How to Build Generational Wealth

By | April 13, 2023
startup business funding for small businesses

Generational wealth is the term used to refer to assets and resources that will last through multiple generations. To build this kind of wealth, you need to devise a strategy and remain committed to it.

Traditional methods of wealth transmission have included education, marriage, homeownership and receiving financial gifts or inheritances. But recent research indicates other avenues could be even more influential for future generations in terms of transferring resources.

Life Insurance

Life insurance can be an excellent tool to create generational wealth. It may be used for paying off a mortgage, helping kids pay for college or purchasing a house, and passing along an equitable inheritance to your heirs.

Othneil Blagrove, Senior Manager, Sales and Marketing JN Life Insurance Company, believes that “Life insurance is a gateway to wealth.” He noted the importance of families safeguarding the incomes of their breadwinners so they can continue providing for themselves and their loved ones. Term life insurance can be an effective solution in this regard.

Life insurance not only ensures your family has a source of income for the future, but it can also meet other important financial needs like medical bills or retirement planning. It could even be used as part of a wealth transfer strategy to reduce estate taxes or build additional funds for beneficiaries.

Another advantage of life insurance is that its death benefit can be passed on tax-free to your beneficiaries, avoiding probate. This is particularly helpful if you owe a considerable amount of debt or run a family business.

The cash value of a life insurance policy can also be invested, earning interest and growing. Depending on your policy and circumstances, this money may be accessed through loans or partial withdrawals.

business lines of credit

Life insurance can be costly, but it’s an invaluable way to guarantee your family financial security after your passing. Speak to a Thrivent financial advisor about the available options and help build generational wealth.

business lines of credit

A Thrivent financial advisor can ensure your loved ones are taken care of after you pass away. He or she can explain the various types of life insurance available and assist in selecting one that meets your individual needs.

Permanent life insurance offers three primary advantages: leverage, guarantees and simplicity. It provides a dependable way to pass tax-advantaged assets onto your heirs while safeguarding them against risks like inflation or market fluctuations. Unfortunately, not all types of permanent life insurance offer the same guarantees or grow wealth as quickly as other investments do. Fortunately, there is one special type of whole life insurance that supercharges growth to help you build wealth faster and meet your wealth transfer objectives sooner.

College Funding

College funding can be an instrumental factor in increasing generational wealth. This includes scholarships, gift aid from family and friends, as well as private sector scholarship funds. Furthermore, it helps ease student debt burdens – a particular issue for Black students that often leads to poor economic outcomes and perpetuates racial wealth inequality.

Wealth can limit a student’s opportunities to climb social classes, also known as social mobility. It may also cause financial strain for first-generation college students who often have lower salaries and greater student loan debt than their parents had.

According to research by Bloustein School assistant professor Jermaine Toney and Cassandra L. Robertson, generational wealth is not solely dependent on education but also the economic conditions of the previous generation. This is especially true for low-income families that may have difficulty accessing high-paying jobs.

Families headed by someone with favorable inherited demographic characteristics, such as being non-Hispanic white and over 40, with college-educated parents, tend to experience higher earnings and wealth than those without these advantages. Kent conducted research that demonstrated that earning a four-year degree increases the median family with nongrad parents’ median household income percentile ranking and wealth ranking by 23 rungs above what their inherited demographic characteristics predicted.

The upward mobility effect explains why a median college graduate family with all these advantages–white, over 40, and college grad parents–had three times more income and six times as much wealth than the median family overall.

State support for public colleges and universities has remained far below pre-recession levels, while tuition prices have gone up faster than median incomes and federal grants and tax credits failed to keep up. As a result, faculty reductions, reduced course offerings, and campus closings have occurred.

These trends have contributed to the growing student debt crisis, which disproportionately impacts Black families and is connected to poor economic outcomes and racial wealth inequality. It is essential for us to comprehend these factors when discussing student debt policy and evaluating proposals for reforming higher education.

Real Estate

Real estate can be an excellent source of generational wealth. Many high-net-worth families have included real estate investments into their portfolios as a way to secure long-term success.

Real estate consists of two primary categories: residential and commercial. Each provides its own advantages, but both provide an opportunity to build wealth and leave a positive legacy for future generations.

Investing in residential properties can generate passive income through rental income and provide several tax advantages. Furthermore, the property’s value may increase, providing additional cash flow from increased sales.

Another advantage of investing in real estate is that it generates passive income for the owner’s heirs after death. This type of wealth generation can be an incredible benefit to children, who will have more money than they had when younger and can use this income to cover educational costs or even fund their own retirement.

In many cases, homeowners can leave their property in their will for their children and descendants to benefit from it in perpetuity. This concept of “generational wealth” has become popularized.

Homeowners typically have higher net worths than renters due to the greater likelihood that they own equity in their residence.

Equity can be used for various purposes, such as purchasing a new car or renovating and upgrading the home. It could also be invested in other assets like stocks or bonds.

However, attaining generational wealth is no small feat. It requires patience and a long-term strategy that works over multiple years of investing.

If you are ready to begin building your own wealth and leaving a positive legacy for your family, now is the time to take action. Here are some simple yet effective tips to get you started:

Business Ownership

Business ownership has proven to be one of the most effective wealth building strategies for communities of color. In Mecklenburg County alone, Black and Latinx business owners enjoy a median net worth that exceeds ten times that of their non-entrepreneur peers.

Entrepreneurship not only requires hard work and dedication, but can also provide families with generational wealth. By seeking financial support from parents or grandparents while starting a new venture, entrepreneurs are able to ease some of the pressure that comes with owning a company.

Business ownership can take many forms, such as sole proprietorships, partnerships and corporations. Each structure offers advantages and drawbacks; selecting the one most suited to your operation can be crucial.

A sole proprietorship is the most common form of business ownership, consisting of one person running and managing day-to-day operations. On the other hand, partnerships involve multiple people sharing a percentage in profits from the business.

Businesses that require more structure and control than what a partnership can provide may find that incorporation is the better option. It taxes like a partnership but limits liability to owners’ personal assets, with shares passing to heirs upon death.

Corporations can be more complex to organize and costlier to register than other types of businesses. Furthermore, corporations typically lack access to loans or capital, making it harder for them to compete against smaller enterprises.

Conversely, corporate structures can be employed to create family-owned businesses or real estate portfolios that will be passed down through generations. There are various options available, such as family limited partnerships and family trusts.

No matter which structure you select, it’s critical to make an informed decision about your business’ legal structure as soon as possible. Doing so can help address issues like liability, taxes and ownership succession that could significantly influence the direction of the enterprise in the long run.