What is Generational Wealth & 9 Ways to Start Building It

By Chika

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Last Updated: December 9, 2021

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When strategizing for financial independence, building generational wealth is not an issue we prioritize.

The struggle for building our wealth overwhelms us, because we barely have time to plan for our kids' finances, let alone pass something to them. 

Some others believe that their children should learn about money the hard way, and work their butt off like everyone else to make a fortune. This reason is reinforced by the notion that giving children money would make them lazy, docile, and unmotivated to chase financial goals. 

However, generational wealth has been the hallmark of experienced investors who have their sights on creating a legacy. To this class of people, having wealth to pass on to your kids puts them ahead of their peers. It also gives their descendants a chance to build on their legacy. 

If you are interested in building generational wealth, here are some steps that you have to take. 

 

What is Generational Wealth?

Simply put, generational wealth is wealth-based down from one generation to the other. The wealth can be in form of cash, real estate, securities, or even a business. The advantages of building generational wealth can be understood, as the effects are far-reaching and immeasurable. 

To have a picture of the significance of generational wealth, think of the things you would have been able to achieve if your parents had the money.

  • Perhaps you would have finished college?
  • Or you would not have had to take out a loan to attend college thereby increasing your debt burden.
  • Maybe you would have been able to get an interest-free loan for family members to start your business.
  • Or perhaps a gift loan would have given your business a boost.

 Whatever the case, generational wealth acts as a buffer that softens the impact of financial challenges. As such, every responsible parent should have their sights set on building generational wealth. After all, the wish of every parent is for the children to surpass their achievements. 

Read this next: 6 Awesome Opportunities to Teach Your Kids About Money

 

9 Ways to Build Generational Wealth

1. Teach your kids about money

When it comes to wealth, most people think in terms of money and assets.

However, this notion is false. In our present society, information plays a key role in financial wellness. The more informed and financially literate you are, the higher your chances of attaining financial independence. 

As such, the first port of call if you want to build generational wealth is teaching your children. Buy your children educational games such as Monopoly where they can learn how to manage money. 

Rather than buy them video games, buy them financial books (Like What is Money? Personal Finance For Kids) and tapes.

In your spare time, teach them how to make, manage and invest their money. The chances are the lessons they learn at a young age would be carried well into the twilight of their lives and passed on to their children as well. 

2. Invest for your kids

Investing for your kids is another viable way of building generational wealth. The key is starting as early as possible, more preferably at birth. You can buy stocks, index funds, or mutual funds and make a monthly fixed contribution to the account. 

When your kids have reached the age of 21, you can hand over these investments you have accumulated to them. However, the best way of doing this is by training your children to be financially savvy and disciplined first. Only then would they be able to grow the investments which you started for them. 

3. Buy real estate

Real estate has been the most preferred asset to preserve and transfer wealth since the beginning of time.

This strategy is arguably the most used way parents transfer wealth to their children. The advantage of real estate is that you do not have to set aside a separate investment for your kids like buying stocks or index funds.

You can enjoy the proceeds from your properties and have them passed over to your kids when you pass on. As such, when next you want to sell that property, consider the future of your kids. 

4. Establish a business

Establishing a business, if done properly, is perhaps the best way for building generational wealth.

Apart from leaving your children with a business to manage, they also get to learn entrepreneurial skills by being involved in the business from a young age. The experience gained can't be replicated in business schools or textbooks.

Even if they may not want to continue in the family tradition, they have learned requisite skills that would make them self-sufficient. The key here is getting your kids involved from a young age so that they can develop an interest in the business as they grow older. 

5. Create multiple streams of income

There is no better teacher for your children than yourself. Children learn from their parents, more so from their actions. A child that grows up in a house where the parents have a knack for creating income streams would not find it difficult creating one himself.  

Also, having your child see you creating multiple sources of income would bolster the belief that he does not need a job to survive. On the contrary, it would be much easier to develop an entrepreneurial spirit because he was brought up in such an environment. 

6. How to pass generational wealth

It is not enough to build wealth for your children to inherit.

There has to be a plan for the smooth transition of wealth. Many families have been destroyed because there was no appropriate provision for how the wealth would be passed on to the children or managed by them. There are some steps you can take to pass generational wealth to your kids.

7. Write a will

The idea of writing a will does not sit well with most people because it reminds them of the inevitable - death. However, since death is a debt we all must pay, why not use this foreknowledge to your advantage by writing a will.

Be specific on how you want your estate to be managed or shared among your children. 

8. Set up a custodial account

Custodial accounts are crucial for any financial legacy you want to leave behind. Custodial accounts are investment accounts for your children that you can manage until they reach the age of majority. They are given ownership of the account at the age of 18, however in other places, they must wait until they are 21.

You may put money into these accounts for your children's future financial objectives, such as college tuition or a down payment on a house. They may, however, be required to pay taxes on this money when they remove it.

A 529 plan is another possibility. It's a tax-advantaged savings account dedicated to covering the costs of your child's education. These are government-sponsored savings programs for your child's future. Each choice has advantages and disadvantages, but you must decide which is best for you and your family.

9. Add beneficiaries to your account

Adding beneficiaries to your accounts is a simple approach to ensure that your assets are readily passed down to the next generation. You may name a beneficiary on most accounts.

If you were to die, the cash would be distributed to the beneficiary with no difficulty. Adding your intended beneficiaries to your accounts may only take a few minutes, but it will save your family numerous hours in the long run.

 

Key Takeaway

It is no simple task to build wealth that will last for generations, but it is a noble endeavor. After you've regained control of your finances, the next step is to protect your family's future.

Take the time to develop an effective wealth-building strategy for your family. Because not everyone wants to invest in real estate or start a business, so locate a solution that fits your needs.

Whatever approach you use, be sure you teach your children about money. Your children will be one step ahead of the game when they enter the world, thanks to the personal financial knowledge you can give.

Photo by Trust "Tru" Katsande on Unsplash

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