The Vanderbilts: The Financial Lesson They Teach Us
The Vanderbilts earned it the hard way- their patriarch, Cornelius "Commodore" Vanderbilt built a gigantic railroad and steamship empire from bare scratch, which made him the richest person in the United States of America till his death. His amassed fortune was so great that it even exceeded the money residing in the prevalent US treasury.
(Cornelius "Commodore" Vanderbilt)
Still, in 1973, when the Vanderbilt family members attended a reunion at Vanderbilt University, out of those 120 members, leave alone being distinguished business leaders that had enlarged their empire and had their wealth multiplied, not one of them was even a millionaire.
From their first-generation Commodore's vast fortune of 100 million dollars (Approx. $2 billion as of 2020) to not having even a millionaire descendent, what were the reasons this prominent family of the Gilded Age failed so miserably? Let's see then.
It is often said that lock any three Englishmen, with nothing in common, together in a room for a few hours and they will invent a rule that prohibits any fourth one from joining their coup and hence, maintain their exclusivity. Speaking realistically though, this is very true not only with the English but every association every living being has made on the planet.
So the Americans are not so different as well.
(The Vanderbilt family crest)
After the Civil War (1861-1865), the rich New York Society had closed its doors to everyone who was not local and vieux riche- which, unfortunately, included many well-to-do families including the Vanderbilts, irrespective of their philanthropic efforts of improving their society in many ways.
Even though ignored by the old-money for quite a long period, The Vanderbilts weren't the ones to admit defeat of any sort and hence commenced their journey of the social rising, that made them immensely rich but soon, also led to their downfall.
The uncontrollable expenses
After the death of the Commodore, his descendants inherited millions, and thus, empowered the second and third generations to make their first step to achieve their elevation of social status and to build numerous mansions across the Upper East Side.
William Vanderbilt, the eldest son of the Commodore, and his wife Louisa live in a home adjoined to their daughters' (The mansions called "triple palace" by reporters for the awful similarity amongst the three structures). Their son, William Kassim lived across them on the fifty-second street in his Petit Château (rightfully so) while the Fifth and Fifty-Seventh street had the red brick and limestone château residence of their eldest son, Cornelius II. All the homes being full of invaluable portraits, chandeliers, vintage objects, ballrooms with galleries, and everything else they wished.
("Petit Château" in 1886)
Of course, just as any notable family of the Gilded Age, the erection of grand country homes was also a given. Always called "cottages"- The Breakers, Idle Hour, Marble House, The Biltmore, etc. were built at places as Newport, Long Island, and many other locations, where the Vanderbilts travelled to during summer in their impressive yachts (Including the 285-foot screw steamer that William K. had named after his wife Alva).
(The Biltmore at Ashville, the largestAmerican
home till date cpmprising of 250 rooms)
Not forgetting the balls they hosted, with a number of attendees that easily reached 1000. The preparation that would go behind their successful execution of balls- the immaculate decoration, precious outfits, specially engraved invitations, and whatnot, incurred a great expense. But it was because of such a grand costume ball hosted by the ambitious Alva Vanderbilt (The dining room at The Breakers) which truly earned the respect as well as acceptance of the Vanderbilt family into the New York high society.
Therefore, one could say, "If you want true greatness, you have to pay the full price for it." Which they did. A hefty one, at that.
The grandeur the Vanderbilts had brought on, was most certainly not an easy task to be maintained- all of their homes and their upkeep which included their priceless and cherished contents, the country homes being occupied only for a few weeks during summer and otherwise remaining idle, the balls, the staff (Of the main residence, country homes, their yachts), the carriages, the horses, the stables, the list goes on and on (as micro as one wishes to go). And therefore, not so unbelievably, made great leakages to their fortune.
Un-expanded family business
From being the boy who helped out his father on their cargo boat to becoming an influential steamship operator, then steering to railroad business, expanding his empire to finally becoming a self-made millionaire, Commodore Vanderbilt had clearly worked hard to build his fortune.
(The cartoon depicting Cornelius Vanderbilt and James Fisk)
His eldest son William also, living up to his father's expectations, did a fantastic job by admirably and diligently doubling his father's already enormous wealth, and became the richest American till his death, as was the case with his father.
It was the third generation that reigned their horses wrongly.
After William's death, the bulk of his fortune (Approx. 130 million dollars) was passed equally onto the eldest sons- Cornelius II and William Kissam. Though Cornelius II had very dedicatedly participated in the family business, his efforts did very little to build onto their railroad business. And W.K., never having any significant interest in the profession, was obviously aware that with his inheritance, he never really had to work again. And he didn't. Unless you could call breeding and racing horses as work.
Eventually, though, W.K. did get into the driver's seat of their family business after his elder brother's death, but just didn't have the will to contribute further, hence he departed soon. Their younger brother, George Vanderbilt III, did not take part in the family business as well.
Even when their railroad business was hit unfavourably with the rise of other modes of transport, the Vanderbilts descendants, too caught up in their high-society glamour and limelight, still continued the spending spree, and thus, leading to the decline in their fortune.
Spending from the capital than the interest
While even all this wouldn't have seemed something so out of the blue (As was the tendency of the rich to behave so), one of the most startling and baffling financial activities the Vanderbilts had done was spending from the capital itself than managing your expenses through the interests and dividends. And therefore, no matter how massive their wealth was, enduring such constant depletion was just out of the question.
The imitation of Europeans
Apart from wishing to be recognised as a member of the esteemed New York Society families, the Vanderbilt family's fascination of the Europeans and their aristocracy was quite evident- from their castle-like homes that were mostly inspired by French manors and the English country homes, their outstanding balls, the portraits picturing instances of (again) the French and English kings and queens, their frequent travels to the Continent, looking for titled nobleman as grooms for their daughters (Alva Vanderbilt succeeded in doing so, as her daughter Consuelo married the Duke of Marlborough) and so on. Their explicit and implicit attempts of following the footsteps of the European nobility is also said to be one of the reasons for their demise.
What we can learn:
A massive example of the rise and downfall of such a prominent family really does open our eyes and makes us realize how supremely important the wealth management aspect is. And therefore, we all can agree that acquiring wealth is comparatively easier than the mammoth's task of maintaining it. But then, one might wonder: if those great people couldn't manage themselves with the help they have, how is it that we could ever stand a chance in those dynamic times?
What if we give you a ray of hope and tell you that there are also families who have persevered through generations and still live in the same brilliance as before?
For centuries, many English noble families have sustained wonderfully (Though, their ways of sustaining are certainly… interesting). Of course, it can't be ignored that the English aristocrats follow the rule of primogeniture, therefore safely maintaining the title and the fortune with much ease, and they've also had much support from the government and EU, but nonetheless, they have aged well.
And if willing to look at the other side of the Atlantic only, the notable example of a Gilded family with continued success has to be the well-known Rockefellers ($11 billion fortune in 2019) who still have their wealth very much intact, giving us evidence that- yes, wealth can be passed on for over generations and be multiplied.
And just how can that happen?
Making educated financial decisions.
Having lawyers and accountants won't be unusual for any leading family, however, the amount of role they play in advising their employers regarding their financial activities should be certainly important. Acquiring and building the numerous mansions and estates was not difficult, the challenge was to make sure if there was a capability to continue having them for a prolonged period of time.
Diversification of assets is surely a promising idea of conserving one's wealth, but we should be aware and absolutely make sure that these investments are made realistically, so as to have them as an asset and not a liability, now or in the future.
Structure to finance and family
A lack of reasonable structure and control in the entire process of passing and maintaining inheritance caused disorderly expenditures amongst the Vanderbilts, where they just went on spending as if the income flow was inexhaustive- which it absolutely wasn't.
Affluent families have since long resorted to trust funds, to have continuity and to provide an arrangement for the fortune and avoid any hiccups as much as possible. While it is not necessary for us to have trust funds, what we shall learn is to have consistent knowledge of our incomes, expenses, assets, and liabilities, make concrete and educated plans for any future endeavours, and practise wise control over the purse.
Realization of the legacy
Mr. David Rockefeller Jr. (Chairman of Rockefeller & Co.) has stated that twice a year, all of the family members gather together to connect and comprehend each other as well as their family legacy and values.
Agreeing with him, we think that perhaps another reason- a sentimental one, actually, if wished to be attached to all this hiatus, could be that the first generation is the one who builds everything from the scratch, does all the hustle and bleed sweat to build their legacy. The second generation witnesses this struggle and the (David Rockfeller Jr. with Susan Rockfeller) strive for betterment, if not pitch in.
Getty images- Monica Schipper)
After this though, the remnants of their forefathers' toil fade away for the following generations as they only grow up in their family's hard-earned prosperity (That is, if something greater does come out of it), therefore causing them to have loose control on their purse strings.
This is why it is immensely important for the elders to orient their younger descendants about the family, it's values, the business, the struggle for acquiring it. Just emphasize how crucial and valuable all of it is, teach them to cherish it and handle it responsibly- and if taught carefully and smartly, the younger generation will be infused with respect and realization towards their legacy.
Many families have already understood this, and so, they tend to teach their children the tricks of the trade of their family business by themselves and also encourage the younger generation to receive professional business education to have a perfect melangé of tradition and innovation, of the experienced and the layman.
Phew! It might seem that those individuals and families functioning on such elevated tiers are just simply for us to gawk at, but no. They are the ones who amassed great fortunes, some shrank while some still exist as if to only be an example that the others can look up to. And however small of implementation we may do of this, it is something we can learn from and introduce in our lives if done smartly.
The inheritances received by the Vanderbilts have been mentioned in their prevalent currencies.
A Well-Behaved Woman by Therese Ann Fowler