You may have heard the term “generational wealth” but pushed the idea to understand it to the back of your mind as you have more immediate needs such as saving money, getting rid of debt, or reaching your financial targets. You may not have generational wealth on your priority list as you tackle your personal finances.
But if you are willing to teach your children to be financially responsible and build something to pass down to them and future generations, here are the top ways how to build generational wealth.
What Is Generational Wealth?
The Great Generational Wealth Transfer is taking place now in Canada. Canadians can notice the biggest intergenerational transfer of wealth in history between 2016 and 2026. One generation will pass about $1 trillion in personal wealth during this period (The Silent Generation and Baby Boomers to Generation X and Millennials).
Generational wealth is often referred to as family wealth or legacy wealth. These are financial assets that one generation passes down to the next. You can pass your financial assets to your children, to their children, and so on. Such assets can include property, investments, money, bonds, stocks, family businesses, etc. Anything that has a financial value can be called generational wealth.
Is Generational Wealth Significant?
Can you make certain your family is taken care of for generations to come? Yes, this is why generational wealth is really important. It can offer a major financial advantage to your family and children starting their life in the real world. Young children and recent graduates aren’t usually prepared for financial issues and debt repayment, they often turn to payday loans Ontario to bridge the cash gaps and cover urgent financial disruptions.
If you create generational wealth and pass down your valuable assets to your children, they will receive a monetary advantage that will help them cover their student loan debt and pay for their education. It may also be used as a down payment for a mortgage. Hence, your future generations will feel more financially protected and secure and have less need to take out lending options to fund their expenses.
Generational Wealth Statistics
The biggest inter-generational wealth transfer in Canadian history is happening at the moment. However, a lack of communication between parents and their children means many inheritors aren’t aware of their financial future. Canadians tend to be extremely private about their personal finances, but it may bring negative outcomes when the family tries to divide assets.
According to the survey conducted by the IPC Private Health, a division of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada (IIROC), 58% of respondents haven’t discussed instructions for their estate with their heirs. About 80% of those polled claimed that haven’t introduced their heirs to their financial advisor.
This is a common mistake as your children should meet your advisor if you have one, or at least be in communication with them. Benefactors worry about the sustainability of wealth left to their heirs. When asked what their main concerns were, 32% of respondents said they worry about how their heirs will handle inheritance, 28% don’t trust their children’s spouse to manage their inheritance, and 20% worry heirs will have nothing left to pass on.
Tips to Build Generational Wealth
#1 Build a Business to Pass Down
It’s a great option to build a family business you can later pass down to your children. Such ventures have the potential for great success. Experts state that over 30 percent of family-owned businesses transition to the next generation. Of course, some startups are less successful and don’t make it to the second generation.
But if your children’s abilities and interests align with yours, chances are your family business will prosper and grow. Include your child in the business from a young age to boost the chances of a successful transition. Your kid needs to realize how to continue in this business and how it functions. On the other hand, if your children don’t show interest in the venture you’ve built, don’t expect them to take over.
#2 Save Money
This is another useful tactic if you aim to build generational wealth. Many Canadians own one or several credit cards today. They have a lot of credit card debt but pay down just the minimum balance. Hence, creating a budget and following it is really important. There are numerous budgeting strategies and every consumer may find a suitable one. You may look at the 50/30/20 budgeting tactic or a zero-based budget.
The first option means you allocate half of your earnings toward covering the necessities, spend 30% on other non-essential needs, and leave the rest 20% for savings and debt repayment. A zero-based budget means you give every dollar a purpose, such as building up a down payment, contributing to a mutual fund, or saving for your retirement.
#3 Invest in Real Estate
Real estate is a major option to build wealth for the long term. You can benefit from increasing values over time and the potential for stable cash flow. Real estate may become your trusted path to building generational wealth.
You may feel that you don’t understand much about real estate but in reality, you have already waded into this world when you got a mortgage to buy your first home. Why don’t you keep on purchasing properties throughout your life? You will be surprised at how fast your real estate portfolio will expand. It can be a really great option for building generational wealth for your children.
The Bottom Line
To sum up, building generational wealth for the next generations isn’t the easiest task but it’s an admiral undertaking. Are you willing to teach your children how to be financially responsible and pass down to them your assets? Once you have your personal finances under control, the next step is to secure your family’s future. Follow these tips to build your generational wealth for the financial success of you and your children.