Generational wealth refers to any kind of asset that families pass down to their children or grandchildren, including cash, investments such as stocks and bonds, real estate and family businesses. In some cases, assets are transferred after a person’s death in the form of an inheritance, while in other cases, assets are passed to the next generation while the person is still alive.
Managing your wealth with an eye on the future is an important way to create your legacy. Advance planning with your financial advisory team provides you with a plan for supporting the people and causes that are important to you and to create that plan while you are still in good health.
By focusing on the financial well-being of future generations, you can eliminate or reduce potential financial struggles your family might face, enable your children and grandchildren to focus on pursuing careers based on their passions and interests instead of worrying about how to pay for education, give to charities you believe in, cover medical needs for any family members who have disabilities or illnesses, and much more.
Here are four potential ways to create and preserve generational wealth.
1. Invest to outpace inflation
For your money to last multiple generations, it needs to earn consistent returns that are higher than inflation. When you diversify your portfolio, it can be designed to withstand market volatility and grow over time.
Investing to outpace inflation is one of the most important steps you can take to build generational wealth. There can be tremendous value in working with a financial advisor and his or her team to create a customized financial plan for you. Your team can help ensure your investments are diversified appropriately, based on your current situation and on your future goals. Your team can also evaluate your portfolio and work with you to make adjustments as needed over time, based on market fluctuations and your family’s changing needs.
Inflation erodes your purchasing power, and therefore your wealth, so we always account for this important factor when we create and adjust our clients’ portfolios. However, some asset classes perform well in an inflationary environment. For example, tangible assets such as real estate and commodities have historically been considered as hedges against inflation. Also, some specialized securities can maintain the buying power of your portfolio, such as certain sector stocks, inflation-indexed bonds and securitized debt.
I strongly encourage you to work with your advisor to focus on investing your assets in a way that outpaces inflation.
2. Talk about money
Another key to building and preserving generational wealth is creating a home environment in which you encourage your children to discuss their questions and concerns about money.
Historically, most Americans have been reluctant to discuss money with their families. According to a 2024 NerdWallet study, just 30 percent of Americans say their family talked about money when they were growing up. They were taught that money issues should be kept secret, so they tend to carry that unfortunate tradition forward with their own children.
One researcher says adults have a unique opportunity to empower their children by talking to them about money in ways that are age-appropriate and easy to understand and by serving as role models for appropriate financial behavior.
There are various reasons why money tends to be taboo in our culture.
One reason is that many people feel a lot of negative emotions about their financial situations, including fear, guilt and shame. As a result, they try to shield their children from the harsh reality that they are having a hard time making ends meet. The NerdWallet study also reports that stress related to money is nearly ubiquitous, with 84 percent of Americans feeling financial stress.
Another reason many people hesitate to discuss money with their families is that many feel intimidated by some financial topics. The NerdWallet study revealed that 79 percent of Americans find at least one financial topic intimidating. Topping this list are cryptocurrency (32 percent), investing (30 percent) and creating/sticking to a budget (29 percent).
3. Increase financial literacy in your family
The negative emotions that surround money-related discussions could be eased simply by increasing your own financial literacy — learning more about how to manage money — and that of your children. You can build opportunities for learning into your family money discussions.
For example, many parents tend to plan family vacations without involving their children. If this is the approach your family has taken in the past, try something new: have a family money meeting, and let everyone — including your children — weigh in on where to go for your next vacation.
Discussing various options and the comparison of costs will be educational for your kids. This is valuable teaching that your kids won’t learn in school. Also, it will show them how you make decisions based on cost factors, and it will teach them that it’s OK to ask questions about money and to discuss their worries with you.
I also recommend that you introduce your professional advisor team (financial advisor, CPA and lawyers) into your family conversations. This will ensure continuity in your planning and will help educate your family members so they can make wise choices based on ongoing advice from your professional team.
A 2023 FINRA Foundation study found that people who score higher on financial literacy measures are more likely to take three important actions: spend less than they earn, have an emergency cash cushion and calculate how much money they need to put in savings to fund their retirement.
Opening the lines of communication about money is the first step in making financial education a priority, and a habit, in your family.
4. Get your estate planning documents up-to-date
An estate plan is simply all the assets you have, including the money in your accounts and whatever you own. Everyone has an estate, not just wealthy people.
Estate planning is simply making a plan in advance, naming the people or organizations you want to receive the assets you own after you die, and taking steps now to make it easier for your loved ones to carry out your wishes later.
In your estate plan, you will specify instructions for your care and financial affairs if you become incapacitated before you die; provide for the transfer of your business upon your retirement, disability, incapacity or death; name a guardian to take care of your minor children and any inheritance; help manage taxes, court costs and legal fees; and much more.
You will identify executors, trustees and medical powers of attorney so your estate is handled the way you prefer when you’re gone. It is important for you to discuss your estate plan with your loved ones to make sure everyone is on the same page and prepared for what may lie ahead.
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By working with your financial advisory team to build and preserve generational wealth, you are, in essence, giving your children, grandchildren and future generations a “head start” in life. Chances are, you spent decades, through trial and error learning the most important strategies for building and maintaining wealth. By planning ahead, and by educating your famiily, you can help them avoid some of the mistakes and delays you experienced. Advance planning is the greatest gift and legacy you can provide for your family.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.
