What is generational wealth, and how can you build and protect it?

Increasing your net worth is half the fight when it comes to getting rich. Creating wealth that will last means making a plan for how it will be passed on to the next generation. It's called "generational wealth."

Figures from Gobankingrates show that 70% of wealthy families lose their wealth by the next generation and 90% by the generation after that.

Kleo Curry, vice president of Wealth Management at UBS, says, "According to a recent UBS Investor Watch Survey, 83% of investors are worried about transferring assets smoothly, but only 40% have talked with their heirs about their wishes." "Most investors want their property to be passed on in a smooth way, but poor estate planning and lack of communication can not only be expensive but can also cause family conflict that can't be solved. As long as interest rates stay high and inflation worries don't go away, the right way to divide up a family's income is a way to protect against rising costs of living.

What does "generational wealth" mean?

Generational wealth is basically any kind of asset that is passed down from one family to the next. This could be money, investments, stocks and bonds, real estate, or even companies. More than $80 trillion is expected to be passed down from the older generations of today to their children and other heirs over the next 20 years. However, the amount of money passed down from one generation to the next is not the same for everyone.

According to the most current Survey of Consumer Finances, the average white family has eight times as much money as the average Black family and five times as much money as the average Hispanic family. This wealth gap can be seen in different parts of the financial business because consumers' decisions and actions depend on how much money they have. Richer families are less likely to have a lot of debt, and it's easier for them to buy a home. They may also have more money to keep growing their wealth through businesses and investments.

How hard is it to build wealth that will last for generations?

There are many things that can make it harder or easier for people of all income levels, races, genders, and ages to build wealth and pass it on to the next generation.

There are different stages of financial knowledge.

To build wealth and keep it, you need a level of knowledge that not every buyer has. If you're smart, the money choices you make every day can add up and lead to wealth in the long run. From choosing the right mix of assets for your investment account to knowing how to start your own business, having the right knowledge can make all the difference. In terms of financial literacy and understanding, a 2021 TIAA report found that most consumers (61%) understand how borrowing works (the relationship between loans and repayment). However, financial literacy is lowest when it comes to understanding risk and uncertainty, which can be hard in times when the economy is volatile or uncertain.

Significant wage gaps

The ability of each generation to build up enough wealth to pass on is affected by differences in pay between different racial groups. According to the latest numbers from the Department of Labour, a white worker makes $1 for every $0.76 a black worker makes. Hispanic workers make $0.73, Native American or American Indian workers make $0.77, Asian or Pacific Islander workers make $0.81, and mixed workers make $1.12.

Plans for moving wealth that is not clear or set in stone

Many families don't like to talk about what will happen to certain assets if a family member gets sick or dies. "Start talking about money with your family and children. "One way to move towards this goal is to plan family meetings every three or six months," says Curry. "The regular meetings give us a chance to catch up and talk about the family's plans for the future. The talks also help teach and understand money to the next generation."

Three Ways to Build and protect wealth for future generations

Your path to building wealth that will last more than a couple of generations will be different from everyone else's, but there are some things you can do to set yourself up for success.

Colleen Carcone, a certified financial planner and Director of Wealth Planning Strategies at TIAA, says, "Knowing that each family might have a different idea of how they want that transfer to happen is a big planning opportunity for both the generation that will be giving away assets and the generation that will be getting them."

Don't wait to start putting money away.

Investing is one way to put your money to work and help it grow over time. Even if you don't have a lot of money to spend, starting with just a few dollars can add up to a big cushion over time that you can give to your children or heirs. The Pew Research Centre says that one in five families who make less than $35,000 a year still have money in the stock market.

You can invest in more than just stocks and bonds. Investing in real estate is another good way to make money and pass it on quickly. Well-kept homes in areas where people want to live can grow in value over time and give their owners a lot of equity.

Create different ways to make money.

Since inflation is going up, a lot of people in the U.S. are looking for extra ways to make money. Saving and saving for your future self and those who come after you means that you have enough money to pay for your needs right now. Western and Southern Financial Group did a new study that found that 44% of people in the U.S. work more than one job to build wealth.

Make a plan for your memory.

Caring.com did a poll in 2022 and found that only 33% of Americans have a will or trust. One in three Americans who don't have a will or trust say they don't have enough money to leave behind. But putting your attention on the short term could cost you and your family in the long run. No matter what you have now or what you think will happen in the future, having documents in place that make sure your assets are transferred smoothly saves the wealth you've built and gives the next generation a place to start.

Carcone says that if you want to build wealth that will last for generations, the most important thing to do is to put together a team that will help you reach your goals. "Your team should include not only your estate planning attorney but also your tax adviser and your financial adviser."

These experts can help you set up a trust for your beneficiaries that spells out how your money will be spent and invested, as well as who will be in charge of your assets. "All of these problems can make it hard for your gift to last for generations, so you should be careful about who you name as the trustee of your trust and how the money will be given out. "If you're worried that your child might not know how to invest wisely, for example, you can name a professional to do that job for them," says Carcone.