How to build and protect generational wealth

Many adults want to achieve financial stability for themselves and hope to build a solid foundation for their children and grandchildren. Proactive planning and a commitment to healthy money habits can build generational wealth and create a lasting legacy that promotes greater financial freedom and opportunities for your loved ones.

What is generational wealth?

Generational wealth can help secure a family’s financial future by passing down assets and resources from one generation to another. This can include financial assets like money, investments, property, savings, or businesses. For example, passing down a successful family business can provide income and opportunities for younger generations.

Why generational wealth is important

Generational wealth aims to give younger family members a financial head start and help them achieve economic stability that is then passed on to future generations. By accumulating and preserving assets over time, families can help provide their children and grandchildren with the resources they need to thrive economically, pursue their goals, and enjoy a higher quality of life. This may include attending college, exploring an entrepreneurial venture, joining a family business, or being able to enter the workforce with more financial confidence. Additionally, sharing generational wealth can foster a sense of responsibility and stewardship among family members, encouraging them to manage and grow the family's wealth for the benefit of the younger generations behind them.

Ways to create generational wealth

Creating generational wealth can begin with small steps and includes financial planning, education, and adopting beneficial money management skills. This may involve setting up a diverse portfolio, saving assets, establishing an estate plan to pass forward those assets, and contributing directly toward investments that will benefit your children or grandchildren, such as their education.

Building financial literacy in your lifetime and educating children about making smart financial decisions is also key to establishing generational wealth. Strategies for setting a family up for generational wealth include:

Generational investing

Investing early and creating a comprehensive financial portfolio may provide a greater opportunity to build savings for the future. Diversifying investments across different asset classes and alternative investments, can help reduce risk and maximize returns. Long-term growth investments can also allow a person to take advantage of compounding interest. Even small contributions made consistently over time can grow significantly into substantial wealth.

Generational financial planning

Similar to personal financial planning, generational financial planning includes many of the same factors but also considers the needs and goals and of the whole family. Different things may influence financial decisions as you plan for a distant future rather than the near future. For example, preserving income by minimizing debt, living within your means, taking advantage of tax benefits, and prioritizing long-term financial security over short-term gratification.

Meeting with a financial professional might provide valuable guidance on creating a financial plan that is built around saving, investing, and asset protection goals, building wealth over multiple generations. You might also develop a clear plan for transferring wealth and assets, while considering factors such as estate taxes, inheritance laws, and family dynamics. This can be a good time to establish a trust, create a will, and explore other estate planning tools that help ensure a smooth transition of wealth.

Proactive planning for the future

Generational wealth can create a powerful snowball effect, passing on lasting financial advantages from generation to generation. Adding life insurance and annuities to a holistic financial plan might help create a strong legacy and show loved ones how much their financial well-being means to them. As your children and grandchildren grow, they too can demonstrate positive money habits and carry on the family legacy of supporting each other and opening doors for those who follow.

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The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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