What Is Generational Wealth and How Can I Build It?

For many people, financial security is about more than being able to pay bills on time. It’s about planning for the future, which includes responsibly managing debt and saving for retirement. And, if you’re a parent, it’s about laying a strong foundation for your children’s futures.

Most parents recognize that foundation includes helping your child pay for college and having a life insurance policy in place that can financially protect your children if something happens to you. By preparing for your child’s future today, you’re able to help them get a running start on their own financial future.

That’s what it means to build generational wealth: creating a solid foundation for your child’s financial success, which they can continue to build upon for future generations. When you work toward building generational wealth, you work toward creating a legacy that extends beyond your lifetime.

How to Build Generational Wealth

There are many steps you can take to start building generational wealth. Here, we outline some strategies that can help you create a strong financial foundation for your future and generations to come.

    1. Teach Your Children About Finances

    One of the challenges when it comes to building generational wealth is that you’ll have limited control — if any — over how your children will manage the assets you leave behind. That means one of the most important things you can do to build generational wealth is to teach your children about financial health and help them develop good financial habits. Even if you don’t have many assets to pass on to your children, teaching them how to budget, how to manage debt and how to save money will give them the skills needed to make smart financial decisions in the future.

    2. Buy a Home

    Buying a home is a long-term investment that can reap financial benefits for you today and for the future of your family. As the value of your home increases and as you pay down your mortgage loan, you build equity that can help build the financial foundation you plan to leave to your loved ones.

    3. Fund Your Retirement

    Investments are a great tool for building generational wealth. When you invest strategically in the stock market, your money grows more quickly over a longer period of time. Among the best investment tools are retirement accounts, which offer tax advantages and other benefits that help your money grow faster. For example, many employers offer retirement plans that make investing simple and match your contributions. Plus, when you take steps to adequately fund your retirement, you reduce the burden of care that’s often placed on children when their parents need assistance later in life, giving your children more opportunity to build financial wealth in their lifetime.

    4. Invest in Real Estate

    Diversify your investment portfolio by buying a rental property (or two). Investing in real estate can provide income that helps grow your wealth today and establishes another asset you can pass on to your children.

    5. Give Your Child(ren) a Head Start

    Student loan debt is one of the greatest financial burdens for younger generations. In 2019, about 70% of U.S. students took out college loans. By investing in your children’s education and allowing them to begin their lives with little or no student debt, you help them start strong and allow them to begin building wealth sooner. 

    6. Get Life Insurance

    Life insurance protects your family financially if you pass away by replacing your income so that your children and your family will continue to have the financial support they need. These benefits are paid directly to your beneficiaries, so there should be no additional costs or delays in receiving the financial benefit you’ve secured for them.

    7. Build a Family Business

    A successful family business is a great asset that can be passed on to children to help provide a strong financial foundation. Increase the likelihood that your child will want to take on the family business by introducing them to the business at a young age, providing opportunities to learn the business as they grow, and transitioning responsibility to them as you reduce your involvement in the business.

 

How to Pass on Generational Wealth

You’ve built wealth — now what? Planning ahead is essential to making sure the wealth you create will serve your family for generations to come. Here’s what you need to do now to secure your family’s financial future.

    1. Make a Will

    Making a will ensures your assets are handled in the manner you choose after your passing. And, in many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. Even if you're young or your estate is modest, you should have a legally valid and up-to-date will.

    2. Create a Succession Plan

    Creating a plan is very critical when you or your family owns a business. A succession plan can help ensure your business changes hands smoothly. It can also ensure that the wealth you’ve built is distributed in a way that makes the most sense for your family, even in complicated situations where one child will continue in the family business while others won’t. Plus, managing the details of the business transition in advance will help ensure that the transition is completed in the most efficient way possible — helping you and your family avoid unnecessary fees and taxes.

    3. Keep Your Beneficiaries Up to Date

    It’s critical to name beneficiaries on your investment accounts and life insurance policies to ensure the benefits are distributed correctly. Make sure this information is reviewed regularly and updated as needed so that the money you’ve worked hard to save is allocated according to your goals.

    4. Get the Support You Need

    If you’re looking for someone to help you manage your wealth, or if you’re ready to get started building generational wealth for your family, we can help. Contact your local Farm Bureau financial advisor to learn more.