Generational wealth is something which many families are starting to consider. In its simplest form, generational wealth involves passing assets down through the family in an optimal way. With more homeowners, rising property prices and strong stock market performance a growing number of families are planning how to transfer their growing wealth to younger generations. But if you are keen to leave a financial legacy, how is it best to begin to build wealth for the benefit of future generations?
What is generational wealth?
Generational wealth refers to any assets which move from one generation to another – usually from parents to children or grandchildren. Generational wealth can include property, money or investments, and also encompasses more intangible items such as good financial literacy. Although once a practice only enjoyed by the aristocracy, it’s now much more common for people to want their hard-earned wealth to be protected and passed down, and many are keen to leave a generous Estate to their heirs.
The importance of generational wealth
Providing a financial legacy can create an enviable situation for your children; the opportunity for financial security. This may mean they have more options available to them: owning property, setting up their own business venture or travelling. The concept of financial freedom can become a very tangible reality up when generational wealth is a factor.
Challenges of building generational wealth
Many people assume that to build wealth it’s vital to have the markets and the economy on your side. But one of the key challenges is much more simple – and is the result of a lack of communication. It’s well documented that generational wealth can be unstable, and easily lost within three generations. For example, imagine working hard, saving and investing regularly and building wealth to pass on. The next generation then enjoy that wealth, relying on it to maintain a particular lifestyle and appreciating the work that’s gone into creating it. But the third generation have little understanding of that initial focus on saving and investing, and have an expectation that their financial position is protected. As a result, any wealth is eroded due to a lack of forethought to protect and build on what was originally created.
This reticence to talk about money, coupled with a lack of financial literacy, can throw generational wealth off course all too easily. Therefore, it’s vital to have a financial plan, communicate it well to your family to ensure they understand your aims and ambitions, and help everyone stick to it.
Thankfully there are some useful, and fairly simple solutions, that can help resolve these challenges. Setting up a trust, in which you, your children and grandchildren can be involved, will help protect family wealth by creating the right structure for your assets. And it’s no surprise that having an up-to-date Will in place is vital too – ensuring that the people who you want to inherit these assets will actually do so, and in a tax-efficient way.
Building generational wealth
Finding a good strategy to help build and maintain generational wealth is the key. To do so, it’s important to build good habits and teach powerful lessons about the value of money to younger generations.
Investing in children’s education
As well as ensuring your child has a strong academic education, don’t forget to teach them financial literacy too so that they can become financially astute and independent as they grow up. Having open conversations about money and teaching children the basics about saving and investing can stand them in good stead for the future, and ensure they properly appreciate wealth when it reaches them.
Investing in the stock market
Investing in the stock market offers the opportunity to build wealth and protect your money from inflation. Investing is a long-term strategy, and over time can prove very effective. But getting started can be intimidating, so working with a good financial adviser, who can help you understand your objectives, desire to build wealth for your children and grandchildren and attitude to risk can be extremely useful.
Property
Buying property can be a very effective way to build generational wealth. Property prices in many parts of the world have risen over time, and as a tangible asset, property can also be passed down as part of your portfolio.
Generational business
A family-owned business can play a significant part in any generational wealth plan. Building a business which can be passed down and run by future generations creates valuable income and a strong family legacy which future generations could be eager to protect. It’s not an uncommon approach; family-owned firms make up the majority of private sector businesses in the UK, employing 14.2 million people. There are some very practical advantages too; business relief can make these a very tax-efficient way of sharing family wealth.
Life insurance
Life insurance is one of the tools which can help ensure that generational wealth isn’t impacted if the worst should happen. Making certain it’s in place means that younger generations have a safety net if something should happen to you, which could otherwise jeopardise family wealth.
Build generational wealth with The Fry Group
Over our long history we have helped many families, and a number have chosen to work with us from generation to generation. Our expert teams can support with all aspects of financial planning, including putting the right framework in place to help you build wealth and effectively share your assets with younger generations. Our dedicated Estate planning team provide support with the practicalities of setting up Wills and Trusts to help ensure the right structure is in place to protect generational wealth.
Would you like to find out more?
We are here to help with your financial planning requirements. For more information, whatever your circumstances, please contact us today.
