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05.10.2022

What Is Generational Wealth and How to Build It

by Milos Djordjevic

We often hear about “generational wealth” and how important it is for us to prepare a better future for our children down the line. But what is generational wealth exactly? How can you acquire it? Will your offspring be more prosperous than you thanks to it?

This article will answer all these questions and more. Keep reading to learn about generational wealth, how to get it, why it’s vital, and how long it will last.

What Does “Generational Wealth” Mean?

At its core, generational wealth is wealth that you can pass down to future generations. There isn’t a single best way to accumulate it, and we’ll show you some of the most popular ways to gain a lot of it. 

Anything you can pass down to your children or grandchildren that generates money or constitutes money can be considered intergenerational wealth. 

For instance, businesses, investments, real estate, collectibles, jewelry, mutual funds, and savings are all examples of generational wealth

Did you know this type of wealth can be highly controversial? 

Think about it: we’re talking about money that our ancestors pass onto us, making us more prosperous. What about all those groups of people that were unjustly hindered in the past, like African-Americans or Japanese-Americans? 

Chances are they won’t be getting a huge inheritance, lowering their prospects to live a successful life, even in a much less racist world. If you’re also affected by these inequalities, learning how to build up and pass on wealth to future generations could be a great way to help your descendants combat them. 

Learn more: The Difference Between Old and New Money

1. How to Build Generational Wealth

Building generational wealth is complex, especially if you want it to last. Just 30% makes it past the second generation, and only a measly 10% makes it past the third. What does this mean for you? 

You have to reduce risks as much as possible to ensure the wealth will endure. Let’s take a look at a couple of exciting ideas.

Educate Your Child

Educating your children counts as an investment towards their personal development, which is one of the most secure assets to invest in when creating generational wealth

Investing in your children’s education isn’t just about sending them to a nice college. It’s also about having mind-opening conversations about personal finances, their futures, and money’s value. For example, you could start by explaining the difference between being rich and being wealthy

Even if you feel like you still have too much to learn about managing your finances to be a mentor, you should still give it a go. It could even turn into a driving force for you to learn even more about the intricacies of handling cash.

Found a Family Business

Have you always wanted to let your inner entrepreneur shine through? A family-run business can lead to some substantial generational money down the line. 

A third of family-run businesses make it past the second generation, meaning they’re still a perfect way to ensure a stable future for your kids. Having them help you around will also instill some good ol’ work ethics, which will also play an essential role in their future careers.

Invest in Real Estate

2022 is an excellent year to invest in real estate for the long term. The market still hasn’t crashed, mortgage rates are still low—and they won’t stay low forever, especially as the world braces itself for economic recovery after the pandemic—and the overall demand is still on the rise.

We’re not saying that real estate is the ultimate source of generational wealth for families, or the only one worth your time. In fact, differentiating your long-term portfolio is always the best idea. Still, real estate has always been a good area to invest in.

Invest in an Index Fund

When both your dad and a financial expert agree on something, you know it’s probably worth trying, especially if that something is investing in an index fund. It’s a sound choice that can help you eliminate the generational wealth gap, at least when it comes to your family.

Whether we’re talking about QQQ or S&P 500, investing some of your savings into an index fund can make your kids’ future much brighter. Make sure to invest in a safer fund at first, and as you get the hang of it, you can start expanding and diversifying as you wish.

Get Life Insurance

Finally, life insurance can be a beneficial tool for people that depend on you financially—such as your children or spouse—after you pass away.

It’s hard to think about these things logically, but we’re not invincible, and we have to start planning for future generations now. Use Forbes’ life insurance calculator to see how much you need.

2. How Long Does Generational Wealth Last?

Have you ever heard about the “third-generation curse?” It’s not a story economics teachers would tell you. 

Slapdash quotes aside, the third-generation curse refers to the fact that generational wealth in a family tends not to last for more than three generations. Research shows that nine out of 10 families lose generational assets after the third generation.

What is Generational Wealth - How long does it last

So, unless you teach your children about financial planning, and they carry on teaching it to theirs, your wealth won’t last for more than three generations. You can beat the curse in various ways, from trust funds to simple moderation. It just takes knowledge and willpower.

3. Why Is Generational Wealth Important?

Wealth brings options, well-being, and security. Wouldn’t you like your children to have more of that? That’s the reason why generational wealth is so important. 

From education to savings, any type of wealth passed down to your children and grandchildren will make their life much more enjoyable. 

Remember that passing down assets doesn’t necessarily mean spoiling your kids. They’ll still learn all about life’s hardships, and you should still teach them about being honest, responsible people, but they’ll also have access to options that you and maybe your parents didn’t get.

Bottom Line

As you can see, generational wealth’s meaning is simple, but its importance is paramount to the well-being of the generations that will come after you. 

Leave your signature on this world, and help your children and grandchildren live the life they deserve. It’s the right thing to do. Thank you for reading, and good luck!