We have heard before that successful people have been given the means to hit success. Often, we may not realize it, but the money given, passed down, or even gifts like a car are what people call generational wealth.
I was thinking of my dad growing up. He worked jobs in high school to buy his first car. Then we fast forward to when I was a kid; I was given my dad’s 10-year-old vehicle to drive. There is a big difference between my dad working for a car and being given one.
That is how generational wealth is talked about. It is not just about the assets given, but also the wealth throughout life that is passed down from generation to generation. Not everyone has this help, gifts, or even opportunities to take advantage of this.
My friend was not making enough to buy a home for his family. After his parents sold one of the homes passed down, they gave the money to my friend so he could purchase a home.
We hear stories like this. People may even be given other opportunities in life through networks built by parents or even education paid for through family.
What is Generational Wealth?
Generational wealth is the wealth that is passed down from one generation to the next. It is that wealth that you see through assets like houses, stocks, money, and much more. This is how many families continue to be wealthy and grow their wealth, and it is part of how old money continues to strive forward.
Being able to leave something behind helps the next generation grow through finances and monetary needs. Generational wealth builds a legacy.
Why Is Generational Wealth Important?
Generational wealth is a building block that can propel someone’s life financially, and it can help pay for college. Instead of walking away from school with massive student loan debt, you walk away free of debt and can start your financial future with a head start.
This can even save money instead of spending money. Some people live at home after college or even when attending college, and this can save on rent, groceries, and utilities that can suck on your monetary funds.
Generational wealth is something parents should think about when having a family. The thought is about leaving their children with a bright future ahead of them or even gifting them money to help pay for their first home.
Not everyone can see this and still believe in hard work, but as people that grew up with no money, there is a massive disadvantage from those that had more than enough to help them accomplish great things.
Student loan debt is a massive thing in the states. Those students who start with no debt at the age of 22 can start on their financial journey with the right foot.
Not Just Money, But Also Knowledge
Another key to generational wealth is financial education. If your parents not only pass down wealth in possessions and assets, they can also pass down their knowledge. Teaching kids about financial education can also give them the tools to succeed. As a parent, you will want to see your child succeed, so helping with the knowledge to accomplish that can help.
Many people pick up the habits of their parents. These habits could be like being frugal or even learning about how to make money with money. It could be the passing down of knowledge of saving and investing or even creating your own business. These are valuable bits of information that can gear and supply a child with a better future.
A wealth of knowledge can help bring advantages to your future generations.
7 Ways to Build Generational Wealth
Generational wealth seems like something that could be difficult to create, but it is much easier than you think. It is about acquiring more assets or saving enough cash that you may not use in your retirement. Then you can pass down these assets and money to your next generation.
It sounds too easy. In reality, it is not always easy to put into practice. First, you need to ensure your retirement and savings are in place to have enough to pass down. It is better to have assets to pass down instead of being a financial burden on your future generations.
You must create a roadmap for your wealth that helps you accomplish your goals. After you have saved enough for yourself, you start by accumulating more assets to help your future generations.
Here are 7 ways to help build generational wealth.
1. Invest in the Stock Market
Investing in the stock market may be one of the easier ways to create wealth for your family. This can be done by investing in low-cost index funds like Vanguard index funds or even Fidelity Index Funds. They will help you create wealth that can continue to grow over multiple decades.
Having investments can help make generational wealth something more than the usual stuff you will find inside of a loved one's home. Having assets such as stocks and shares can make a financial future better for the next generation.
You can start investing with little money as well, and this could be the start of something big for you and your family.
2. Build A Business
Building a business can be a great thing that creates wealth for you and your family, and it is something that you can put your passion behind.
This business can be something that you can pass down to the next generation. Having a family business will help educate the children and continue a legacy. You can see this with many old-money folks who have created new money and then pass down their business and wealth to the next generation.
According to Forbes, about $30 Trillion worth of business will be passed down from one generation to the next. That shows you the power of building a business to being passed down.
As you get ready to pass it down, you must have some sort of succession plan to make sure the business goes well without much quarreling between siblings.
Building a business is a primary key to building family wealth. So if you want to create some generational wealth-building, a company will help make this happen.
3. Invest in Real Estate
Real estate is not something that is passive income. It comes with a lot of work, but the ROI and the benefits can be massive. Investing in real estate can set up a family for some tremendous generational wealth.
People talk about owning their first home when they have a family, but where do they live beforehand, or they may rent if they do not have the money. If you have real estate, there can be constant cash flow like every month type of cash flow.
Passing this down to your future generations is a huge plus, and it allows them to continue to invest that cash flow into other avenues, which create even more and more wealth.
4. Financial Literacy For Your Children
Earlier, I had talked about passing down the knowledge of wealth creation in the next generation. Generational wealth can be passed down through expertise. My friend Will Rainey from the blog bluetreesavings.com wrote a children’s book to help spread the word about learning how to invest and save money.
The book is called Grandpa’s Fortune Fables. It gives little stories about a girl’s grandpas that teach us about personal finance. It is a great read.
This financial literacy is imperative to help the next generation know the ins and outs of money. You are now setting up your children for success. As you set them up for success, they can learn about wealth creation and start earlier than you may have created.
5. Invest in Your Child’s Education
My father always talked about education being the key to getting a good job. He was not wrong. 88% of millionaires graduated with a college degree. That means having an education can help graduates and people get opportunities for higher-paying jobs. These higher-paying jobs can allow you to create more wealth and save more.
Being able to invest in your child’s education is a massive advantage. Education is essential, but so is the investment. Many people save money in 529s for their children, so they do not have to spend a fortune on education.
Walking away from school debt-free is a massive accomplishment that can set your future upright.
Generational wealth can be passed down through the paying of education for your children.
6. Purchasing of Life Insurance
Life insurance is essential for your family. As people start having children, there need to be ways to safeguard the family's wealth in case of death. Death is a part of life, but it can bring on many unexpected consequences when it comes sooner than expected.
As a parent, having a life insurance policy can help buffer the loss of income that the untimely death would incur if your death were to come.
Remember to create a plan to secure parents' lives so the children can be raised in an optimal environment. It can be a financial struggle with a loss of a parent.
7. Create Many Streams of Income
It is said that millionaires have 7 sources of income. Not all income is the same. Do these millionaires work 7 different jobs? No, but they have made opportunities to create income without them working any longer.
Passive income is a way that wealthy people create more and more income. You make something once, and it will continue to generate income for you. Like if you wrote a book or designed a course, that book or course could continue to bring in income even after you have done all the work.
Creating more streams of income can help create more generational wealth. This new wealth will come in and help you to invest in other opportunities that can help you accumulate more assets. Owning assets is better than a job.
Passing Down Generational Wealth.
Having generational wealth ready to pass down to your family is a great thing, but you must consider the plan for how it should be distributed. This may include a trust fund, estate plan, will, and even other avenues. If you have not considered these things, then it will be helpful to create a plan to make things happen for your next generation.
Let’s talk about some ways on how to pass down generational wealth.
It would be best if you started making plans to pass things down. This can be as easy as setting up:
- An Estate Plan
- A Will
- Creating a Custodial Investment Account (UTMA/UGMA)
- Custodial Roth IRAs
- Taxable Brokerages (that you can pass down)
Creating avenues to pass down assets will help in building generational wealth. Passing down these assets may not always be the best thing in your mind, but you need to have a plan.
Next, you will need to make sure to teach the next generation valuable money lessons. This will allow you to have more faith and trust that your offspring will handle money well. Being financially literate could be one of the best gifts. So continue to teach, guide, and show future generations how to use cash, control it, and make it work for you.
Start Building Generational Wealth For Your Family
As my wife and I are working on creating a family. We know that we want the best for them to grow up. It was not always easy for my family and me. Being frugal was a way of life, but also it has worked for my parents as they have created wealth for themselves.
Thinking about my future offspring, I want to teach them about investing and making money early on. I want them to have financial literacy, and being able to pass down knowledge is vital.
Knowing what I know now, I know that having anything when turning 18 can propel their financial future. Your kids can have a significant financial future.
You can start by putting $210 per month into a custodial account like a UGMA/UTMA from birth until they are 18, and they will have about $100,000 with an 8% rate of return. That is something that can help those kids out.
Generational Wealth is something that many people may look down upon. It is something that the rich do to help enhance their children, but it is something everyone can do. Who doesn’t want their future generations to do well? We all do.
As a future parent, I know that I want my children to do well in life. Teaching them financial literacy will be key, but I can start investing my money to help them. This little investment for the next 18 years of their life can propel them in life.
That’s what parents strive for,. They want their children to do well in life. So build up your assets, and make a plan to pass them down.
Do you agree with generational wealth? Is it something you want to build for your children?
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.