Ways to start building generational wealth for your family
DEMETRIUS SCOTT • April 27, 2023 • 5 min read
What we'll cover
What makes up generational wealth
Ways you can build generational wealth
Benefits of passing on finance education
When thinking about managing your money, the short term always comes first: Do you have enough cash now to cover your immediate needs? Once you know your rent, groceries, bills and any other essentials are covered, you start thinking about longer-term goals — fun stuff like vacationsor big-ticket items like going back to school, buying a home and retirement. But one financial ambition stretches even more into the future — beyond retirement and even your lifetime — and may have positive impacts on your loved ones for years to come: generational wealth.
What is generational wealth, exactly?
Generational wealth refers to assets or other financial resources passed down through a family over generations. It includes things like cash, stock market investments, real estate, businesses or other items with monetary value. By passing wealth to your children, grandchildren and beyond, you could provide your descendants with a financial foundation that alleviates some financial pressures and allows them to focus on continuing to build their own wealth.
For example, should a parent pass away and leave their investments to their child, that inheritance could allow the child to purchase a home and begin building equity without necessarily having to save for a down payment. Similarly, generational wealth might look like parents funding their children’s college education — providing them the advantage of avoiding student loans and entering adulthood without debt.
How to build generational wealth
Building generational wealth — money or resources you won’t need to depend on in retirement — can sound intimidating, especially if you don't have a foundation of wealth to build from. But just like you create a plan to purchase a house and save for retirement, you can strategically work to build generational wealth (once all your personal short and long-term needs are taken care of).
Stock market investing
For many, investing in the stock market is one of the most quintessential means to build long-term family wealth. Historically, the value of stocks has risen over time — meaning money invested in the market tends to gain value in the long-term (though this is not a guarantee). By investing, you could passively accumulate wealth through capital appreciation, dividends or interest (or a combination), depending on the type of security. Stock market investments can be passed down to beneficiaries after an investor dies and the recipient may be able to keep the money invested and allow it to continue to gain value.
Investing in real estate
Investing in real estate, which can mean simply being a homeowner, is another way to build generational wealth. As a homeowner, you build equity (which is the current value of your home, minus what you owe on your mortgage). Real estate value tends to appreciate, or rise, over time, meaning the longer it’s in a family, the more equity your descendants can potentially accumulate.
Purchasing additional real estate properties can also be an investment strategy for generating additional income. Renting property to tenants allows you to passively collect rental income and may reduce your tax bill — meaning you have more discretionary income to save or invest in the market.
Investing in children's education
If you have the means, paying for some or all of your children’s education is a significant opportunity to increase generational wealth in your family. Not only do those with higher education degrees tend to get higher-paying jobs, students who are able to forgo loans can avoid the burden of potentially paying back that debt for years. That means they have more opportunities to save and invest in their own futures earlier in adulthood.
Purchasing life insurance
Life insurance can protect your family members from financial stress should you face an untimely or unexpected death. By having it, your successors will receive lasting financial security through either a lump sum payment or installments, depending on the type of insurance you buy.
Sharing financial knowledge and education
While it may not have a concrete monetary worth, passing on personal finance education to younger generations is undoubtedly valuable. That includes teaching your children how to budget and save, as well as how to make smart financial decisions to maximize any inherited wealth. The more educated and confident your descendants are, the greater chance they have at sustaining and growing their own wealth for the next generation.
Generational wealth starts when its right for you
It’s powerful to know you can financially shape the lives of those you love in the generations below you, but it takes some planning to do so. Prioritize your future and set yourself up for success first, then turn your attention to building wealth that can act as a generational monetary foundation for years to come.
Demetrius Scott is the director of corporate citizenship at Ally Financial, where he is responsible for leading Ally’s financial education strategy, partnerships and programs. He also works to foster relationships with nonprofit partners that support the community and Ally’s strategic business objectives. Demetrius is passionate about helping others and making an impact in the community. He serves on the board of directors for Junior Achievement of Southeastern Michigan, the national board for The Jump$tart Coalition for Personal Finance and serves as a mentor for youth across the country.
Demetrius Scott Director of Corporate Citizenship, Ally Financial