The other day, while attempting to comfort my child at a coffee shop, I overheard an older parent summon his distraught son on why he wasn’t starting to think about taking his financial life more seriously. “I do not know how,” pleaded the young man. “I am trying my best but it’s just impossible, I am placing all my bets on my children’s future so that they do not struggle as I am and it would have been better if you did the same for me instead of embarrassing me in public,” shouted the man as he walked away. At this point my child was screaming, maybe she was also passing a similar message to me in her own language: “Mum, what do you have in place for my future?”
Despite having an advanced degree in investment and finance, generational wealth as a topic was not covered, even though it would make sense to have it factored in as a core chapter because everything about investment looks at how best you can utilise what you have now in order to get good returns in the future. In addition, I was conditioned to think that generational wealth was solely for the wealthy and that it was only for our parents and grandparents. After researching further, my conclusion is that it is for everyone, and the time to start thinking about it is now.
What Is Generational Wealth?
As the name suggests, it is wealth, in form of assets, that are passed from one family generation to the next. These assets can include real estate, stocks, bonds, a family-owned business and other investments.
You may at this point be thinking that none of this wealth was passed on to you by your own family and therefore generational wealth is irrelevant to you, or that all these are boring finance gibberish that you would rather not bore yourself with. The latter might be true, but before closing this browser, think about how much easier life would have been had you been given access to wealth by your family, and also how much easier it will be if you created your own wealth and passed it on to your children so that their lives will be easier. This stuff can be very easy to grasp and fun to do as you track and achieve your financial goals.
How to Build Generational Wealth
The most common ways of building generational wealth are through acquisition of assets and putting money away while ensuring that you do not touch it until you retire. We know that saving cash can be challenging, bearing in risk factors such as currency inflation rates and very low interest rate returns can discourage one from saving money. There are, however, other means you can use that can yield higher returns and grow your wealth over time which can be passed on and enjoyed by your children and their children.
- Life Insurance
Life insurance is a contractual agreement between an insuring company and yourself. The terms are that if you die or are diagnosed with a terminal illness, then money will be paid out to your family.
Life insurance creates wealth and provides a peace of mind for your children in the event of your untimely death. It eliminates stress related to finances that can be borne by your children, let alone the stress of not having you around as a parent.
- Creating a Business
Most generational wealth is passed on through family-owned businesses. Building a business from scratch and maintaining it can be difficult, but once it hits momentum, its profits can be enjoyed by your children.
A lot of hard work, education and dedication is required by all family members to ensure that there is continuity. Involving your children from a young age by teaching them how to operate the business and how it can adapt to change can lead to its longterm success once they inherit and takeover the business.
- Stock Market
Investing in the stock market is ideal because there are greater chances of growth and higher returns in the future. It is important to know what you are doing if you decide to do it alone. If not, then paying companies that deal with mutual funds is a good way to start.
For beginners who want to do it alone, using online platforms such as Robinhood might be right for you. Robinhood gives you access to trade using your computer and smartphone anywhere in the world and allows you to buy and sell stock for any listed company.
- Land and Real Estate
Purchasing land and houses is a good source of generational wealth. If done appropriately, it is guaranteed that you will have a steady cash inflows in the future. These could be in the form of income from renting and leasing out the land and buildings that can be passed on to your offspring.
You can start this off by taking a mortgage if you cannot afford a house right now. To create wealth, you can resell the house or even rent it out or even gift it to your children as a security or to live in these properties rent-free and reduce the burden of paying ever-growing rent prices.
- Education
Most high-paying jobs require higher education qualifications, which can be expensive. Investing in your children’s education by paying their tuition so that they avoid taking student loans is a way of creating generational wealth for your children. Their chances of securing well-paying jobs after graduation will be higher and can lead to financial stability.
Educating your children about personal finance can also create generational wealth. Starting to teach your children early on how to save money and allowing them to make financial mistakes can equip them with knowledge to make rich financial decisions when they are older. The benefits of the investments they have made at a younger age while learning can be enjoyed later in life.
The take away from the pandemic was that we need to be prepared financially for a rainy day. Creating and having generational wealth for our children can cushion any kind of financial haphazards, and there is no better time to start creating that than now. As we wind up the year and begin to think about next year’s new year resolutions, let us consider creating generational wealth for our children.