What's Generational Wealth And Why Does It Matter?

Generational wealth is not a new term, nor is it one that new investors are familiar with. So, what exactly is it?

Generational wealth is any kind of asset that families pass down to their heirs, whether in the form of cash, investment funds, stocks, properties, or even companies. It is a result of the compounding effect of hard work and can be divided into two main categories: earned and inherited. Earned generational wealth are assets accumulated and passed onto your heirs, while inherited generational wealth is wealth created through the passing down of the fruits and labors of previous generations.

Although this sounds great in theory, let's take a look at what it really means.

As time goes on and new generations replace old ones, it becomes more difficult for people to achieve financial success on their own without help from their family. This in turn leads to a growing divide between classes in a society where only those who are born into wealthy families have access to opportunities that allow them to succeed financially.

Ultimately, the main premise is setting up a legacy for future generations that can manage their finances well and avoid making decisions that could lead to financial ruin.

Great! So, you've got the wealth but how do you pass it on?

Estate planning; the earlier you start, the better. In fact, some experts say that waiting until later in life may mean that you miss out on opportunities to keep more money within reach of your family members during their most productive years.

One common mistake a lot of people tend to make, is forgetting the importance of equity in creating generational wealth. The equity in a home gives you options that you might not have otherwise had if you didn't have a house or other property to sell off later in life. Equity allows for a kind of social mobility and risk-taking that a person without wealth simply can't afford. To put it simply: You can’t buy stocks with no money; equity allows us to take risks without having the liquidity.

In conclusion, the idea of generational wealth is one that has been around for centuries. It's a romantic notion that you can pass on your wealth to your children and grandchildren, enriching their lives in the process. The reality is much more complicated, and there are many factors that play into how well you can pass on your wealth. Would you rather have peace of mind knowing that you've taken the necessary steps in your children being able to afford to live "the soft life" or would you rather have your wealth get lost in taxes, inflation, and poor investment choices??