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Epic Riches to Rags Story: The Vanderbilts

Whilst I love to make up stories to help my girls learn about different money topics, I also like to share real-life money stories with them.

I previously told them about Samuel Brannan. Sam became one of the richest people during the American Gold Rush in the 1870’s. He did this despite never finding gold himself. He encouraged people to come and find gold and then sold them shovels and accommodation. As so many people came to find gold, he sold thousands of shovels which led to vast riches.

This week I told them about the most EPIC Riches to Rags story in history. It’s about how a family went from being one of the richest families ever to have lived to one which lost billions.

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The Rise of the Vanderbilt Dynasty

The Vanderbilt dynasty started in the early 1800’s in America.

Cornelius Vanderbilt left school at 11 to start working on his father’s ferry. At the young age of 16, he started his own ferry service with money borrowed from his parents.

Photo of Cornelius Vanderbilt
Cornelius Vanderbilt

Whilst running his own ferry service, Cornelius also worked for a larger ferry company called Gibbons. This experience gave him great insight into how big businesses operate. He used this knowledge to expand his own ferry business. He started to slowly increase the number of ferry services run on the East Coast of America.

As textile mills started to expand across the country, Cornelius made sure that he owned the ferry lines which would allow the mills to ship their goods across the country. This meant having steamship lines that linked up with the recently expanded railroad network.

In 1863, Cornelius became the owner of his first railroad. It was in Harlem, New York. The following year he sold all his ferries/steam ships and bought more and more railroad lines. Soon he owned more railroad lines than anyone else. This led him to become one of the wealthiest men to ever have lived.

Cornelius died in 1877 and left 95% of his wealth to his eldest son William (not leaving much to his other 12 children).

William Vanderbilt only outlived his father by 8 years but managed to expand the railroad empire even further. Some claimed he doubled the fortune his father had left him.

In fact, estimates say that Vanderbilts' wealth, at its peak, would be the equivalent of US$180 billion in today’s money.

After the death of William Vanderbilt, money was left to his children and, that was the beginning of the end for the Vanderbilt family.

The Fall of the Vanderbilt Dynasty

William Vanderbilt’s children and grandchildren started to spend the money they had inherited at an alarming rate.

Whilst the Vanderbilts were one of the richest and most powerful families in America in the late 1800’s, they were not initially accepted by the upper-class society of New York City. This was mostly as they were ‘new money’. As a result, the Vanderbilts spent significant money hosting lavish parties to impress those in the upper class. They even started to build huge mansions in central New York to impress the crowd.

Eventually, they started to be accepted. This meant they kept spending their money to keep up appearances. The family continued building impressive houses around New York (5th Avenue) and in the countryside. Some of the bigger mansions would only be used a couple of weeks a year. William’s children and grandchildren would even compete on who could build the best houses.

Photo of one of the Vanderbilt mansions in NYC
Mansion in NYC built by Cornelius' eldest grandson. Demolished in 1926.

The continued spending plus the decline in the railroad industry led the family into financial trouble. They could no longer afford the extremely high expenses that came with having so many large houses (which all had staff living there full-time).

By 1947, all 10 mansions that were built on New York’s 5th Avenue were torn down and the contents auctioned off.

Within four generations the vast sum of money that Cornelius had accumulated had largely gone.

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What did I want my kids to learn from this story?

There are many money lessons from this story which I shared with my kids.

The key message is that being wealthy isn’t just about having money, it’s about looking after money.

Most people are never taught how to look after money and as a result, spend too much. The Vanderbilt's are clearly a very extreme case as they lost billions. The money that Cornelius made could have looked after many more generations if he had taught his kids how to look after money.

Essentially, the Vanderbilt's became RICH but missed the opportunity to become WEALTHY. For more on that topic, please check out our Rich Kids vs. Wealthy Kids blog.

Rich vs wealthy picture using carrots

Other great money lessons from this story are:

  • When building his shipping and railroad empire, Cornelius used the money he had made to find new opportunities to make more money. He was working smart, not just working hard. You can read your kids this story to help them learn this important message.

  • Cornelius was only 16 when he started his own business - so why not get your kids to think of business ideas? Here's a blog I wrote on this topic

If you enjoyed this blog, then you should check out the riches-to-rags story of MC Hammer.

I hope you tell your kids this story and encourage them to see the benefits of looking after their money. If you do, I’ve no doubt your kids will be saving and growing their money and living a financially healthy life.

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P.S. Make sure your kids grow up wealthy by ordering them a copy of the best-selling book, Grandpa's Fortune Fables

Book to help kids learn about money


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