Financial Security for Future Generations
Generational wealth is important because it provides a foundation of financial security and opportunity that can benefit multiple generations within a family.
By passing down assets such as money, property, and investments, families can ensure that future generations are better able to handle financial challenges, get a great education, and invest in their own careers or businesses.
Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®
Table of Contents
- What is Generational Wealth?
- How I’m Building Generational Wealth in My Family
- How to Start Building Generational Wealth
- How to Talk to Your Kids about Generational Wealth
- The Benefits of Building Generational Wealth
- 8 Key Elements of Building and Protecting Generational Wealth
- Common Questions About How to Build Generational Wealth
What Is Generational Wealth?
Generational wealth refers to passing down financial assets, property, and even businesses to family members of future generations.
People have different ideas about what qualifies as “generational wealth.” Some believe it means passing along enough money to cover all living expenses and allow the beneficiary to retire.
Others think it means creating a trust fund so your children never need to work. In truth, generational wealth is any amount of wealth transferred to the next generation; it isn’t based on a specific number and is subjective.
Generational wealth could even mean receiving small proceeds from a life insurance policy.
How I’m Building Generational Wealth in My Family
While the term “building generational wealth” seems subjective, it doesn’t discount the value or strong desire to set up your kids for success when you are no longer here.
Growing up, my parents didn’t have a lot of money, but they instilled very strong values in us three girls, namely that we were to be financially independent and secure.
They were crystal clear that we weren’t to expect handouts from them or anyone else and that we needed to create our own wealth.
They taught us to set goals, work hard, overcome obstacles, and show grit.
All three of us are now independently successful, and even if our world turned upside down, I am confident each of us could build it again. This foundation allowed each of us to be in a position to create generational wealth—not by transferring physical assets but by instilling the right money mindset.
Now, with my own family and twin 12-year-old boys, I am in a position where I want to transfer generational wealth in two ways:
- I want to teach my kids values and mindsets so that they understand how to be independent and financially secure.
- I want to transfer generational wealth to my kids in a way that inspires them to thrive, work hard, and achieve independently while still providing a cushion or launching pad.
A big concern for many families with generational wealth is the balancing act between not wanting to “spoil” their kids and wanting to support them on their road to success.
It’s possible that “spoiling” one’s kids can ruin their drive and ultimately reduce their happiness; I am aware of this challenge and strive to make good decisions with it in mind.
My kids will likely inherit and have more financial resources than I did initially. But it would be a significant loss if I were to rob them of the fulfillment of creating something on their own. I am very conscious of that. I also don’t want them to feel they must play small or apologize if they have more or less than a friend.
Focusing on my kids’ mindset is the most crucial element in achieving my two goals of building and transferring wealth to them.
It starts now as they grow up, stumbling and trying new things. I teach them that they can do hard things and that it is worth it. Acknowledging that they may be scared, anxious, or unsure and that doesn’t mean they can’t move forward and take the leap to try something new.
I want my kids to have experiences where they surprise themselves and learn a good work ethic. Valuing their contributions is how you create the groundwork for them to continually learn and build their generational wealth.
I also take time to discuss financial concepts with them, such as the stock market, investing, saving, and interest rates.
I help them understand the difference between risk and reward and passive and active income.
Related Post: How to Be Wealthy, Not Rich
How to Start Building Generational Wealth
There’s more than one way to build generational wealth.
If you’re in a position where you’d like to start building generational wealth, here are some key steps to take.
Step 1: First, you need to look under the hood at your money mindset.
Start by asking yourself difficult questions to uncover your money mindset.
- What was your first experience with money, and what did it teach you?
- Can you say money is a powerful tool that helps create freedom?
- Can you say, “I love money?”
- Do you think money is bad, makes you corrupt, and that you never have enough?
- Do you have a lack mentality or an abundant mentality?
Your relationship with money and money mindset must be addressed before building generational wealth. Otherwise, it is like you are in a car, with all intentions of driving towards generational wealth but with the parking brake on. In this metaphor, the parking brake is your limiting belief about money.
Step 2: Next, gain an understanding of your current financial situation.
What are your assets, debts, spending habits, savings, and cash flow?
You want to uncover if you have any leaks in your bucket where money is slipping through the cracks.
Are you paying high interest on credit card debt or purchasing things that you really don’t need or value?
Step 3: Look for opportunities.
Now that you have the foundation and understand where your finances are currently, you need to create a road map for where you want to go and how you will get there.
- How will you earn more or spend less?
- Do you want to go after a promotion or career change?
- Is going back to school or getting further education important?
- Have you started a savings plan for your retirement and the future?
Step 4: Educate yourself on investing and how to earn passive income.
Once you have paid off your debts and looked at ways to earn more money actively, you need to look at ways to leverage the money you already have.
This means investing.
Before you think about jumping into a “sure thing” or quick win, always think about the long term. The goal should be to think long term and stay the course.
When it comes to investing, time in the market is what wins and creates a steady return over time. Trying to make money quickly in the market is like gambling. Gambling is not a great way to build long-term generational wealth.
Step 5: Share what you have learned with your family.
Create a routine where they can learn the value of money and be proactive with saving and creating wealth.
Step 6: Hire experts to coach you along the way.
It is essential to have advice to keep you invested, create tax-efficient income, and protect your wealth with an estate plan.
How to Talk to Your Kids about Generational Wealth and Cultivate a Positive Money Mindset Early in Life
Do you remember what your parents taught you about money?
I bet you still hold many of these values today. A parent’s impact on their kids’ relationship with money is significant. This means you need to be proactive and talk to your kids about how to be financially responsible.
Here are some helpful steps to take:
1. Share your experience with money: Be honest about some of the limiting beliefs you held and how these didn’t serve you. Include how and why you changed them.
2. Show how much things cost and how you earn money: Explain your financial decisions and why you invest in one thing and not another.
3. Tell stories: Kids are naturally curious and observant. Share stories about why just buying the next iPhone may not be financially smart, but simply storing all your money under your mattress isn’t helpful either.
4. Consider cost and value: Explain how you always need to consider both. Mention that you don’t mind spending if it is something you value, but keep in mind that what is expensive is unique to everyone because we value different things. It’s important to be true to yourself.
5. Discuss mindsets: Talk about a scarcity mentality versus an abundant mentality and the difference between being frugal and a spendthrift. When speaking of abundance, discuss being grateful and how to share this by giving back to those who aren’t as fortunate.
6. Make it okay to talk about money: Incorporate money conversations at the dinner table and try to make it a regular part of your discussions. It can be fun to assign a topic that one person talks about at the table. Maybe discussing what a stock is seems boring, but exploring how Steve Jobs made his money or the idea of being a part-owner of Apple could be more engaging.
The Benefits of Building Generational Wealth
Financial Security and Stability for Your Family
A key benefit of generational wealth is leaving a legacy and ensuring your family members’ financial security.
Opportunities for Education and Career Advancement
When you have generational wealth, you have the freedom to take the time to go back to school, learn how to advance your career, and make a difference.
Long-Term Impact on Future Generations
I have a friend whose grandfather created generational wealth, which provided her with the opportunity to pursue education and follow her dreams.
She has also enriched her kids’ lives and those around her by contributing to her community.
Transferring generational wealth effectively can have a lasting impact and inspire family members to reach for larger goals, knowing they have the financial foundation to back them.
Making the World a Better Place
A key advantage of generational wealth is that it allows the beneficiaries to be abundant and generous with their money.
They can have a positive impact and give to organizations and charities close to their hearts.
Creativity thrives, and new ideas are born when someone isn’t stressed out or worried about making ends meet. The result is advancements in technology, new products, and ways of doing things that benefit the entire population. Money creates freedom, and generational wealth passes this freedom on to others.
8 Key Elements of Building and Protecting Generational Wealth
If you want to create or protect generational wealth, knowing these eight keys will help you.
Remember that building wealth and protecting wealth require different skills and strategies.
1 – Home Ownership
In most countries, owning your own home has several distinct advantages that are both emotional and financial.
These include a sense of pride, security for your family, comfort, and confidence in your future. The financial benefits include the appreciation of a valuable asset, which is taxed favourably, forced savings, and a good way to build credit to borrow against in the future.
2 – Real Estate Investments
Real estate has always been a popular investment.
While your principal residence has the most significant benefits, owning a secondary property in the right area can also be a good investment.
A word of caution: Too often, people don’t consider the entire cost of owning a second property, including the headaches of renting and maintaining it. Also, governments are starting to tax these second properties in “creative” ways.
3 – Working with Professionals
I always say I can be an expert in what I do, but I cannot be an expert in everything.
When building generational wealth, it is important to work with a team of professionals. Without them, you are likely to fall into tax traps and make costly mistakes, leaving money on the table.
I recommend starting by building a team that includes a wealth advisor, tax advisor, and lawyer. Ensure they understand your goals and will keep you on track for the long term.
4 – Investing in the Market
Over the years, I have met many individuals who fear the market.
To them, it is like this big “unknown” abyss where you drop your money in hopes of getting something back. It doesn’t feel tangible.
But you need to change this mindset to create generational wealth. What we don’t know or understand scares us, so it is important first to understand your fear and then learn what the market actually is.
I agree that it is easier to imagine a physical building or product than “the stock market.”
To make it more tangible, picture a local market in your area.
As an investor, you go in to look at the different stalls, which represent companies, and then decide what to buy. A stock is a piece of a company, so as a shareholder, you own a piece of that company. It is exciting to think you are part owner of a company you know and like, such as Apple, Lululemon, or even your local utility company. It is like you walked down the street and bought a piece of them.
The stock market is heavily regulated and controlled to protect the average investor.
The only caveat is that buying something new and undiscovered carries a higher risk. My philosophy is not to try to “time” the market or get the next big hit but to invest in quality companies that I believe in, which are stable and here for the long term. They may not have double-digit growth, but they have long-term stability and can provide steady income through dividends.
On the other hand, new, potentially lucrative companies carry a higher risk and can cause unwanted stress.
Go with what you know and seek professional advice. Don’t take random stock advice from non-professionals.
5 – Financial Literacy and Education
I cannot stress enough the importance of financial literacy and education for yourself and your family.
There is so much information out there in different formats. You can read blogs, watch videos, listen to podcasts, or read books. Dedicate time each week to learning a new area of finance, and you will be amazed at how your comfort level and success increase.
6 – Estate Planning and Wealth Preservation
Estate planning is essential for wealth preservation because passing away is a major taxable event.
Your estate can be diminished through capital gains or an estate tax, so you need to plan ahead and utilize tools that help you save money and ensure your legacy continues.
If you need further motivation, know that without estate planning, your chances of paying more to the government and leaving less for your heirs are almost 100%.
7 – Building a Legacy with Philanthropy
There is only one you in this world. So it is important to ask yourself, “How will I be remembered, and what will my legacy be?”
Knowing this makes passing on easier because you feel you have made a difference. Philanthropy is an excellent opportunity to make a lasting impact.
8 – Role of Family Communication
Family communication must be prioritized when you aim to build generational wealth.
This means sharing your values and goals with your family members at a young age, educating them on your strategic decisions, and learning about their goals and dreams as they grow up.
Find out how to support them without destroying their drive to move forward. Too often, families avoid discussing money, succession planning, and inheritance.
People don’t want to think of their death, hear the bickering among their kids, or make their kids lazy because of an inheritance.
Don’t wait until it is too late; start communicating now and think of it as educating, clarifying and being curious about the future.
Common Questions About How to Build Generational Wealth
Which Financial Assets Are Best for Building Generational Wealth?
The stock market has been a proven way to build generational wealth over time because its potential for growth outpaces inflation.
Fixed-income investments such as CDs, GICs, and bonds can produce a reliable source of income, but because interest is taxed at a high rate, dividends can be more tax-efficient. Other financial assets often transferred are businesses and real estate.
How Can I Educate My Family Members to Preserve Our Family’s Wealth?
While none of us have a crystal ball to predict the future, communicating regularly with family members is the best way to preserve your family’s wealth.
When kids are young, they should be taught the value of money and educated on financial literacy. Once they are adults, meeting with them regularly to discuss their future vision and what is most important to them is important.
Have family meetings where everyone shares their thoughts and vision. If you have a family business, regular meetings are even more critical to understanding how everyone views their role. Having them join meetings with your trusted advisors is a great way to help them understand.
What Is the Most Common Way People Create Generational Wealth?
There isn’t a get-rich-quick trick to creating generational wealth.
That said, one thing we can’t get more of is time, so it is crucial to leverage your time and earn passive income. This means investing in financial markets, education, and real estate. Dedicate time to understanding how to maximize tax benefits and avoid getting into debt.
What Is the Simplest Way to Start Building Generational Wealth?
Start by understanding your current financial situation, including where the money comes from and where it goes each month.
Create a plan to eliminate debt and develop a savings strategy where a set amount is invested each month. Educate yourself on how to earn more money and invest in the stock market, along with understanding the tax implications of your decisions now and in the future.
Most importantly, be accountable and financially aware of everything you do. Building generational wealth isn’t a set-it-and-forget-it type of goal.
Stay invested in learning about money, success, and generational wealth.
Should You Be Invested in the Stock Market If You Want to Build Generational Wealth?
The stock market outperforms inflation over time and helps you earn passive income, making it a great tool for building generational wealth.
However, don’t try to gamble, time the market, or make money quickly. Buy quality companies, stay invested, and work with an experienced financial advisor once you start accumulating assets.
Is a Family Business a Good Way to Create Wealth?
A family business can be a good way to build generational wealth, but it isn’t for everyone.
You need to consider your kids’ skill sets and their desire to be involved. Often, only one family member may be interested in taking over the family business, which is okay if you utilize strategies to equalize your estate with insurance and trusts.
Final Thoughts
Building generational wealth is a multifaceted endeavour.
It involves understanding your money mindset, educating yourself and your family, and making strategic financial decisions. Proven methods to grow wealth that can be passed down through generations include investing in the stock market, real estate, and businesses.
Regular communication and financial education within the family are crucial to preserving this wealth.
By starting with a clear understanding of your current financial situation, eliminating debt, and investing wisely, you can create a stable financial future for your descendants.
Remember, it is not about getting rich quickly but about consistent, informed, and long-term planning. By fostering an abundant mindset and proactive financial habits, you can set the stage for enduring generational wealth.
Finally, keep in mind that there is more than one way to build wealth.
Likewise, there is more than one way to maintain generational wealth. As many people who hit it big and then lose everything discover, building wealth and maintaining generational wealth are two different skill sets. It’s critical that we cultivate both skills if we wish to leave a lasting legacy.
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About the Author
TIFFANY WOODFIELD is a financial coach, cross-border expert, and the co-founder of SWAN Wealth based out of Kelowna, BC. As a TEP and associate portfolio manager, Tiffany has extensive experience working with successful professionals who want to leave a legacy and enjoy an adventurous, work-optional lifestyle. Tiffany combines extensive knowledge from her background as a financial professional with coaching and her passion for personal development to help her clients create a unique path that allows them to live their fullest potential. Tiffany has been a regular contributor to Bloomberg TV and has been interviewed by national and international publications, including the Globe and Mail and Barron’s.