The Ultimate Guide to Generational Wealth  

Foundations of Generational Wealth 

What is Generational Wealth? 

With the cost-of-living increasing year after year, wages staying stagnant, and the wealth gap widening to unprecedented heights, generational wealth has been a hot topic. Generational wealth transfer is crucial for long-term financial stability within families, highlighting disparities in wealth transfer and the importance of effective estate planning. When we think of Generational Wealth, we often think of substantial amounts of assets being passed down from one generation to the next, however, it is more complex than that. 

Generational Wealth in its simplest form, is the transfer of assets and money from one generation to the next.  

Generational wealth transfers can include cash, real estate, bonds, investments, and even businesses. However, Generational Wealth is a holistic and strategic approach to building long-term financial stability that can be passed down between generations. Generational Wealth is one of the most advantageous gifts a person can be given. It opens many doors, provides access to things and opportunities that may not have otherwise been available without. It has the potential to transform the lives of generations for years to come, can alleviate some wealth inequalities, and provides financial safety and security. 

What influences Generational Wealth? 

There are many interrelated factors that influence generational wealth, from smaller individual factors to larger systemic barriers. Understanding available financial resources is crucial in creating effective wealth-building strategies. 

The largest influence on generational wealth is the existence of prior generational wealth itself. The access and pathways to generating wealth are much simpler and defined when wealth is already the starting point. However, it is not impossible for someone with more humble beginnings to accumulate wealth during their lifetime to pass it on to the generation after them. 

Some of the personal factors that can influence generational wealth are personal finance habits such as saving and investing, income and job opportunities, and financial literacy. Having financial literacy and good personal finance habits such as investing and savings can lead to accumulating generational wealth by spending less and saving more for the future and being proactive about estate planning.  

It is also important to consider the implications of the federal estate tax when planning to pass on wealth. Having a higher income, higher education and access to jobs with benefits such as 401ks and other investment opportunities can lead to the creation of generational wealth. Even homeownership and owning real estate can lead to the transfer of generational wealth through transfer of property intergenerationally. Families can also maximize their gifting potential by understanding federal gift taxes and staying within the annual exclusion limit for monetary gifts. 

Another factor that can influence generational wealth greatly is family dynamics. Having close family dynamics allows for the transfer of wealth intergenerationally and fosters conversations about estate planning and division of wealth amongst beneficiaries. The combination of all factors can be what influences someone who may not have previously benefited from generational to begin to create wealth to be passed on to the generation after them, allowing for the initial wealth to expand and be passed down, thus creating the cycle of generational wealth.  

Of course, the larger social structures and systemic barriers also influence the accumulation of generational wealth. They have an impact on the jobs you may have access to, the amount of financial literacy you may have been exposed to, and even having the ability to own property as opposed to renting. 

Best Practices

• Educate yourself and your family on financial literacy, focusing on saving, investing, and estate planning to build a solid foundation for future generations.  
• Explore opportunities for homeownership, investments, and higher education to create pathways for wealth accumulation and long-term financial stability.  
• Foster open conversations about wealth planning and family dynamics to ensure smooth wealth transfer and proactive estate management across generations.  

Strategies for Building Generational Wealth

Investments and Generational Wealth 

There are many ways of creating generational wealth, some more accessible than others. One way that a person can begin to create generational wealth is through investing.  Investing in the simplest terms is a commitment of resources now to achieve a larger benefit later. Investments are typically thought of as monetary investments into things such as stocks and bonds but can also include investments into oneself to increase generational wealth. In this section, we will discuss how investing in education, stocks and bonds, and real estate can all help create generational wealth.   

In the United States, there is a direct correlation between levels of education and income. Typically, the more education one receives, the higher the levels of income one can earn increase as well. A 2024 report from the United States Bureau of Labor Statistics noted that those with a master’s degree had median usual weekly earnings of $1,737 compared to $899 for those with only high school diplomas.   

Education is considered an investment because unfortunately, it is not without a significant upfront cost. Higher education is a cost that is increasing each year, with the average in-state tuition for a public 4-year university costing approximately $11,000 a year. Higher education can be financed with student loans, savings and out-of-pocket payment, scholarships, and grants.   

Consider opening savings accounts specifically for education that beneficiaries can use to pay for their education and continue the cycle of generational wealth! Whether you are investing in your own advancement, or preparing for the next generation, education is a high yield investment.   

Investing in the market is a great way to build generational wealth and does not have to be high risk or complex if you start small and start early. Financial investments such as stocks and bonds build compounding interest over time which makes them attractive for building generational wealth because of the long-term benefits.   

Compounding interest, simply put, is the interest gained upon interest. For example, someone saving money with a high yield savings account as opposed to a traditional savings account will gain more funds over time because of compounding interest. Investing in stocks and bonds can also yield compounding interest as well.   

Investing in the stock market can be intimidating, so one easy place to start is by investing in a 401k or any other retirement account. Retirement accounts are often provided as a benefit offered by employers, with some employers even matching contributions up to a certain amount. Keep in mind that the stock market is subject to volatility and can be quite unpredictable. If you are considering making financial investments, consider working with a financial advisor or contacting your financial institution for more resources and aid.  

Real Estate and Generational Wealth 

When it comes to generational wealth, the first thing that typically comes to mind is homeownership. According to the Urban Institute, homeownership is the main way people build wealth in the United States.

In addition to real estate, family businesses play a crucial role in contributing to generational wealth. These businesses, along with other investments, are significant elements in conversations about economic disparities and wealth concentration in society. 

Homeownership is a huge desire for many Americans, specifically for the purpose of creating and passing down generational wealth. Wealth by homeownership is considered one of the more attainable ways of creating generational wealth and is often associated with the “American Dream.” 

However, many people today feel as if homeownership may be out of reach due to high housing costs, stagnant wages, struggling housing markets, and other factors currently impacting homeownership. Despite these challenges, homeownership remains a large desire and motivator for many Americans. 

Purchasing and maintaining a home allows for the home to accrue equity, which is the key to generational wealth through homeownership. Equity is the difference between the amount owed on a home and the home’s value. For example, a person with a home worth $200,000 and a mortgage balance of $50,000 will have home equity of $150,000. 

Once someone has home equity, they can allow it to grow, convert it to cash if needed, or borrow against it using tools like home equity loans or lines of credit. If equity is left to grow, homeownership becomes one of the best assets to pass down intergenerationally. 

As a home is passed down, the mortgage balance typically decreases over time until the home is fully paid off. At that point, the beneficiary inherits the home and its equity. They can then choose to sell the home for its maximum value or maintain it and continue passing it down, perpetuating the cycle of generational wealth. 

Additionally, an heir to a property benefits from lower housing costs, freeing up funds to invest in other wealth-building opportunities. 

Homeownership remains one of the best ways to create generational wealth and should be made more equitable and attainable so all Americans can achieve their version of the American Dream. 

 Best Practices

• Start investing in your education by saving for tuition or exploring scholarships and grants to make higher education more affordable.  
• Begin investing in stocks, bonds, or retirement accounts like a 401k, and consider working with a financial advisor to maximize your investments over time.  
• Explore options for homeownership and begin building equity, even if it requires navigating current housing challenges or seeking down payment assistance programs.  

Future Generations and Moving Toward Equity

The Importance of Teaching Financial Literacy and Financial Education

Financial literacy is the understanding of financial skills and concepts that lead to healthy personal finances. It encompasses systems such as bank accounts, credit scores, budgeting, investing, debt, and savings. It allows one to build a better relationship with money, manage debt, and build healthy financial habits that can be taught to the next generation.   

Those with more financial education are more likely to take on smaller amounts of debt and manage debt responsibly. They are also less likely to make risky investment moves, more likely to save, and overall practice good personal finance habits.  

Without financial literacy, one may be more likely to take on high levels of debt, may not be aware of the best strategies for debt repayment, and may struggle with savings. There could also be uncertainty around investments, leading to more high-risk decisions. Financial literacy can make a stark difference in creating generational wealth, especially for those creating generational wealth for the first time.  

As with other systemic barriers, financial literacy has been a significant obstacle for marginalized groups, with limited access to financial education. As generational wealth is passed down, financial literacy is also passed down. Many people describe their relationship with money and personal finance as something passed down from their parents and families.  

However, discussions about finances are not always had among families, especially those from lower-income backgrounds due to the stigma associated with finances. The lack of financial literacy from earlier generations can be a hindrance to the next generation, who are not inheriting those learned personal finance skills.  

Fortunately, financial literacy is becoming increasingly accessible with the vast amount of financial education available online and through social media. Financial institutions are investing in financial literacy for their communities, nonprofit organizations are dedicated to providing financial education, and there are many other resources that can be utilized. Financial literacy is slowly becoming more accessible for all, which will increase generational wealth.  

Once you have learned the skills and know what options are available to you for wealth building, you are more likely to act on those skills, use the tools available to you, and begin building wealth for yourself and the generations to come.  

 Best Practices

• Invest in your financial education by exploring online resources, attending workshops, or reading about personal finance to build strong money management skills.  
• Take advantage of local and national programs that offer financial assistance, homeownership opportunities, and grants to help build wealth and overcome systemic barriers.  
• Advocate for policies that promote equitable access to financial education, affordable housing, and fair wages to help address the larger systemic issues contributing to wealth inequality.