If you spend any time on #MoneyTok, you know that generational wealth is a big buzzword. But how do you take generational wealth from a hashtag to a real money goal that you can crush? Here are four easy ways you can start making money moves for yourself and your family.
First off, what is generational wealth?
It’s when you have enough wealth to pass on to future generations of your family. And not just money from a family trust. Other assets count as generational wealth, too. Think: the family business you started or the house you own.
Is generational wealth really a money goal worth working toward?
Yes. Because it helps future generations get a financial head start. Which could set up your kids, grandkids, great-grandkids, and beyond for success. Examples: Less (or zero) student loan debt because they have enough to cover college costs. Or money to make big investments because they aren’t starting from scratch.
But building up generational wealth requires a good plan and a lot of work for many Americans. Particularly women and people of color.
What challenges keep people from building generational wealth?
The hard truth is a number of systemic obstacles (like the racial wealth gap) make building generational wealth tougher for some than others. Here’s a breakdown of the challenges that created today’s generational wealth gaps.
Discrimination in the housing market has made building generational wealth through homeownership especially tough for Black families. Quick history lesson: From the 1930s to the late 1960s, Black neighborhoods were commonly labeled as hazardous areas. Which led to lots of mortgage loan denials and lower property values in low-income neighborhoods. The process, called redlining, is one reason why homes passed down in Black families have a lower value than homes passed down in white families. And while redlining was outlawed in 1968, the impact is still felt today. In 2019, a Fed survey found that Black family homes were valued at an average of $150,000…while homes owned by white families had an average value of $230,000.
A gap in savings for Blacks and Latinos also creates a challenge when it comes to generational wealth. A 2022 poll found that white adults are more than twice as likely than Black and Latino adults to get financial help from older relatives. And over 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, generational wealth 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 the same year. One major cause: women usually take a hit to their paycheck when they have kids (aka the motherhood penalty). Psst…negotiating your salary is a great way to start closing the gap.
Any advice on how to build generational wealth?
Here are some small steps you can take to make big progress on crushing those generational money goals:
Talk about money with your family
Generational wealth starts with financial education. Which 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 start building that family budget. And if you feel like you could use some help, these books are a great way to start brushing up on your financial literacy.
If you don’t have a ton of extra money to invest in the stock market, it helps to start small (think: that extra $5 you found while doing laundry). It can be a really good way to start growing passive income. Aka money that grows even when you’re not paying attention or doing any work. And stocks aren’t your only option. There are mutual funds, ETFs, and even opportunities in the metaverse.
Buy real estate
Because it’s one of the main ways Americans can build wealth. Plus, buying a rental property you can pass down can add to your future relatives’ wallets. Important, because housing is most people’s largest expense.
Create a business
What’s a common interest between you and your children? It’s no easy feat, but it might be worth turning it into a small family business. The Conway Center for Family Business found that over 30% of family businesses make it to the second generation. Meaning, setting your kids up to run and profit off of the family biz. And even if your future relatives aren’t interested in continuing in your footsteps, selling a business is another way to profit.
How can I tell if I’m on 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 funds, and life insurance policies are also good starting points. And if you haven’t started, don’t stress. 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 tougher for people of color and women because of systemic obstacles stemming from decades of discrimination. The good news: No matter your background, there’s an action you can take to build lasting wealth for your family.
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