Secure Your Family's Future With Generational Wealth (2024)

Between 2022 and 2045, $84.4 trillion in generational wealth is poised to change hands, from baby boomers and the silent generation to Gen X and millennials.

As wealth changes hands, individuals who receive gifts and inheritances from their older relatives often see opportunities open up as things like homeownership and debt-free college degrees lessen their financial insecurity.

On the other hand, those who don’t stand to inherit wealth could fall behind financially. As stated in “Stuck on the Ladder,” a 2022 report on intergenerational wealth mobility, “Wealth cushions adverse economic shocks, such as loss of employment, and helps to fund investments in human capital, like college and post-graduate training.”

As a parent or grandparent, you want to know your family will live happy and successful lives, even after you’re gone. Many people wonder how to accrue enough wealth to set their children and grandchildren up for success in the long term. In this article, learn what generational wealth is, why it matters, and how to build enough to ensure your family’s future generations are cared for.

What Is Generational Wealth?

Generational wealth refers to the assets and wealth that are passed down from one generation to another, including cash, real estate, stocks, businesses, and other investments. This type of wealth provides long-term financial stability and security for future generations. Generational wealth can significantly impact social and economic mobility, offering advantages and opportunities to those who inherit it.

Advantages of Generational Wealth

Journalist Jim Dalrymple researches and writes about intergenerational families. He describes how generational wealth has allowed him to avoid the financial burden of a car payment for the past 25 years.

At age 16, Dalrymple says his grandparents gifted his family their old Nissan, which he used to get to work and school. After leaving the car behind when he went to college, he was again in need of a vehicle. Another relative who was no longer in need of their 1980s Honda Civic came to the rescue, and he received his second hand-me-down car.

A few years later, Dalrymple married into a family who gave him and his wife a second-hand Toyota Camry. Dalrymple avoided purchasing a car until the age of 40, when his parents sold him their 1997 Club Wagon van for far below market value, allowing him to pay in cash.

He explains, “It’s hard to calculate the savings over multiple decades, but if I had been paying just $200 a month since I began driving, that adds up to nearly $60,000.”

While generational wealth benefits individuals in many ways, here are a few of the most common advantages:

Debt-Free Education

As higher education costs rise, many students cannot afford college degrees without student loans. Attending college increases lifetime earnings by up to $1.5 million. However, taking on student debt to pay for your degree can derail your financial success.

According to Gallup research, individuals with no student debt are 15 percentage points more likely to be thriving financially than their peers with $50,000 or more in student loans. This means that students who receive financial support from relatives can avoid or minimize debt while boosting their earning potential through education.

Attainable Homeownership

“For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation,” says Odeta Kushi, Deputy Chief Economist at First American.

Though homeownership is an important tool in wealth-building, many people cannot invest in a home due to the rising cost of housing. However, family financial support makes this investment more attainable. A 2022 poll found that 79% of homeowners between the ages of 18–29 had financial assistance from their parents when buying their homes.

According to research from the Urban Institute, “A child’s likelihood of being a homeowner increases 8.4 percentage points if their parents are homeowners.” This statistic shows that generational wealth can snowball. If you work hard to become a homeowner, you improve your children’s chances of homeownership. In turn, if they become homeowners, their children’s chances of becoming homeowners also increase.

Protection From Economic Uncertainty

Generational wealth provides a financial safety net that can help families weather economic downturns. Individuals with access to generational wealth are more likely to have savings. Savings can minimize the impact of a period of unemployment or financial emergency. Many families with generational wealth are able to step in for their relatives during financial crises and provide financial aid or job opportunities.

How to Build Generational Wealth

1. Create an Estate Plan

An estate plan is a financial plan that outlines how your assets will be distributed after death. Before you start building wealth, it’s a good idea to take care of this step, so you know where that wealth will go if you pass away. Whether you have a large investment portfolio and numerous assets or you’re just starting to build your savings, estate planning is critical.

Here’s how to set up your estate plan:

• Write your will: Your will should include a list of everything you own and who you want those things to go to when you die. Your will should also name your executor. The executor is someone you trust to be in charge of managing the distribution of your assets. If you have minor children, name the person you would like to be their guardian after you pass away.
• Consider setting up a trust: A trust can help you manage your assets during your lifetime and can also help avoid probate, which is the legal process of distributing your assets after you pass away. A trust can be revocable, meaning you can change it during your lifetime, or irrevocable, meaning you cannot change it once it is created.
• Find an estate lawyer: Talk to a lawyer who can help ensure everything is correct.
• Review often: Be sure to review and update your estate plan every 3–5 years. You should also review it whenever there is a change in your family structure, such as a marriage, divorce, or the birth of a child. This will ensure your plan still reflects your wishes.

2. Set a Budget and Savings Goals

With your estate plan in place, you can begin saving to build your long-term wealth. Set a budget to make it easier to save as much as you can. Here are a few popular budgeting strategies to help you get started:

• Follow the 50/30/20 Rule: This rule states you should spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings or debt repayment. This method is best for beginning budgeters trying to build savings for the first time. As your income increases, you may want to adjust this rule to allocate a larger portion of your income to savings.
• Cash stuffing: This budgeting method involves storing cash in physical containers like envelopes, binders, or jars and dividing that cash into spending categories.
• Use online budgeting tools: Apps like Mint or Goodbudget allow you to track your income and spending on your smartphone.

3. Invest Your Savings to Build Wealth

Here are some smart investment options for building your wealth:

• Stock market investing: Between 1926 and 2023, the average annualized return of the S&P 500 was 10.13%. When you reinvest your earnings, your wealth can grow tremendously over time.
• Tax-advantaged accounts: Retirement accounts like a 401(k) or IRA allow for either tax-free or tax-deferred growth. Both of these accounts can be passed to your beneficiaries after you die. An education savings account, like a 529 plan, is not subject to capital gains taxes, as long as the money is used for educational purposes. A 529 account allows your beneficiaries to pay for school and avoid student debt.
• Real estate: Real estate investing can be an excellent primary wealth-building strategy or a diversification strategy to minimize risk in your overall investment portfolio. It allows you to generate passive income, build equity, and hedge inflation. The rental income and equity you earn from owning an investment property can be reinvested to build your savings and passed on to future generations. Because real estate investing is a long-term strategy, many real estate investors pass on properties they purchased to their children and grandchildren. This allows them to earn their own passive income.
• Life insurance: A life insurance policy can ensure your family will be taken care of after your death. If you have family members who depend on your income, life insurance is essential. However, even if you don’t have dependents, a life insurance policy can help family members cover the costs of a funeral and any debt they might inherit from you.
• Family business: A successful family business can establish a source of income for your relatives and future generations. In addition to the revenue the business generates, the family business can provide secure employment for family members in need of work.

Challenges to Building Generational Wealth

Unexpected Financial Emergencies

An unexpected economic downturn, a job loss, a major medical event, or another financial obligation could derail your generational wealth-building goals. The best way to protect against these events is to plan for the unexpected. Keep an emergency savings fund to cover unforeseen costs.

It’s also important to build multiple streams of income so that a job loss doesn’t lead to major financial stress. Passive sources of income or side hustles can get you through a period of unemployment.

Discriminatory Policies and Systemic Issues

When it comes to building generational wealth, it’s often not an equal playing field. White adults are more than twice as likely as Black and Latinx households to get sizable financial help from parents or other elders, according to a 2022 NPR poll.

Discriminatory policies and systemic issues are largely to blame for the disparity in generational wealth between racial groups. According to a 2021 Boston Consulting Group study, about 47% of Black and Latinx households were underbanked, meaning they did not have sufficient access to banking institutions.

Salene Hitchco*ck-Gear, the president of Prudential Individual Life Insurance, says, “If you have that much of the population in the Black community underbanked, even the simple tools like compounding interest and the things that people understand are not going to be readily available.”

Similarly, it has historically been more difficult for Black Americans to purchase a home. Until the mid-twentieth century, redlining, or intentionally discriminating against homebuyers based on race, was legal and made it impossible for Black families to purchase homes in certain neighborhoods.

The effects of redlining and other discriminatory practices are still impacting families today. Because many Black Americans have parents and grandparents who could not own homes, there is a higher barrier to entry.

There are some programs in place to help Black and Latinx families counteract these disadvantages. For example, Bank of America recently launched the Community Affordable Loan Solution program that offers zero-closing cost and zero down payment mortgages to those in majority Black and Latinx neighborhoods in five cities across the U.S.

Lack of Financial Planning Education

Although you may work hard to build wealth to pass on to your family, that wealth may not last if your relatives don’t know how to maintain and grow it. Figures from Gobankingrates show that 70% of wealthy families lose their wealth by the next generation, with 90% losing it the generation after that.

To ensure your family is taken care of for generations to come, you have to start with your own financial education. Read the latest content from financial experts and work with professionals like tax strategists and financial planners to learn how to best manage your money. Personal finance experts like Dave Ramsey, Jill Schlesinger, and Graham Stephan have regularly updated content to help you continue your financial education.

It’s also critical to discuss how to manage money with your family members. As you work to build wealth, discuss the steps you are taking with your family members, so they can see the strategies that work and learn from any mistakes you might make along the way.

Generational Wealth Requires a Long-Term Perspective

Generational wealth doesn’t happen overnight. Every wealthy family started with someone who took the first wealth-building steps. If building long-term wealth feels like a lofty goal initially, keep the following advice in mind:

• Stick to your goals with patience and perseverance.
• Remember, setbacks will happen, but a long timeline will balance them out.
• Keep your children and grandchildren in mind.

For more tips on wealth-building and financial planning, check out these articles:

How to Become a Millionaire: 5 Wealth-Building Tips

How to Become Financially Independent