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Generational Wealth: How to Leave Money Behind

Take your parenting to the next level by passing down generational wealth. It's easier than it sounds and your kids will thank you.

Hannah Erling
Hannah Erling

Generational wealth is the transfer of assets from one generation to the next. While this usually entails property or some kind of financial asset, it can be as simple as good parenting. This kind of wealth is a surefire way of getting a leg up in many aspects of life. It can pay for childcare, education, property, investments, and ultimately help you to secure more comfort.

Working to secure these assets can put your work into a broader perspective than just your own individual net worth. You can maximize your impact on future generations by planning ahead and securing the following assets for them:

Real Estate

Leaving behind a home can be one of the best ways to leave a legacy for your family. This will likely provide priceless value to your family in sentimental value, and will also (usually) appreciate over time.

Buying property is often the most expensive purchase of your life, so not having to put that money down can allow your children to use their money elsewhere. In order to maximize the appreciation on the property, it’s important to keep it up to date by maintaining the home  well and completing repairs/renovations as needed. When the time comes to sell the home, your family will be able to reap the benefits of all of the years of hard work put into the upkeep of your property.

Max Kukurudziak via Unsplash

Investments

By designating beneficiaries, you can leave behind investments in a few different ways. One, the most obvious, is leaving behind investment accounts. You can make a list of your family members as beneficiaries, or you can create custodial accounts for your children that they will have access to once they turn 18 or 21 (depending on the state).

Another way of passing down investments is through some kind of business ownership. This is a bit more time intensive and can require work on the beneficiary’s part, but it is a great way to pass on wealth nonetheless. The recipient can make the choice of either continuing to operate the business to grow their wealth, or selling the business for a lump sum payment.

Life Insurance

This might be the most grim to talk about, but luckily it is the most fool-proof. Having a life insurance policy is a great way to guarantee your beneficiaries get their financial needs covered when you pass away. This can be a monthly or yearly expense that you don’t need to worry about. The difference between this and the other options to pass on wealth is that this option allows you to pass on money that you don’t need to earn yourself.

Some popular life insurance companies include: Prudential, State Farm, and Transamerica.

Education

Sending your kids to prestigious or competitive schools can be a great way to ensure they have a quality education. Financing this track for them will relieve them of the burden of student loans.

On average, college graduates make more money than non-college graduates. While this may not be the path for all people, financially supporting your child’s education in some way can give them a head start to their dream career. If possible, have the conversation with them early on about what they want to pursue, and what kind of price tag will come alongside their education/training.

Values/Mindset

This is something that is impossible to put a price tag on, but still very valuable in securing your legacy. Being a great parent and passing down some key values to your children can help them grow to be able to amass their own fortunes. Some key lessons to teach your kids include: networking, investing, and basic financial literacy (building a budget, building credit, etc.). These skills will be incredibly important regardless of their career path.

While this aspect of wealth might seem the easiest, underestimating it can be catastrophic. A survey done by Money.com showed that 70% of inherited wealth only lasts 1 generation, and 90% only lasts 2 generations. The concluding factor was that the younger generation was not equipped to handle the sudden acquisition of wealth. It’s easier than you think to spend millions of dollars when you don’t understand the value of money.

As with many things, spending habits are often learned behaviors mirrored from parents. One of the most effective ways to teach your children healthy financial habits is to practice them yourself and lead by example!

Wealth, Wealth Management, Generational Wealth
CDC via Unsplash

Invest in Your Community

If you find yourself to be especially generous or financially well-off, consider helping out your community. These investments can take shape in all kinds of ways, and can range in the level of expense as well. If you are looking to make a sizable donation, see where you can make the most impact.

Philanthropy can be a great way to leave a legacy as your money will be going to an organization of your choice to help future generations. These can be local, such as helping the library add a new building, or international, like helping farmers in India make living wages.

Communication and Preparation

Communicating with your family about your financial status (as it relates to them) is crucial in setting them up for success. The timeline of when that will come into play is so uncertain and the last thing you want to do is leave them in the dark about crucial assets that they will have control over.

Building up the assets is only one half of the equation. Preparing them and ensuring that they know what to do is an entirely different battle. This can take place in a number of different ways depending on your family dynamic. Some experts suggest having the conversation frequently and keeping that dialogue open. Others suggest creating a game plan and only revisiting it if situations change. Finding the best style for your family might take some trial and error, and might be a difficult conversation to have, but it is a necessary step in setting them up for a smooth transfer of wealth in the future.

Being able to support your children financially comes with a lot of hard work and sacrifices, but does not have to be exclusive to the elite. Regardless of your financial status, you can always start looking into ways that you can leave a lasting impact on future generations.

Personal Finance