What is Generational Wealth Explained: How You can build it and protect it?

When it comes to an act of wealth creation, increasing your liquid wealth is not much of a battle. Creating sustainable wealth involves creating a plan in a way that can be transferred and passed on to the next generation. C’est ce qu’on appelle la richesse générationelle.

Generational Wealth

Data from GoBankingRates show that 70% of wealthy families transmit their inheritance to the next generation, and 90% to the next generation.

Cleo Currie, vice president of Wealth Management at UBS, says, According to a recent survey by UBS Investor Watch, 83% of investors are concerned about the smooth flow of asset transfers, but only 40% report having done so. To install seus herdeiros. , “While investors may want to ensure that the transfer of their inheritance occurs without complications, inadequate succession planning and lack of communication can not only be costly but also lead to insoluble family conflicts. ‘Persistent inflation, a fair distribution of generational wealth is a protection against the increase in the cost of living.

What is Generational Wealth?

Generational wealth is basically any type of property that is passed down from one generation to the next. It can also be cash, mutual funds, stocks and bonds, real estate assets or companies. It is estimated that more than $80 trillion will pass from today’s older generations to their children and other heirs over the next two decades, but multigenerational wealth is not uniform across industries.

The most recent consumer finance survey found that the typical white family has eight times the wealth of the typical black family and five times the wealth of the typical Hispanic family. This wealth gap can be seen in many areas of the financial industry due to the role that substantial wealth plays in consumer decisions and behavior. Wealthy families are less likely to take on debt; They have easier access to home ownership and are likely to have more capital to continue to build their wealth through businesses and investments.

What are some of the challenges in creating generational assets?

Income levels, race, gender, and age all face many factors that make it harder, or in some cases easier, to create and transfer wealth from one generation to the next.

Different levels of financial literacy

Building and maintaining wealth requires a certain level of understanding that not all consumers possess. The daily money options can add up and result in long-term money if you are strategic. Whether it’s choosing the right combination of assets in your investment portfolio, understanding what type of savings vehicles to use for your personal savings, or how to start your own business – having knowledge in your pocket can do all the difference. A 2021 TIAA report found that when it comes to financial literacy and understanding, many consumers (61%) understand concepts related to borrowing (the relationship between borrowing and payments), but it is difficult to capture and understand risk. Financial literacy is lowest in terms of terms and uncertainty, which can pose challenges during more volatile or uncertain economic times.

Significant Pay Gap

The pay gap between different racial groups plays a role in each generation’s ability to create enough wealth to pass it on. According to the latest figures from the Department of Labor, black workers earn $0.76 for every dollar earned by a white worker. Hispanic, Native American/American Indian, Asian/Pacific Islander, and multiracial workers earn $0.73, $0.77, $0.81, and $1.12, respectively.

Unclear or undefined money transfer systems

Many families avoid discussing what will happen to specific assets when a family member becomes ill or dies. “Start conversations with loved ones and heirs about money. A step toward achieving this goal is to schedule regular family gatherings on a quarterly or semi-annual basis,” Curry says. the meeting is an opportunity to reconnect and share the family’s vision for the future. The conversations also help the next generation learn and understand finance.

3 Ways To Build and Protect Generational Heritage

Your path to creating a legacy that lasts beyond a generation or two will be different from everyone else’s, although there are some strategies you can use to create your own.

Certified Financial Planner Colleen Carson says, “Understanding that each family may have their own vision of how they want the transfer to take place has become an important planning opportunity for both the generation that will transfer the assets and the generation that will transfer the assets. will receive them. and TIAA Director of Wealth Planning Strategies.

Don’t Wait For The Right Time

Investing can be the key to growing your money and growing it over time. Even if you don’t have a lot of money to invest, starting with just a few dollars can provide you with significant protection over time – protection you can pass on to your children or heirs. According to the Pew Research Center, even among households earning less than $35,000 a year, one in five owns assets in the stock market.

Investing is not limited to stocks and bonds. Investing in real estate can be another effective way to build wealth and move it easily. Well-maintained properties in high-demand areas can appreciate in value over time and provide great equity to owners over time.

Have Multiple Sources of Income

With rising inflation, many Americans are looking for additional ways to earn income. Saving and investing for yourself and your future means having enough money to meet your current expenses. A new study by Western & Southern Financial Group found that 44% of US residents work multiple jobs to build wealth.

Create a legacy Policy

A 2022 survey by Caring.com found that only 33% of Americans have a living will or trust, and one in three Americans who don’t have a living will or trust say they have something to leave behind. But focusing on the short term can cost you and your loved ones dearly in the future. Regardless of what you have now or what you plan for the future, having documents that ensure a smooth transfer of the assets you leave behind protects the money you have accumulated and the future.

“The most important thing when building generational wealth is surrounding yourself with a team that will help you achieve your goals,” says Carcone. “Your team should include not only your estate planning lawyer but also your tax and financial advisor.”

These experts can help you create a fund for your beneficiaries that clearly outlines how your assets should be distributed and invested and who will be entrusted with your assets. “These are all pitfalls that can plague your estate for generations, so you need to think carefully about who you appoint as trustee of your trust and the terms of distribution. If you’re worried your child won’t have the full set of skills to invest wisely, for example, you can appoint a professional to relieve you of this responsibility,” explains Caracone.