The Marshmallow Test

It might seem odd to talk about the revival of dynastic, family-based wealth in these days. Americans are living longer, but saving for their own lifetimes even less. More than half of all workers say they have less than $25,000 in total savings and investments, and almost one-third report less than $1,000. Meanwhile, median income keeps falling, and people are being squeezed on monthly expenses.

If people aren’t even thinking of their own lifetime expenses, how could they possibly consider the notion of creating intergenerational dynasties of wealth? For most people, this is not even on the map at this point in history.

All true. That’s why Bill and Will Bonner’s book Family Fortunes: How to Build Family Wealth and Hold on to It for 100 Years is the most counterculture book on economics and finance that I’ve read in many years. It cares nothing for conventional wisdom. Actually, it tears it apart, not just to be cheeky, but rather to report a long series of uncomfortable truths that hardly anyone is willing to talk about.

It has just came out, and it should be the talk of the town. In fact, it will never be a best-seller. Most people will assume that this book has nothing to say to a generation that can barely keep its collective head above financial water. If the kids can find a job at all, one that pays enough to service the college debt, that’s saying something. Let’s just leave all talk of accumulated wealth for generations to another time.

The Bonners would respond that it is precisely during the bust when time horizons need to lengthen. The worse the economic environment for the kids, the greater the need for a family-based cushion to get them through the hard times. The dimmer the prospects, the more the parents need to be thinking not only of their children, but their grandchildren and great-grandchildren.

But how is this possible when the current generation is in survival mode? The Bonners argue that it is going to get much, much worse before it gets better. In fact, they doubt that the U.S. will ever recover economically. So why write a book that seeks to help people in the shrinking middle class take a leap into the class of old money? Well, it begins with this wisdom: Making, accumulating, and keeping wealth is not really about making money. That is the effect and not the cause. The real underlying issue is that one that hardly anyone — especially not economists — is willing to talk about. “If there is one thing that marks families with money over the long term, it is this: delayed gratification.”

Those who delay consumption now and think in terms of decades and even centuries will be the survivors. But thinking this way runs contrary to practically all existing financial advice as well as public policy. The money managers want you to churn your accounts and chase the next hot thing. The politicians and central bankers are setting out to punish savers by imposing low returns and a depreciating currency. All this combines to shorten time horizons, and most people just go along without really thinking about it.

The Bonners are urging readers to undertake a complete reassessment. And they begin with the story of an experiment. Kids were given one marshmallow and told that if they wait to eat it for 15 minutes, they would get a second one. Even so, they were free to eat it right away, but doing so would mean not getting another. It turned out that 30% held out for 15 minutes. The rest munched the first one down.

It turns out that the ability to delay gratification is an excellent predictor of later success in life. The kids who waited had better academic success and higher SAT scores later on. The tests went on and multiplied. It turns out that the ability to wait for higher reward later is predictive of other signs of failure or success, including grades, and even obesity.

The Bonners take the model and apply it to nations. In Haiti, everything grows beautifully, but people are poor, whereas in Switzerland, nothing grows well, but people are rich. They further show that it is not about race: They compare poor West Virginia with rich Switzerland to show that West Virginia would seem to have the resource advantage in every way. The difference is not about fertile soil or access to raw materials, but the culture that supports waiting for the longer term — and policies that make doing so worth one’s while.

But what about policies that punish wealth accumulation? Consider the Jews and their long history of one disaster after another, many of which involved fleeing to avoid extermination. More than any other group, the Bonners write, they learned to prepare, but in a way that did not tie them to the land from which they might be forced to leave at any time. This adversity created a culture of preparedness and other forms of mobile wealth accumulation. Today, Jews are among the richest groups in every society because they learned to survive and thrive amidst disaster and upheaval.

The same is true with many families in the United States and Europe. This is the core focus of this book: the capacity of any individual family to become a dynasty if it takes the right steps and avoids the pitfalls.

When I was visiting Brazil earlier this year, I was struck by how apparent it is that the real money in this country is generation based. It is rooted in long history. The children are taught and prepared to be safekeepers of the family fortune by not living high, but rather through careful stewardship. I had a strong sense that this is more common in Brazil than in the U.S., but I could be wrong, since so much wealth in the U.S. lives in hiding.

The Bonners seem to confirm that long lines of family wealth are the rare exception:

“Keeping money and the family together over longer than a generation is tough. Statistically, it’s unlikely. Practically, it’s hard work. Most people don’t even want to try…

“Real family money — Old Money — is rare; it’s way out on the edge of the bell curve. And it involves sacrifice, not self-indulgence. It involves giving up, not getting. It involves more work, not more leisure.

“It is a challenge, not a reward.”

The challenges are known. The major one is time itself and the changes it inevitably brings. Aging, marriages, new jobs, business failures, stock market turns, financial upheavals, sickness — all of these are forces that threaten to blow up the attempt to accumulate and protect wealth. The Bonners argue that the goal must be to make the passage of time work for the family, instead of against. That means relentless efforts that favor production over consumption, work over leisure, watching long trends in markets while ignoring the short ones, and building new kinds of wealth in each new generation.

The book is packed with page after page of specific advice and anecdotes about families that built wealth versus those that didn’t. One theme I really like in the book is how old money families have learned not to rely on the state in any sense as their means of security. The state has long been the major enemy of families and their security. The welfare state has replaced the intergenerational model of caring for the old and the young. It promises to take care of people, and people have believed it.

It’s tragic that so many people have bought into this idea. A popular T-shirt in resort retirement communities reads, “I’m spending my kids’ inheritance.” Ha ha. Maybe these people believe that the government will come to the rescue for the next generation the same way it has provided largess for the last several generations of retirees. Actually, this can’t last, and the model was never very good to begin with.

In real life, the state betrays people time and again, but the family tends to take care of its own. Blood is thicker than tax dollars, one might say. People with family money are more likely to start and sustain good businesses. They take care of people when they fail. They help them navigate choppy financial waters. They help people through hard times and provide good counsel on marriage, child rearing, education, and much more.

Just think of all the ways in which you might have personally benefited from your parents’ guidance, even if you didn’t appreciate it at the time, and then expand this model out to the whole of society. The state is a pathetic provider by comparison. The Bonners ask: When times are tough, whom can you call? A federal bureaucrat? Or a friendly uncle?

The Bonners push the idea of a family office in which there is total openness about assets, accounts, and management strategies. Everyone of a certain age should be brought into the picture and taught to think about the long term. Family wealth should be managed like a business, with all the principal players being made aware of what is there, how others are using the money, what builds or depletes it, and how much it must last.

But again, it is not really about money. It is about intelligence and thinking over the long term, which means many generations down the line. Money itself comes and goes. To keep it and enable its growth and continued presence is the special and most valuable skill. This requires not only knowledge and ability, but emotional stability, a work ethic, and the ability to get along with others in the family. These are the attributes that build wealth over the long term.

There are some real gems in this book. The long and passionate attack on charity — saving the whales, eradicating disease, educating the globe — is one of the most politically incorrect things I’ve ever read. They describe charities as mini-governments that use emotional manipulation to extort wealth from guilt-ridden and naive people, institutions whose output may or may not be useful, but almost certainly act as a drain on private wealth production:

“Without freely set prices, you are wandering around in the dark. That is why so many charity efforts are hapless and vain. In fact, it wouldn’t surprise us to discover that all the world improvement projects from the beginning of time to the present were a net drag on man’s happiness.”


The text is sprinkled throughout with marvelous stories of great families in history, proving that we owe much of civilization not to isolated acts of creation, but to generational and disciplined microcultures of inspiration and support. I’m pretty sure there has never been another book that combines this historical, cultural, and financial analysis with these types of conclusions and with this type of advice (some of which is likely to make you squirm). The information provided in here appears in no economics text and certainly no nightly business report.

This is a very wise book written for people willing to think completely differently, which is to say it is written for that tiny subgroup of the population that dares to rise above the rest and leave a lasting legacy that extends beyond the living. Again, I can’t imagine a more countercultural message than this one.