9 min read

How to Build Generational Wealth

It's an unfortunate fact of life that people born into wealth tend to get wealthier, whilst people born into poverty typically get poorer. The ability to build generational wealth and pass on inheritance is a key factor in explaining these persisting inequalities. With access to financial literacy, a family business, the property market or a family trust generating key barriers to create wealth, savings and capital growth. In this blog post, we uncover some key strategies to break down these barriers. Offering accessible information on all things stock market, property investment advice and family trusts to help you build wealth for future generations, and prevent family members getting trapped in a lower wealth bracket.

Children playing with Jenga blocks

It's empowering to take steps towards your financial goals, and provide for future generations in the process. But before we dive into how you can build generational wealth from any start monetary value start point, it's important to understand how the cycle works. Below, we cover all things:

  • What is generational wealth?

  • Why the generational wealth cycle matters: working for or against you

  • Practical tips on how to build generational wealth

What is generational wealth?

Generational wealth is when financial assets are passed from one generation of a family to the next. These assets can refer to financial savings, stocks, bonds, property or even businesses.

How does generational wealth work?

The wealth you're born into can either work for or against you. With the financial situation you're born into setting you on a trajectory with either more barriers or opportunities to a better life.

It's how inequalities persist through generations. But with the right use of funds, it's also how you can make a small difference to the family members of your future.

The cycle: when access to financial assets works for you

Access to more financial assets can kickstart a generational wealth cycle when a family is started. Let's follow a first generation family member; from a young age, they will receive access to their family's assets and income.

This will help them gain access to better education, better healthcare and better job opportunities, as well as other forms of network benefits from being integrated into a high income family group.

They might even have access to further cash flow through a family trust, which can sustain their net worth for a long period or can offer an emergency fund to insure against any risky business ventures.

This person is more likely to have a higher degree of financial education, which opens up even more cash flow opportunities through employment, investment properties, the stock market, and entrepreneurship ventures with long term growth trajectories. They'll also likely have access to greater investment advice, financial planning and estate plan tools because of their financial situation.

This starting point assists these first generation family members in building wealth, which is then passed on to second generation, next generation and future generations beyond that. The loop continues when lasting wealth creates lasting privilege, inheritance and lasting access to trust's income or other tools to build wealth even further.

But do you really need this inheritance to build wealth?

Not exclusively. There are cases where people have started businesses, raised wealth and had immense success after coming from nothing. But it's a few cases. And the reality is, that not having access to generational wealth creates a huge disadvantage for building your own.

The opposite of the above cycle is the harsh reality for people born into lower income families- where sadly, the cycle isn't working in their favour.

Before you’ve even had a chance, your ability to access good education, healthcare networking opportunities and an expansive career are undermined by a lack of funds.

And as if this false start wasn’t bad enough, a lack of financial education, investment properties and family trusts will create further barriers to building wealth and savings. This then blocks access to the property market, the stock market and the consequent ability to build a real estate portfolio or invest in capital growth opportunities.

Just like the advantage of the rich, this financial situation is passed onto the next generation. With family members continuing to find themselves stuck in a lower income bracket, with more barriers in their way than open gate opportunities.

So, what can be done to get you on the right side of this cycle? Next we turn to some practical strategies for building generational wealth. Improving your financial position, with the added benefit of supporting your future family as well.

How do you build generational wealth?

Generational wealth can be built through a whole range of different assets including:

  • Savings;

  • Cash;

  • Investments;

  • Real estate;

  • Family businesses;

  • Other valuable items such as antiques and heirlooms; or

  • Life insurance policies.

    In terms of actionable steps that you can take to build generational wealth, there are a few strategies you can use:

1 – Set up a trust

A trust fund is where your assets are placed into an account that is held by another person. A family trust allows you to set this up as a legal entity in your estate plan, so that cash flow from investments, businesses or rental income go directly to your family group.

This represents a great tool to enable other people, namely second generation and generations beyond that, to benefit from your existing wealth, real estate and investments. It can hold multiple kinds of assets such as:

  • Real estate;

  • Property;

  • Stocks;

  • Cash;

  • Bonds; or

  • Items of high value (such as antiques or fine art)

The main advantage of using a trust is that any accumulated money is properly controlled so that the recipients receive the most benefits. A trust income can be a meaningful way to create a legacy, as well as engage in long term asset protection. It can also be used for tax purposes to control the direction of rental income, high growth investments or further capital gain.

For more information on family trust distributions, or choices over a discretionary vs testamentary trust deed, you can refer to our informative blog on the topic.

2 – Invest your money

Investments have become a popular way to generate wealth among younger generations in recent years. This is because an investment represents an easy way to ‘set and forget your money' - meaning you put aside income with low fees, and leave it to accumulate without any active effort.

With so many free, online resources now readily available at our fingertips, many investors are taking matters into their own hands when it comes to financial education. Marking a savvy use of undistributed income, young people across the country are experiencing capital growth, and building their income in the process.

Investment options that you can consider include:

  • Stocks

  • Bonds

  • Cryptocurrency

  • Mutual and exchange-traded funds

  • Retirement investments accounts

  • Annuities

  • Real Estate

Building generational wealth can become a lot easier with investing. The costs involved relative to the gains depend on interest rates and whether the portfolio has a high growth rate. Even with this in mind, investment of your money can be a productive use of undistributed income otherwise just gathering dust.

3 – Start a Family Business (that will eventually be passed down)

If successful, a business can be a speed ticket for building generational wealth, as well as passing down a legacy to future generations. With maintenance costs in mind, your children or grandchildren may choose to sell the business and invest the proceeds further down the line.

However, regardless of how they choose to manage it, a successful family business represents a real investment in the future of your family group.

Sounds like a lot of effort. So what's all the fuss about?

Why is building generational wealth important?

As we covered at the start, your financial situation dictates the trajectory of your own, as well as your family members' futures. Meaning an investment in smart money use goes beyond generating future income, and instead sets up future generations for success. Below, we dig deeper into why you might want to reconsider your efforts in building generational wealth.

Money choices create future opportunities

Making financial provisions for your children or grandchildren via a trust deed, investment property, or inheritance money can provide an opportunity springboard for them to build on this income further.

Whether it's through how they use this money directly as an adult or the opportunities presented to them as a kid- being born into a richer family stands to benefit your future family members. Both in terms of access to education, healthcare and employment opportunities, as well improved mental and physical health outcomes associated with higher income status.

Triggers a long term chain reaction

Your future kids and grandkids are statistically more likely to be happier, healthier and live longer, just from being born into a greater degree of generational wealth. The same goes for their kids too.

Whether we like it or not, individuals who have access to family wealth have a bigger advantage in life than those who don't. And strategies like investment in real estate, or the establishment of a trust deed take active steps to set future generations up for this positive trajectory of success.

FInancial freedom

Day to day, access to greater generational wealth looks like a future of being able to pay off debt and mortgage payments, invest in real estate, and even start a business. Money creates freedom, and investment secures this income in. Making provisions ahead of time will provide cash flow opportunities to future family members that you might not have had. And when it comes to generational wealth, every little counts- with even a little going a long way.

When to start thinking about generational wealth?

The most important step in building generational wealth is to start as soon as possible. Wealth generates overtime. So the earlier you start, the more investment property you gather, more rental income you receive and more trust income you have to distribute amongst your future family.

Protect your wealth & investment property today

So, you've put in the ground work, committed to the long game and laid the foundations to start building some serious generational wealth. Now's your time to protect it. And crucially, put the legal provisions in place to ensure your money flows where you want it to.

Get started on your estate plan today

Writing your will is essential to protect your assets. Granting you peace of mind that your money, rental income and investment property will be passed onto your future family group without the stress, cost or time delays of complications.

It's also the perfect time to establish your family trust, and lay out who the trust's income will distribute money to in future.

How Safewill can help

We offer a simple, affordable and flexible way to write your Will, online, today. Saving you money and time, whilst offering the same level of expert legal support offered with a traditional will. The difference? Your Will writing works around you. And you can update it any time and any place without additional hefty legal costs.

Get in touch today

To discuss further how we can help you in your time of need, call us on1800 103 310 , or via livechat now.

Last updated 22nd December 2021
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Lauren Barrientos
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