How to Build Generational Wealth

What is Generational Wealth? 

Generational wealth, or family wealth, is wealth that is passed down from one generation to another. This wealth can come in the form of real estate, liquid cash, stock market investments or any other value that is passed down to the next generation. 

Why is Generational Wealth Important?

If you were not born into wealth and you had to finance everything on your own and created a mountain of debt, then you are behind and have to play catch up. This is why you need to understand the importance of generational wealth. 

Think about how much easier your life could have been had your parents had wealth to pass down to you. Maybe they would have been able to pay for your college tuition and you would have graduated debt free. Or they could have given you the down payment on a house, or even better, had a property ready for you to move into that was already paid off. These actions could have made a huge impact on your financial future, and it would have given you a head start in life. 

Even if you’re not currently wealthy, it’s not too late. If you have children or plan to have children, then you should start thinking about their future. What can you do to make sure they have what they need to be successful in life. Also, make sure you take the time to educate them on personal finances to ensure they will be able to manage the wealth you pass down to them. 

How to Build Generational Wealth?

To build generational wealth, you have to acquire assets or save money that you do not intend to use during your retirement. Those assets will then get passed down to your children when you pass away. 

This sounds easy in concept but it’s difficult in practice if you are already struggling to save. Also, it’s very important that you save for your own retirement before you start saving for the next generation. 

Here are a few tips on how you can save for your children. 

  1. Invest in real estate

This is a great way to build wealth for your children. You can buy income property which will create residual income and the property will increase in value over time. 

  1. Get a life insurance policy

Life insurance helps to protect your family in the event of an untimely death. If something were to happen to you, and you don’t have a life insurance policy, your kids might be forced to live in less than ideal financial circumstances. Even if your children are adults it’s nice to have a life insurance policy to help with any expenses and to help your children live a better life. 

  1. Invest in the stock market 

The stock market is a great way to build wealth because it has the potential to grow over time. If you are a beginner it’s better to start with a low-cost index fund. A good beginner investing tool is Robinhood or Etrade (Etrade has the ability to open custodial IRA accounts for your kids)

  1. Invest in a college savings account

Today there are about 43 million adults – roughly one-sixth of the US population older than age 18 – carrying a federal student loan and owe $1.5 trillion in student loan debt. If you have the ability to help your child make it through college without any debt, then you will be helping to set them up for a better financial future. 

  1. Build a business

Building a family business is a great way to pass wealth to your kids. More than 30% of family-owned businesses transition from one generation to the next. 

  1. Teach your children about finances

A very large percentage of families lose their wealth in the second generation and even more in the third generation. But in many of these cases the loss of generational wealth can be prevented through financial education. There are many ways you can teach your children about finances, you can buy children’s books about money, you can help them set up their own account and teach them the importance of saving, you can even allow them to be a part of your financial decisions. Children are never too young to learn about money, even when you think they are not listening or understanding, they are soaking it all up. 

How to pass on Generational Wealth

  1. Create an estate plan

An estate plan is very important in securing an easy transition of your assets. You should consult with an attorney on how to create your estate plan.

  1. Write a will

A will may be included with your estate plan or you can get a will without an estate plan. The will will have your exact wishes for how you want to distribute your assets. 

  1. Name beneficiaries for your accounts

A simple way to ensure that your accounts are passed to the next generation is to add beneficiaries to your accounts and to make sure that it stays updated. 

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