of a 4-part series in which Charles Richards, Ph.D., and author of “The Psychology of Wealth” answers questions emailed to him in February 2012)