What Is Generational Wealth? How Can You Build Generational Wealth?

When you think about getting rich, building your net worth is only half the battle. Building wealth that would last for a long term needs a plan on how it will be transferred and passed down to further generations. This is what we call generational wealth.

Numbers from Gobankingrates are proof that 70% of the rich families lose their wealth by the next generation. 90% of them lose it by the generation after that.

“According to a recent UBS Investor Watch Survey, 83% of investors are concerned about transferring assets smoothly but only 40% said they’ve had discussions with heirs regarding their wishes,” as per Kleo Curry, the Vice President of Wealth Management for UBS.

“While investors overwhelmingly want their legacy transfer to go smoothly, inadequate estate planning and lack of communication can not only be costly but also lead to unresolved family conflict. As higher interest rates persist and inflation concerns continue, proper distribution of generational wealth is a hedge against the rising costs of living.”

What Is Generational Wealth? 

Have you heard of the term ‘old money’? That is what generational wealth is about.

It is typically the kind of asset that passes down from one generation to the other and further, as long as it exists and grows. This may include cash, stocks and bonds, investment funds, businesses, and even real estate properties.

There is a projection that more than $80 trillion will be passed down from the older generation today to their children and their heirs over the upcoming two decades. However, multigenerational wealth is not the same across the board.

The very recent Survey of Consumer Finances discovered that a usual white family has wealth, which is eight times more in comparison to a usual Black family and five times that of a Hispanic family. This wealth gap is witnessed across multiple areas in the financial industry due to the role extra wealth plays in consumer behavior and decisions.

Wealthier families are a lot less likely to be burdened with debts. They have a simple way to homeownership and generally more capital to continue growing their wealth through investments and businesses.

How Can You Build Generational Wealth? 

Witnessing the wealth concentrations along with the racial inequalities, building generational wealth may seem like a tough job for a lot of people. However, it might just give you the inspiration to take a look at the success stories of other people.

For instance, let us take the case of the Moody family when Karla and David Moody began their construction business, they struggled to provide for themselves and their kids. However, they recovered. Their company touched an estimated $3 billion in commercial projects while sharing their generational wealth story with Capital One.

So, how did they actually do it? Well, they took control of their finances, paid down all their debts, and built college funds to provide their kids with a future free of any debts.

There is absolutely nothing easy when it comes to making generational wealth. But using the example of Moody’s and some of our pieces of advice may help you get started.

Financial Literacy Helps To Build generational wealth 

Working on your financial literacy may be the first step in this journey. Having a clear picture of the basics of budgeting, savings, credit, and beyond may help you make choices that are well-informed while you try to build your generational wealth.

Take A Look At Your Debts 

It may get even harder to save and further build if a big portion of what you are earning is going away while paying for debts. However, there are multiple strategies for debt payment that you may want to consider, which may help you develop an effective plan. As you approach debts, it may help you think about how an emergency fund could help you remain on track if anything unexpected happens.

Develop A Budget 

The debt plan could be an inclusion within your whole budget. Having a better understanding of the money that is coming in and where you would want to spend it may allow you to become a lot more purposeful. While building a budget is easy, maintaining it is challenging. Shifting to new ways of spending and saving money is hard to adapt to.

Develop Your Financial Goals 

Once you have the budget that works the best for you, it will help you to become a lot more purposeful. This means fixing your financial goals. The goals, however, may change over time. Therefore, thinking about short-term plans may help you set more realistic timelines.

Generational wealth has a different meaning for different people. Things like insurance policies, retirement savings, emergency funds, and investments may all be a part of generational wealth.

Think Of Your Next Generation

Once you finish building the wealth, the second part of generational wealth is to pass it on. There are multiple ways in which you may do it. However, when you speak of passing it on to secure the future of your kids, estate planning becomes a cornerstone.

What is the purpose of making an estate plan? It’s a question that resonates deeply when considering the lasting impact of generational wealth. Beyond accumulating assets, the meticulous planning involved in estate management becomes a beacon of guidance for your next generation.

By incorporating wills, trust funds, or insurance policies into your strategy, you’re not just safeguarding financial legacies but also ensuring a smoother transition for your loved ones.

Reconsider Your Financial Health 

No financial plan can ever be permanent. With a change in your finances, do not be hesitant to reconsider your plans and budgets. A side hustle or a new job is a good source of extra income. Newer expenses may make you adjust your financial timelines. Assessing your financial situation against financial goals is one good way to ensure that you are working towards building your generational wealth.

Challenges Of Building Generational Wealth 

• Diverse levels of financial literacy
• Considerable income gaps
• Undetermined or unclear plans to transfer wealth

Frequently Asked Questions!! (FAQs) 

The Bottom Line 

Families pass down wealth from one generation to the other. Maintaining generational wealth is not an easy process. It takes a lot of balance and discipline to save the money that your ancestors left behind.

If you plan on building wealth, passing it down to the next generation would take time. Therefore, you need to be as patient as you can. You may as well talk to a financial expert and get their help before you plan on building generational wealth.

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