If you spend time on #MoneyTok, you know that generation wealth is a big buzzword. But how do you bring generational wealth from a hashtag to a real one money target that you can crush? Here are four easy ways you can start making money for yourself and: your family.
First, what is generational wealth?
It is when you have enough wealth to pass on to future generations of your family. And not just money from a family trust. Other assets also count as generating assets. Think of: the family business you started or the house you own.
Is generational wealth really a money goal worth working towards?
Yes. Because it helps future generations gain a financial edge. What could make your children, grandchildren, great-grandchildren and more for success. Examples: Less (or Zero) student debt because they have enough to cover college costs. Or money to earn big investments because they don’t start from scratch.
But building generational wealth requires a good plan and a lot of work for many Americans. Especially women and people of color.
What challenges are holding people back from building generational wealth?
The hard truth is some systemic obstacles (such as the racial wealth gap) make building generational wealth more difficult for some than others. Here’s an overview of the challenges created by the current wealth gaps between generations.
Discrimination in the housing market has enabled generational wealth building home ownership especially difficult for black families. Quick history lesson: From the 1930s to the late 1960s, black neighborhoods were often labeled as dangerous areas. Which led to many mortgage rejections and lower property values in low-income neighborhoods. The process, called redlining, is one of the reasons why homes passed down in black families have a lower value than homes passed down in white families. And although redlining was banned in 1968, the impact is still felt today. In 2019, a Fed survey found that homes owned by black families were worth an average of $150,000… while homes owned by white families had an average value of $230,000.
A savings gap for blacks and Latinos also poses a challenge when it comes to generational wealth. A poll 2022 found that white adults are more than twice as likely than black and Hispanic adults to receive financial help from older relatives. And more than 38% of white adults have received a gift or loan of at least $10,000 from family members. That number drops to 14% for black adults and 16% for Latinos. In black and Latino families, the wealth of generations is more likely to be reversed because adult children are often financially responsible for their older relatives.
The gender wealth gap is no help when it comes to building generational wealth as a woman. Even today women take home lower salaries than men in the same roles. In 2020, a Pew Research study found that women earned 84% of what men earned in the same year. A major cause: Women usually get a hit on their pay when they have children (also known as the maternity penalty). Psst…negotiate your salary is a great way to close the gap.
Any advice on building generational wealth?
Here are some small steps you can take to make big strides in crushing those generational money goals:
Talk about money with your family
Generating power starts with financial education. That means it’s time to start talking to your kids about budgeting, credit, and everything in between. ASAP. Because studies show that we start building our money habits as early as age 7. The good news: there’s never a wrong time to build that up family budget. And if you think you could use some help, these books are a great way to brush up on your financial literacy.
If you don’t have a lot of extra cash to invest in the stock market, it helps to start small (think: that extra $5 you found in the wash). It can be a very good way to start growing passive income. Or money that grows even if you don’t pay attention or do no work. And shares are not your only option. There are mutual funds, ETFsand even opportunities in the metaverse.
Buy real estate
Because it is one of the main ways Americans can build wealth. In addition, buying a rental property that you can pass on can add to the wallets of your future relatives. This is important, because housing is the largest cost item for most people.
Create a company
What is a common interest between you and your children? It’s not an easy task, but turning it into a small family business can be worth it. The Conway Family Business Center found that more than 30% of family businesses reach the second generation. This means getting your kids ready to run and take advantage of the family business. And even if your future relatives aren’t interested in following in your footsteps, selling a business is another way to make a profit.
How do I know if I’m on the right track to build generational wealth?
If you’re already following at least one of the wealth-building tips above, you’re on the right track to building generational wealth. wills, trust fundsand life insurance are also good starting points. And if you haven’t started yet, don’t worry. Because it’s never a bad time to start. A good first step? Work on your savings so you can afford to invest in your family’s future.
Building generational wealth is a marathon, not a sprint. But it’s even more difficult for people of color and women because of systemic obstacles stemming from decades of discrimination. The good news: Whatever your background, there is action you can take to build lasting wealth for your family.