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Make Generational Wealth Your Legacy—2 Tips to Create It and 1 Really Smart Idea

Make Generational Wealth Your Legacy—2 Tips to Create It and 1 Really Smart Idea

June 21, 2023

The numbers range from $30 trillion to $84 trillion, but by any figure, there’s a lot changing hands over the next few decades. This massive transfer of wealth from baby boomers to their heirs, commonly known as the “Great Wealth Transfer,” is here.

It’s a waterfall of assets, for sure. The good news? You’re in a great position to keep the boat afloat.

You’ve clearly planned well in building your wealth. One component you may not have considered, however, is how to create generational wealth, or lasting wealth, so that it becomes part of your family’s DNA rather than a fleeting moment of opportunity on your family tree.

Did you know? 70% of wealthy families lose their wealth by the next generation. 90% lose it the generation after that.

What’s Generational Wealth?

Generational wealth involves creating a plan for passing down assets, such as cash, investments, property and businesses, from one generation to the next.

It’s different than a one-time financial gift, like an inheritance, in that generational wealth comprises a “net” of financial tools that grow and preserve assets. The “net” is what is passed down through the generations, refined and strengthened to adapt to evolving financial needs and economic climates.

Ultimately, generational wealth provides your children and grandchildren greater opportunities and a stronger, more secure future. And if you wish, it can establish a charitable legacy that begins with you.

Why It’s Important

Generational Wealth:

  • seeks to protect your family’s current financial resources.
  • preserves and grows financial resources.
  • seeks to have a family’s values and goals live beyond your years.

2 Things to Do to Create It (+ one really smart idea)

Creating a legacy strategy and bringing children into the world of financial planning early on keeps everybody on the same page as you move through life together. You and your heirs will more likely grow to share the same financial values and work toward similar goals.

  1. Create a legacy strategy. Documents, like a will or trust, form the framework for a smooth transfer of assets and give the next generation a foundation from which to start their own life journey.

Developing your legacy strategy involves an estate plan, which includes a collection of documents, like a will or trust, durable power of attorney, and beneficiary and guardianship designations.

An estate plan provides a customized, concrete place from which to start the discussion with your heirs about the importance of financial planning and creating lasting wealth, and about the plan you’ve put in place to assure that will happen.

  1. Bring children into your world of financial planning. Planting the seeds early on about the importance of financial planning instills a commitment to not only build wealth but also provide continuity in the family’s plan to preserve and sustain generational wealth.

Other reasons why it’s wise to introduce children to the world of financial planning? The earlier they begin their own planning, the sooner they’ll see the rewards. Over time and as they see gains, they’ll take ownership of the process, becoming more involved in the decision making and in their financial futures.

        Tools to introduce financial planning to your children and heirs:

  • The50/30/20 rule: This is an especially powerful rule, especially when your children get their first job. The concept is to put 50% of after-tax income on needs (e.g., clothing, gas), 30% on wants (e.g., toys, video games) and 20% on savings or debt repayment. Encourage children to allocate a larger portion to savings as their income increases. 
  • Invest for them—and in them.Any age is a perfect time to start a child’s investment account, but kids will learn the most from the account around age 8 or older, according to investorjunkie. They’ll also get to see how quickly their account grows, thanks to compounding interest, and hopefully be motivated to explore other investment opportunities.
  • For teens, insist they get a part-time job. For younger children, give chores to earn money. Having a job teaches children about the nuts and bolts of a getting paid, including hourly wages, taxes and deductions and still how to save. Younger children learn the value of working at a “job” to receive payment.

And this is the really smart idea:

  • Bring children along to meet your financial advisor. Although they’ll probably be in the background at most of the meetings, there’s value in seeing you interact with your advisor and working on your financial plan. Hearing the conversation also introduces new words and concepts that may pique their interest to want to know more.

Encouraging adult children to meet with your financial advisor and even work with them is another smart step. One reason: It’s makes sense to have everything in one place. A financial advisor is like a storehouse and in-house professional, keeping all documents and records together, while also providing the knowledge and tools to meet individual and familial financial goals.

Your children don’t even have to work with your advisor. They may choose to work with someone else in your office.

“Keeping everything under one roof allows your family’s “team” to get to know the entire family—what they are like, what they want out of life—and to develop more appropriate strategies that address those needs.”

Working with families, including the second and third generations, is one of the most rewarding parts of our job. To learn more about how we can help, contact us today.