It’s an exciting time to create generational wealth! Really! I’ll cover the many forms of generational wealth, how to build it even if you’re not rich, and some women who will inspire your journey. They all inspire me!

How Do You Define Generational Wealth?

“Generational wealth” is a scary phrase. For a lot of women, “wealth” feels unattainable. And “generational” implies, well, someone died. Fun times. 

But generational wealth simply means passing along something of value from one generation to another. It means leaving behind more than you were born into. It’s making sure that each generation is wealthier than the last, in whatever way is meaningful to you.  When you create generational wealth, even in a small way, you help ensure your family’s financial security and health long after you’re gone. Even if the “wealth” is modest.

That wealth can mean different things for different families. For some, it may mean passing on real estate such as a residence or a rental property. For others, it could mean including the next generation in business ownership, whether that business is small or a major corporation. Finally, it could mean passing on investments or good old cash money.

One type of generational wealth often overlooked is the transfer of financial knowledge. Helping your children, grandchildren, nieces, and nephews understand how to manage their money, stay out of debt,  and build financial security is a type of wealth that can never be taken away from them. 

Do You Have To Be Wealthy To Create Generational Wealth?

Absolutely not! In fact, generational wealth is even more powerful for the pre-rich, who can use it to give the next generation a leg up on closing the wealth or income gap. Think of it as moving your family forward financially, even after you’re gone, rather than a trust fund.

Why Is Building Generational Wealth Important?

If you’re reading this, I don’t need to tell you money can change a lot of things. But it’s more powerful to create generational wealth than to make, save, spend and enjoy during your life. First, passing on something can help the next generation close the income and wealth gap, especially for women and people of color. Second, it gives the next generation more options than you had. A woman with a little bit passed down for her education may have fewer student loans, for instance. Finally, it gives you the ability to offset inequities in other parts of your family. For instance, even in America males inherit more than females and also have more set aside for their education. A Grandma or Auntie who is mindful of their Legacy can change that trend. 

The Problem With Generational Wealth

The big challenge of multi-generational wealth: you have to build it, but you don’t get to spend it. This is one of the most selfless gifts to give your family.  For most people, building wealth is hard, it takes a long time, it requires diligence and you don’t even get to enjoy it. Literally the longest game in financial planning. Two pro tip: set your mind around this from the start, and use auto-saving and auto-payment tools, so you don’t have to think about it often. 

How To Create Multi Generational Wealth – Even If You’re Not Wealthy

Fortunately, there are many ways to build generational wealth. We will cover some options, but remember to be creative. The best thing my grandmother Flossie, who was not a wealthy woman, blessed her children with was her cabin, a place dear to all seven of her grandchildren who diligently maintain the orange linoleum floors. 

Term Life Insurance Is The Cheapest Way To Build Generational Wealth

Life insurance is particularly powerful for single moms, and something we believe in strongly for most women. It’s a great answer to the question of how to build generational wealth after you’re gone.

Here’s the math on term life: you pay a small amount every month for several decades and if you die during the “term” of the policy, your kids or grandkids get a MUCH larger benefit. For instance, my life insurance is about $400 a year for $1,000,000 to be paid to my husband if I pass away. It’s hard for women to pay life insurance premiums for twenty or thirty years because it feels like there’s never any payoff. My best recommendation is to automate the premium payment, so it never hits your bank account. Try to get it paid the day after your paycheck hits or use a separate account to pay it, such as a sinking fund.

Fund Your Retirement, Disability And Healthcare 

One of the biggest financial challenges for women, particularly Millennial and Gen X women, is that we’re more likely to support their parents in retirement. While noble and important and I fully support anyone doing it, supporting parents comes with some particularly tough math.  Consider this:

Your retirement will most likely happen when your kids are under 40 – still early in their professional lives, not yet at peak earning, but likely with dependents of their own. But they still have a lot of time to let compound interest work for their kids’ education, their own retirement – to build wealth for their generation. When they pay your bills, they lose the advantage of investing money during the part of their financial journey that is cash-poor and time-rich. 

Anything you can do to cover as many of your future expenses as possible – an HSA to cover your medical care, full contribution to a 401k if you have one, maintaining your health insurance, funding disability insurance, or just plain saving. Take the money if you need it, but take pride in every dollar you put away. It’s a gift you give your kid.

I will also add an important caveat here: I just wrote that section as a white woman who comes from a culture in which her only living parent would rather eat moistened dog food until she shriveled up than take a dime from her kids. The expectations and pressures vary widely across cultures and are debated differently and widely within those communities. It’s an incredibly significant topic. If you want a perspective on this, I recommend the following women, who I have learned from.

Teach Your Children About Personal Finance

You don’t have to be a rich mom to help your kid learn about money. I’m sure your driving record isn’t perfect, you dated some Duds, and made some bad fashion calls and mistakes with money. 

Everyone has made mistakes with money. Everyone. Even Bill Gates and Beyonce. You can still teach your kids as you figure it out (doesn’t that describe parenting??). 

To make it easy and fun, check out fantastic Instagram accounts that focus on teaching kids about money even if they’re very little. 

How to Teach Kids to Create Generational Wealth

There are so many ways to get kids involved in finances. Here are a few ideas:

  • Practice saving, budgeting, spending, and even investing small amounts. Many credit unions and local banks have accounts oriented for kids, with incredibly low minimums and fees. This makes finances concrete. 
  • Walk them through the first two pages of your tax return (form 1040) – these two pages have the major highlights of your family’s income and how Tax Works. If this sounds intimidating: the 1040 is secretly a pretty easy play-by-play, because every line has a label.
  • Just get them comfortable discussing money – it gives them a tremendous advantage.

If you don’t feel comfortable incorporating your kids into your actual financial planning, there are still so many options. Bonus on these: they cost nothing.

  • Pretend investing. One of my most powerful investing lessons came from my 9th grade economics teacher, who had all his students research and “buy” a stock. He quizzed us on why we purchased it, discussed what factors might impact the price, and we all watched to go up and down over the course of the semester. Did I know what I was doing? Absolutely not. Did I get comfortable with the concept of the stock market? Absolutely. It was also totally free. 
  • Raid your local library and read up together. Ours has 64 books on Personal Finance, and they are all written at an 8th grade reading level (this is the level most business books target, if not lower)l. This means two things: First, personal finance books are accessible to your high schooler. Second, it’s easy for you to break down the ideas for younger children. Pro tip from my mom: you can bribe kids to read and give you an oral “book report” to get their $5. You don’t even have to read the book. (Caution: she rocked this move for years, for quarters, and ended up with me)
  • Check out the games and videos at Next Gen Personal Finance, a non-profit dedicated to getting personal finance curricula to every student.

Help Your Kids Reduce Student Loan Debt

70% of college students take out loans (according to Student Loan Hero) and have an average debt of $29,900. I took out student loans, and they are a reality for most American families. But they tend to be much larger for students from families who also don’t have a lot of generational wealth to pass on. Plus, research shows first-generation college graduates have lower incomes when they graduate. 

Anything you can do to reduce a college graduate’s debt load gives them a better chance to build multi-generational wealth themselves. Young people have a lot of time on their side to build a healthy base. Even if they’re in their 20s and think their parents are gross, keep checking in on their financial picture. Post-college is a peak time for debt to pile up. 

How To Build Generational Wealth – The Pro Moves

I will write a separate post on this, but here’s a quick overview of traditional financial planning moves to create generational wealth. Don’t proceed with these until you have built an Emergency Fund.

Invest In The Stock Market – Even a little bit

You can leave a brokerage account to a kid VERY easily by just naming them as a beneficiary, and there are lots of tax advantages to inheriting stock. Investing a small amount of savings will help you grow your money, allowing you to pass on more. It’s also really easy to start small:

  • Open a free account with Fidelity (my pick, not an ad) or Schwab
  • Name your kid as a beneficiary. Tell them about it if you want. Or not.
  • Auto-deposit straight from your paycheck – Start with $10
  • Auto-invest in a NO FEE index fund
  • Lose the login until you get a raise, then move the deposit amount up. 

It will compound at a rate of roughly 5%, conservatively accounting for inflation. In 30 years, $10 a month turns into $8300. Check out investor.com if you want to play with the numbers.

If you’re intimidated by setting up a brokerage account, set up a zoom with me and I will walk you through it for free. I am very happy to enable any woman or non-binary person to start their path to wealth. Seriously. calendly.com/ClaireAskFlossie

Buy A Home – Even a Modest One

Renting vs buying is a HAWT topic in personal finance. But one benefit of owning a home: you hand your beneficiaries your net equity. Much like stocks, the real estate receives a “step-up” when it is handed down after your passing. This is a big tax advantage and gives your heirs more financial wiggle room to make decisions. However, if your mortgage balance is more than your house is worth, you’re giving your heirs fewer options. Homeownership is how most Americans pass down generational wealth, so even if your home is modest, you’re in good company.

Invest In Real Estate – Cash Flow And Multiple Income Sources

Real Estate is great… if you like real estate. It is a lot of work to make it passive, when you’re new to it, there’s a pretty steep learning curve. So it’s not the wealth vehicle for everyone. However, if you can stomach a midnight Saturday plumbing crisis, vermin, the occasional fire, and the complexity of a lender application, there are a lot of upsides to passing on an investment property. The real estate receives VERY favorable tax benefits. It can create regular cash flows (around 4% when you have it dialed in). You can pass it on to multiple people, so each of your kids can have a share without selling it. And it gives you some flexibility in your lifetime if you need to liquidate it. I say this as someone who invests in real estate. I love it, but there is nothing passive about it. So don’t make it the foundation of a plan to build wealth for a die-hard renter. 

Build A Business To Pass Down 

The most common way to create generational wealth is a functioning business, although it’s not a sure deal. I have seen this trend in my own family: only about 30% of family-owned businesses make it to the next generation. If a business is a cornerstone of your plan, make sure your kids are interested in it or talk to a financial advisor about how to cash out. You can also hand down a side hustle. It doesn’t have to be a Fortune 500 company.  

Antiques And Heirlooms And Collectible Items

Like many women, I have “inherited” more than my fair share of beat-up, multi-generational hand-me-down furniture. We are not talking about that! We’re talking about items with either significant sentimental or market value. Like other assets, these get re-valued when they are inherited, so they have a favorable tax treatment. You need a will or trust to assign them 

How Can Grandmas And Aunties Create Multi Generational Wealth?

You don’t have to have kids of your own to change the life of kids in your family or community.  There are a couple of great ways that you can pass on money tax-free, in addition to the strategies above. 

The main point: pay the institution directly whenever you can. 

  • Medical expenses: When paid to the medical care provider, this is not a taxed gift. Major medical expenses are one of the biggest causes of debt in our country, so paying hospital bills is a great way to efficiently pass down your money. 
  • Educational expenses: Similarly, you can make tuition payments directly to an educational institution. These are tax free, but if you’re going to pay room and board, fees and other expenses (about 60% on average of the total costs), keep it under $15,000 or you’re subject to tax, per below.
  • Gifts: Anyone can give anyone else $15,000 every year without paying tax. If you and your partner both give a gift to one child, you can double it to $30,000 per year tax-free. You can do more than that, but you have to pay an additional tax and file a form. A common scenario here is helping with the mortgage down payment on the first home.

Will I Have To Pay Estate Tax?

Probably not, which is why I put this at the bottom! Fewer than 0.1 percent of the people who died in 2020 were required to pay in 2020,  according to the Tax Policy institute. The threshold is currently $11 million, per person, so unless you are Beyonce rich, you do not need to worry about it.