Wealth Generation

What is Generational Wealth?

Generational wealth refers to financial assets passed by one generation of a family to another. Those assets can include cash, stocks, bonds, and other investments, as well as real estate and family businesses. In recent years generational wealth has become a focal point in discussions about the racial wealth gap and the increasing concentration of wealth in the U.S., because it plays a substantial role in both.

Key Takeaways

Generational wealth refers to assets passed by one generation of a family to the next.

In some cases assets are transferred after death in the form of an inheritance. In others they are passed to the next generation while the giver is still alive.

Generational wealth contributes to both the wealth gap between rich and poor in the U.S. and the wealth gap among races.

3 ways
to build and protect generational wealth

Your path to building wealth that lasts more than a generation or two will look different from everyone else’s, however there are certain strategies you can use to set yourself up to thrive. “Understanding that each family might have their own vision of how they want that transfer to happen poses a significant planning opportunity, both for the generation that will be transferring assets as well as those that will receive it,” says Colleen Carcone, certified financial planner and Director of Wealth Planning Strategies at TIAA.

Don’t wait to start investing

Investing can be key to making your money work for you and grow over time. Even if you don’t have a ton of money to invest, starting with just a few dollars can add up to a significant cushion over time—one that you can pass down to your children or heirs. According to the Pew Research Center, even among families who earn less than $35,000 per year, one-in-five have assets in the stock market. Investing isn’t only limited to stocks and bonds. Investing in real estate can be another effective way to build and easily transfer wealth. Well-maintained properties in high-demand areas can increase in value over time and provide a great deal of equity for homeowners over time.

Develop multiple streams of income

With inflation on the rise, many Americans are looking for extra ways to earn income. Saving and investing for your future self and those that come after you means having enough funds to cover your expenses in the present. A new study by Western and Southern Financial Group found that 44% of U.S. residents are working multiple jobs to build wealth.

Create a legacy strategy

A 2022 survey by Caring.com found that only 33% of Americans have a living will or trust, and one in three Americans who have no will or living trust claim they don’t have enough assets to leave behind. But focusing on the short term could cost you and your loved ones down the line. Regardless of what you have now or what you think the future holds, having documents in place that ensure a smooth transfer of whatever assets you do leave behind protects the wealth you’ve built and gives the next generation a foundation to start from. “The most important thing to do when you are building generational wealth is to surround yourself with a team that will help you accomplish your objectives,” says Carcone. “Your team should include not only your estate planning attorney, but your tax adviser and your financial adviser.” These experts can help you create a trust for your beneficiaries that clearly outlines how your wealth should be distributed and invested, and who will be entrusted with your assets. “These are all pitfalls that can get in the way of your legacy lasting for generations, and so you will want to carefully think about who you name as a trustee of your trust, and the terms of distribution. If you are concerned that your child may not have the skill set to invest wisely, for example, you can name a professional to take that responsibility off their shoulders,” says Carcone.

How to build generational wealth

Looking at wealth concentrations and racial disparities can make building generational wealth seem like an uphill battle. But it might give you inspiration to look at the success story of others.

Start with financial literacy

Improving your financial literacy might be the first step. Understanding the basics of budgeting, credit, savings and beyond can help you make informed choices as you try to build generational wealth.

Take a look at debt

It might be hard to save and build if a large portion of your income is going to pay off debt. But there are numerous debt-repayment strategies you might consider to help you develop a plan. As you approach debt, it might help to consider how an emergency fund might help you stay on track if the unexpected happens.

Create a budget

Your debt plan is likely to be one part of your overall budget. Having a good understanding of what money you have coming in and where you’re spending might allow you to be more purposeful. If you live near a Capital One Café, you could drop by to learn tips for building a simple budget.

Develop financial goals

Once you have a budget that works for you, it might help to be purposeful. That means setting financial goals. Goals can change over time, but thinking about short-, mid- and long-term goals can help you set realistic timelines. Generational wealth can mean different things to different people. And things like retirement savings, insurance policies, investments and emergency funds all could be part of the process.