What is Generational Wealth?

What is generational wealth? You have thought about generational wealth whether you know what it is or not. It means wealth for you, your children, your grandchildren, and so on all the way down your generations. When you think about how to create generational wealth for your family, it seems like a difficult task. Many of us are just trying to survive, to be able to make ends meet on a daily basis. So, this issue of building generational wealth is just like a distant dream.

Well, the truth is, it’s not just for the rich. Anyone can decide to build wealth if they will only do the right things. You don’t need to have a high income job or inherit money from your rich parents or one rich uncle. But you need to live your life in such a way that you can be able to build generational wealth over your lifetime. Unfortunately, many people don’t live their financial lives with the intention of creating generational wealth. It will take long term financial discipline and a concrete plan of your money. So, it calls for for discipline!

Table of contents

• Generation wealth explained
• Who has this wealth?
• Strategies of creating wealth
• Why it is difficult to keep wealth
• How to keep wealth
• The next generation

Generational wealth explained

Generational wealth refers to any type of asset that parents pass down to their children or grandchildren, whether in the form of:

• Cash
• Investment funds
• Stocks and bonds
• Properties
• Business

One of the most common ways to inherit and pass on this wealth to the next generation is with real estate. The easiest way you can build your wealth and passion on to your children is through homeownership. That’s the leap. With it you will be able to understand that you’re building equity. And equity is what will make a difference. Because when you sell or refinance your home, you might be able to draw on your equity and also leverage it to grow your wealth more or improve your life in many other ways. This could include the following:

• Moving to a more expensive house
• Making home improvements
• Padding your retirement
• Paying for your child’s college tuition
• Investing in a business venture with the potential to increase your income more.

This will allow for a form of social mobility and risk taking that those without wealth simply can’t afford to take.

Who has this wealth?

Bloomberg reported in October, citing Federal Reserve data that Baby Boomers hold the majority of U.S. wealth. Their share of the pie is said to equate to $59.6 trillion, or twice the Generation X’s $28.5 trillion and much more than 10 times than Millennials.

Millennials, who are the largest generation in the United States’ workforce, control just 5.19% of the country’s wealth. And to match what Baby Boomers had at their age, they would have to quadruple their wealth in order to match the record. In addition to this age-based wealth disparities, the racial wealth gap in United States is bigger today than it was in 1960 because of the legacy of redlining. A practice in which banks are known to impose obstacles like higher APRs, fewer loan approvals. As well as higher risk profiles for mortgage applicants in historically Black communities. Certainly this practice is reducing black generational wealth for the next generation.

While homeownership keeps increasing among across the board, still Black Americans have the lowest rate of homeownership compared to the other racial groups. According to data from the United States Census Bureau, homeownership rate by white Americans is 76%, Hispanic Americans have a homeownership rate of 51.4%. Asian, Native Hawaiian together with Pacific Islanders have a homeownership rate of 61.4%. Compared to the 46.4% homeownership rate for Black Americans. The gap is too much!

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According to Shelley Halstead, founder of “Black Women Build” says that “Baltimore was ground zero for redlining.” Unfortunately, for most first-generation homeowners today, to get in on the real estate market after a lifetime of saving up, is not just enough to move ahead compared to those who inherited property.

Not to mention, there is still a stark pattern of discrimination in the home appraisal process in United States. Research clearly shows that the average difference between home appraisals in majority-white neighborhoods. When compared to those that are predominantly Black and Latinx was $164,000 in 2015, up from roughly $86,000 in 1980. You should understand that lower appraisals limit the amount of equity that a homeowner may earn from their home if they were to sell. Since it’s valued much lower than comparable houses in other neighborhood.

Strategies of creating generational wealth

You need to understand that to build generational wealth is attainable for everyone. It’s not difficult. You have the necessary tools to help you and your family maintain and grow wealth for generations to come.

Creating multiple sources of income

Start with a full-time job

Get to work! A full-time job will provide you with stable income that you might funnel into saving and investing. Plus, hopefully it will provide benefits like a 401K and Health Savings Account, which are great investment tools that will can exploit. But understand that your full-time job won’t be enough to help you create long-term, lasting, generational wealth. In order to do this, you will need multiple sources of income.

Consider a side-hustle

Wouldn’t you love to have a little extra money coming in, if it comes by way of doing something you really love? What comes to your mind?

Maybe it might be to drive for Uber or to open an Etsy shop to sell products online. These are few common examples of a side-hustle but there are many ways you can work a little more to be able to make more. Always pay attention to the effect your side-hustle is having on your goals, but also on your happiness. Weigh the pros and cons. Is your side-hustle benefiting you and your family? If your answer is “NO,” then it’s time to critically think about how you can invest your time better.

Investing

Investing is a low-commitment side-hustle that won’t require a huge amount of effort to be successful. When many people think of investing as a job, they will be thinking of day-trading. A practice where people are able to make risky choices in the stock market that often won’t work out. Certainly that’s not what we are talking about here. You need to invest in wonderful businesses that will continue to grow your initial investment yearly, you are just creating passive income for yourself.

Continue to learn new things

Like many things in life, when you’re learning how to invest, the more you add to it, the better you will be. Building wealth that will last from generation to generation is certainly not a task for the lazy. It is very important you continue to learn new things both in investing and in general. When you are able to get comfortable, you will stop paying attention to how your decisions are affecting both your well-being and that of your family. So pay attention, and don’t stop learning. Staying up to date with the latest trends will not only impact your success as an investor. But will also increase your happiness in other areas of your life.

Spend your money wisely

Now that you are earning money, both actively and passively. The question now is how do you hold onto it? No amount of money will certainly keep a fool rich. So spend it wisely. There are common money traps people fall into when it comes to spending their money. When you don’t have a lot of emergency funds saved to depend on when things go wrong. You don’t have a lot of money invested in the stock market, which is the single best option for you to get a return on your investment. There’s no need buying things you don’t really need.

How to avoid these traps:

• Pay yourself first! Put your first 10% of your paycheck into savings.
• Invest in stocks
• Think long term! Do your very best to avoid things doesn’t really matter.
• Buying a flashy new car this year will cost you way more than purchasing the same model a year later. Buy when you need it and then invest the rest.

Start your journey to financial freedom now

Once you are able to control your spending, it is time for you to start investing the funds you have saved up. Don’t bother waiting for a financial advisor or a fund manager to tell you to put your money in the stock marke or not. Why do you need to start now? Looking at The Rule of 72. A popular rule of investing that will tell you how long it will take you to double your money at a fixed interest rate.

Why it is difficult to keep generational wealth

There are many reasons why it is difficult to keep generational wealth in the first place.

There’s this popular saying that hard times create strong people. Then strong people create good times. While times create weak people. And weak people then create hard times. Building wealth will require hard work. So the first generation of a family who will experience wealth has to work through difficult times to be able to make money to provide for the family. They understand the value of money that will come from working for it.

So the cycle starts. The second generation will spend all the parents’ money likely. Because they don’t have any reason to work hard to earn it and won’t bother to learn the value of it. So, leaving the third generation to make it back again. And the cycle continues again. As a parent, it should be your goal that your children don’t have to work quite as hard as you did to get wealth. But that doesn’t mean your children have to be weak or lazy. You have to teach them the value of money and hard work so that they will carry on in your wake.

How to keep generational wealth

So, how will you be able to avoid losing the wealth you or your parents worked so hard to create?

Understand that staying rich requires from you the right strategies as well as the right mindset. You should know that those who stay wealthy for generations, growing their wealth. As well as passing more down to their children than they were given, understands perfectly the value of money. They are the ones tha understand the value of investing it, saving it, and growing it.

Invest in your children education

If you need your children to have the ability to provide for themselves and their children, much better than you did for them. Simple, invest in their education by:

• Send them to college
• Provide them with all education and resources they will need to be successful on their own.

This background will be able to provide them with the work ethic and understanding they need to successfully manage the money they will inherit. If anything happens, it will be able to provide them with the resources they will need to achieve great things on their own. Even if the wealth they will inherit dries up for any reason.

Teach your children about personal finance

As a parent, it’s your job to make sure your children are taken care of. And while this means investing in their education and also providing for them financially. You need to be able to train them up in the right way they should go so that they won’t stray from it when they are adults.

When it comes to teaching them about money, you need to show and put them on the right track. You may leave your kids with a nest egg, sure, but the tools you will provide them with are important in ensuring they will be able to sustain and also grow the wealth for generations to come.

If truly you desire to create generational wealth, it is more important that you pass down more than just money to your children. You need to teach them the same lessons that made you to become wealthy in the first place. Make them understand the following:

• What are the skills you used to create wealth?
• Hard work?
• Perseverance?
• Resourcefulness?

You can teach your children some of these skills with instances and some by sitting down with them and having a good conversation. Anything less than this, your wealth might not last more than a single generation.

Spend quality time with your kids

How do you expect your kids to know how to preserve money if you won’t teach them? Most importantly, you need to sit them down and teach them the value of money. Then, you will teach them the necessary skills to save, invest, and also manage their money wisely.

Trust me the best way to pass on these lessons to them is to spend quality time with your children. Time when you need to have a conversation about all the various ways you invest. And how to conservatively handle money so they won’t squander what they have been given. Show them what kind of life good financial planning will be able to provide. Take your time to talk with them about how you got where you are. And remember, there are more and more important things than money. The simple act of just sitting down with your family to discuss these topics in and of itself will provide priceless connection.

The next generation

The next generation are the ones that will inherit your wealth when you’re gone. You need to set up the necessary tools that will help them handle the wealth you built. And be able to pass them on the next generation.

Create a will and an estate plan

You worked hard to build the wealth that will carry on to many generations. So, it’s very important for to create an estate plan with your lawyer to outline your wishes. This plan will e able to provide your relatives with instructions about how your wealth will be handled. And will encompass all your assets, including all your investments, property, and businesses.

Your will is just a portion of your greater estate plan and should detail more of your exact wishes. The more specific you are, the less your children will have to worry about it.

Set up custodial accounts

There’s no need to wait to pass down your wealth after you are gone. You should set up custodial accounts for your children. A custodial account is an investment account that you will manage on behalf of your child until they reach a certain age.

This is basically at 18 or 21. These are a great way to set money aside for your children future. The money may be used for:

• College
• A starter home
• Business
• Any other major financial goals you need to help your children meet.

Name your beneficiaries

Any time you open a financial account, you have all the opportunity to name your beneficiary. This is the person that have the right to receive the funds when you’re gone. Naming a beneficiary is important and will save your family unnecessary stress.

How do you really want to set your family up for a better financial future? What are those steps you are taking to get there? If you are able to follow this path and take a holistic approach to passing down your wealth, providing your children with everything they need to succeed. As well as the money itself, you and those you will leave behind will be far better served.