How to Create Generational Wealth?

  • November 2, 2023
  • November 2, 2023
  • Shaz Nawaz
  • 12 min read

Around 20 million people could have forgotten money sitting in ‘lost’ bank accounts, savings accounts, pensions and investments, totalling an estimated £50bn. That’s according to asset tracing service Gretel.  

The table below shows how much unclaimed or lost money is held in each financial product, and the number of people estimated to be affected.  

Financial product  Total lost/dormant  Number of people affected (millions)  Average value
Pensions  £37bn  1.6  £23,125 
Shares  £2.5bn  £1,250 
Wealth and investments  £2.8bn  £2,800 
Bank and building society accounts  £4.5bn  10  £450 
Life insurance  £2bn  1.5  £800 
Child Trust Funds  £2.2bn  1m  £2,200 
NS&I premium bonds prizes  £60m  1.5  £40 

Creating generational wealth is a long-term financial strategy that aims to secure the prosperity of future generations. It involves employing various financial planning and investment techniques to build a substantial, sustainable financial legacy that can be passed down from one generation to the next. Establishing generational wealth requires a comprehensive approach encompassing financial education, strategic investments, and careful estate planning. By following these key steps, you can create a solid foundation for your future generations: 

1. Financial Education and Mindset Shift

To lay the groundwork for generational wealth, it’s crucial to cultivate a mindset of financial responsibility and literacy within the family. Educate yourself and your children about the importance of budgeting, saving, and investing. Encourage the understanding of financial concepts such as compound interest, asset allocation, and risk management. A solid financial education empowers each generation to make informed decisions about money.

2. Strategic Investment Planning

Diversify your investment portfolio intelligently. Consider a mix of low-risk, stable assets, such as government bonds or real estate properties, and higher-yield investments like stocks or mutual funds. Long-term investments can provide substantial returns over time, contributing significantly to generational wealth. Additionally, explore tax-efficient investment options and leverage available tax benefits to maximize returns. 

a. Invest in the stock market 

The stock market is a fantastic way to create wealth over the long term. If you want to begin building generational wealth, then it is a great option. It has the potential to continue growing for decades. 

Investing in the stock market might sound scary if you’ve never tried it. However, it is an important way for building generational wealth in your lifetime and beyond. 

If you are a new stock market investor, one of the best places to start is with low-cost index funds. These funds can offer low fees and long-term growth. If you want to learn more about stock market investing, we have a completely free course to help you get started. 

b. Invest in real estate 

Real estate is another major way to build wealth in the long term. With the potential for steady cash flows in addition to increasing values over time, real estate can be a reliable path to wealth. 

The idea of building a real estate empire can be intimidating. But it doesn’t have to be! You may have already waded into the world of real estate by getting a mortgage to purchase your first home. 

If you continue to buy properties one at a time throughout your life, then you might be surprised at how quickly your real estate portfolio can grow. 

Consider this as an option for building generational wealth for your kids. 

3. Business Ownership and Entrepreneurship

Building a successful business can be a powerful vehicle for creating generational wealth. Encourage entrepreneurial ventures within the family, nurturing a culture of innovation and risk-taking. Establish a robust business plan and explore opportunities that align with your family’s expertise and interests. Ensure that each business venture maintains strong financial management practices and operates with a clear long-term vision. Family businesses have the potential for great success—more than 30% of family-owned businesses transition to the next generation. Imagine being able to hand over the keys to a successful business to your children. 

Although not all family businesses make it to the second generation, it is possible that yours can. If your interests and abilities align with your children’s, then it is very possible they will want to take over the business you build. 

For a great chance of a successful transition, you should include your child in the business from a young age. They need to know how the business operates and how to successfully continue in that occupation. Don’t expect them to take over if they show no interest in the business you’ve built. If they are unable or unwilling to take over the operations, then you could consider selling the business to fund generational wealth in another form. 

4. Effective Estate Planning and Trusts

Implement a well-thought-out estate plan to protect and preserve assets for future generations. Consult with legal and financial experts to create trusts, wills, and other estate planning tools that minimize taxes and facilitate the seamless transfer of wealth. Consider setting up trust funds or family foundations to safeguard assets and ensure their continued growth and protection for the benefit of your descendants. 

5. Philanthropy and Social Responsibility

Instil a culture of giving back to the community and society. Encourage family members to participate in philanthropic endeavors and support charitable causes that resonate with the family’s values. Engaging in philanthropy not only fosters a sense of social responsibility but also helps to create a positive legacy that extends beyond financial prosperity. 

6. Invest in education 

Investing in education is a fundamental strategy for securing future financial success. By providing children with a robust education, they gain essential skills and knowledge vital for navigating complex financial landscapes.

To ensure effective implementation, it’s crucial to craft a well-rounded educational approach that includes not only academic learning but also instils financial literacy, promotes continuous learning, fosters entrepreneurial skills, and facilitates access to networking and mentorship opportunities. This multifaceted educational strategy sets the stage for the younger generation to make informed financial decisions, pursue entrepreneurial ventures, and stay adaptable in a rapidly evolving global economy, ultimately contributing to the growth of generational wealth.

In many cases, education can provide a way for your children to support themselves. With a college degree, many frequently have the opportunity to pursue high-paying jobs that can help them navigate their own finances. 

Anyone with an education will always have that education. Although other things in life can come and go, no one can take away your education. If you have the ability to help your children make it through college without any debt, then you are helping to set them up for a brighter financial future than many of their peers. 

Imagine the amount of financial pressure you will be able to lift from your children’s shoulders with the ability to pay for their education. Investing in your child’s education is a great way of creating generational wealth that will set them up for financial success! Teach your children about personal finance 

Since you are interested in passing on family wealth, then you likely have a fairly good understanding of personal finance. Make it a priority to pass this knowledge down to your kids. It will be the best way to build and protect wealth. 

There are many ways to broach the topic of money with your kids. You can buy children’s books about money, teach them through games, or show them by allowing them to listen as you talk through financial decisions. 

You can even help them to set up their own bank accounts from a young age to instill the importance of saving for the future. Our course on teaching kids healthy financial habits is a great place to find resources to share money knowledge with your kids. 

7. Diversify your investments

Diversifying investments is a pivotal strategy for maximizing long-term returns. It involves spreading investments across various asset classes, such as the stock market, real estate, and other high-yield opportunities, to mitigate risks and capitalize on potential market growth. Effective implementation of this approach requires thorough research and a comprehensive understanding of different investment vehicles, market trends, and risk profiles. By carefully balancing the portfolio with a mix of low-risk and high-yield assets, individuals can safeguard their wealth from market volatility and position themselves for greater financial stability and growth over time. 

8. Take advantage of life insurance 

Life insurance provides the opportunity to protect your family in the event of your untimely death. Without your income, your children might be forced into less-than-ideal financial circumstances. 

If you make the effort to invest in a life insurance policy now, then it could prevent financial tragedy for your children. Plus, they will already have enough to cope with if they lose you. Life insurance is an important financial tool to safeguard your family’s financial future. 

9. Create multiple streams of income 

When it comes to how to build generational wealth, creating multiple streams of income is a smart way to go. 

There are a variety of income streams, but one of the best is known as passive income. Active income is when you trade time for money, such as a job or side gig. 

Passive income is when you earn from your assets after the initial set-up without much time. For instance, rental properties, book royalties, peer-to-peer lending, etc. So you do have to put in the work upfront, but once the initial foundation is laid, you continue to earn from your efforts. 

So you could write a book and continue to earn income on the royalties years later or buy a house to rent out and make rental income. Start setting up passive income streams to build wealth! 

10. Pay yourself first 

Saving money for the future is key when it comes to how to create generational wealth. The easiest way to save more money is to pay yourself first. For instance, as soon as you get your paycheck, you deposit money into your savings and investments before anything else. 

This way, you don’t spend your hard-earned cash, and you can build up your savings much faster. Of course, it’s best to earn money on your money, so be sure to find a savings account that pays interest. 

You should seriously consider investing some of your savings so you can earn a higher return and in turn build long-term wealth. 

11. Give gifts to your family 

A great way to pass on an inheritance, wealth, and also family heirlooms is by giving gifts to your family members. There are many ways to do this. 

For example, you might buy your kid’s or grandkid’s first house. Another idea is to give appreciating assets as gifts, such as artwork or jewellery. These are both heirlooms and wealth-building opportunities. 

Basically, you want to pass on gifts to those in the next generations so that they can add to their net worth. 

12. Pay off debt 

Paying off debt is part of creating generational wealth because when you don’t owe money, you can build up your assets much faster. 

Pay off debt as soon as possible, and that way the next generations can maintain and add to the wealth that you’ve created. Be sure to make a plan to pay off credit cards, loans, and medical bills as quickly as you can so you can start creating more wealth for future generations. 

Key challenges in building generational wealth

Key challenges in building generational wealth

Knowing how to build generational wealth is great, but there are challenges to doing so. That said, it’s important to be aware of these challenges so you can prioritize wealth-building and become part of changing the narrative. 

Lack of wealth management education for the next generation 

Did you know that 70% of families lose the wealth they’ve built in the second generation? And 90% lose it in the third! 

With statistics like that, it can seem pointless to save for a legacy of wealth. However, in many cases, the loss of generational wealth can be prevented through financial education. 

If you build wealth your whole life but fail to educate your children about wealth management, it’s going to be quite challenging for them to maintain what you’ve built. That’s why financial literacy is so important! 

It’s a smart use of your time to also teach your kids about budgeting, saving, investing, and keeping money organized. You can involve them in your budgeting process and you can also explain financial terms and concepts to them as they get older so they understand how money works, what they will need to do to maintain wealth, and how to create generational wealth for their own legacies. 

Learn how to build generational wealth for you and your loved ones today! 

Now you know how to go about building generational wealth! Building wealth to last for generations is no easy feat, but it is an admirable undertaking. After you have your own financial situation under control, safeguarding your family’s future is the next step. 

Take the time to implement a wealth-building strategy that works for your family. Not everyone wants to invest in real estate or build a business, so find something that works for your situation. 

Whatever strategy you choose, make sure to pass down your financial know-how to your children. Armed with the personal finance knowledge you can provide, your kids will already be one step ahead of the game as they make their way into the world! 

Conclusion

In conclusion, the creation of generational wealth demands a combination of financial education, strategic investments, entrepreneurial spirit, effective estate planning, and a commitment to social responsibility. By following these steps and fostering a culture of financial literacy and responsibility within the family, you can build a lasting legacy that benefits future generations and contributes to their long-term financial security. 

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