Building generational wealth – the kind you can pass down to your children, grandchildren, and beyond – is a goal that resonates with people of all ages. Whether you're a grandparent thinking about the legacy you'll leave, a young family planning for your children’s future, or a new college grad looking to establish a secure financial footing, the concept of generational wealth is more relevant than ever.
In the United States, this topic is especially timely. Over the next two decades, an estimated $84 trillion will be passed from Baby Boomers to their heirs in what experts are calling the “Great Wealth Transfer”. Yet, despite this massive shift, only about 26% of Americans currently expect to leave an inheritance for their heirs, according to Investment News.
Moreover, there's a significant inheritance gap across different racial groups. In 2019, about 30% of white households received an inheritance (averaging $200,000), while only 10% of Black households did (averaging $100,000), as reported by Brookings. These disparities highlight just how critical it is to understand how to build and transfer wealth across generations.
The good news? Building generational wealth is achievable, even if you’re not ultra-wealthy. It’s about consistency, smart habits, and long-term thinking. Below, we’ll explore seven practical tips to help you get started.
1. Start Early and Harness Compound Interest
Time is your most powerful wealth-building tool. The earlier you begin saving and investing, the more you can leverage compound interest – which means earning interest on your interest. Over decades, even modest contributions can grow into a substantial nest egg.
For example, investing $5,000 annually starting at age 25 could grow to $1.07 million by age 65 (assuming a 7% return), compared to only $510,000 for someone starting at 35. That’s nearly double the wealth just by starting ten years earlier.
Even if you're starting later in life, it’s not too late. You can still contribute and also encourage younger family members to begin early. Consider setting up custodial investment accounts or 529 college savings plans for your children or grandchildren. To visualize potential growth, try using a compound interest calculator to see how even small monthly deposits can grow over time.
2. Increase Your Income and Save Consistently
Building generational wealth starts with earning more than you spend and saving the difference. The bigger your surplus, the more fuel you add to your family’s financial engine.
Practical ways to save and grow wealth:
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Create a budget: Identify and eliminate unnecessary expenses, then redirect those funds into investments.
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Live below your means: When you get a raise, increase your retirement contributions before upgrading your lifestyle.
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Eliminate high-interest debt: Paying off credit cards frees up money to invest instead.
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Add income streams: Consider side hustles, freelance work, or starting a family business. Extra income can go straight to savings or investments.
The key is consistency. Set up automatic transfers to investment or savings accounts. Every dollar saved today can multiply over the decades – becoming a gift to future generations.
3. Invest Wisely and Diversify Your Portfolio
Saving alone isn’t enough – you need to invest. And to reduce risk while maximizing potential growth, diversification is essential.
Consider including these assets in your portfolio:
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Stocks & Stock Funds: The S&P 500 has returned ~10% annually over the last century, according to NerdWallet.
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Bonds & Fixed Income: Provide stability, especially helpful near retirement.
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Real Estate: Rental income and property appreciation can significantly build wealth.
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Business Ownership: Start or invest in a business to create another asset stream.
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Other Assets: Gold, commodities, or cryptocurrency can add diversification, but should remain a smaller portion of your portfolio.
Educate yourself and your family about investing. A great place to start is our curated reading list of top investing books for beginners and seniors. The goal? Grow your wealth while minimizing risk, ensuring a resilient financial future.
4. Make Homeownership and Real Estate Part of Your Plan
Homeownership has long been a cornerstone of wealth-building. It’s not just shelter—it’s equity.
According to Money, the median net worth of U.S. homeowners is about $400,000, compared to just $10,000 for renters. That’s a 40x difference.
How to leverage real estate for generational wealth:
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Primary Home: Builds equity and can be passed to heirs.
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Rental Properties: Provide income and long-term appreciation.
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Vacation/Second Homes: Enjoy with family and use as an investment.
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REITs or Crowdfunding: Invest in real estate without owning property.
Real estate requires upkeep and planning but offers tangible benefits that can last generations. For many families, property becomes a foundational asset that future generations can use to reach their own goals.
5. Educate Your Family and Heirs About Finance
Generational wealth isn’t just financial—it’s educational. Without financial literacy, wealth can disappear in a generation or two. In fact, the saying “shirtsleeves to shirtsleeves in three generations” exists for a reason.
Ways to pass down financial knowledge:
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Lead by example: Demonstrate smart budgeting and investing habits.
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Teach early: Introduce kids to basic money concepts from a young age.
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Encourage open conversations: Talk about money openly and set shared goals.
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Include them in planning: Nearly 75% of parents are open to involving adult children in meetings with their financial advisors, according to ThinkAdvisor.
Consider hosting occasional “family finance meetings” or gifting finance books to the next generation. Financial literacy ensures your heirs know how to grow and sustain the wealth you leave behind.
6. Plan Your Estate with Wills, Trusts, and Insurance
A wealth plan isn’t complete without an estate plan. Shockingly, almost two-thirds of Gen Xers and 40% of Baby Boomers don’t have a will, according to ThinkAdvisor.
Essentials for estate planning:
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Write a Will: Specify how your assets should be distributed and name a guardian for minor children.
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Consider Trusts: For larger estates or specific wishes, trusts offer control, privacy, and probate avoidance. Investopedia explains the benefits of dynasty and education trusts.
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Designate Beneficiaries: For retirement accounts, life insurance, and bank accounts.
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Get Life Insurance: A vital tool for replacing income and supporting your family after your passing.
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Use Gifting Strategies: In 2024, you can give up to $18,000 per person per year tax-free (source).
Finally, communicate your plan to your family. Let them know where documents are and who the executor is. Estate planning is a powerful act of love – it minimizes confusion and ensures your wishes are fulfilled.
7. Manage Debt and Live Within Your Means
Debt can quietly erode wealth. High-interest debt in particular diverts money that could be invested.
Smart debt strategies:
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Pay off high-interest debt: Prioritize credit card balances or personal loans.
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Avoid unnecessary debt: Stay cautious with big-ticket purchases.
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Maintain an emergency fund: A safety net helps you avoid new debt during crises.
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Live below your means: Choose modest spending habits to preserve wealth.
Even high-net-worth individuals must manage debt carefully. The goal is to use debt strategically (if at all) and avoid overextension. Your example teaches future generations the importance of mindful spending and financial discipline.
Final Thoughts: Build Your Legacy Today
Building generational wealth is a journey – one that spans decades and lifetimes. Whether you’re helping your grandchild open their first savings account or investing in your own future, every step matters.
We’ve covered seven essential tips:
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Start early
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Save consistently
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Invest wisely
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Leverage real estate
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Educate your family
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Create an estate plan
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Avoid unnecessary debt
Together, these form a roadmap to a legacy of prosperity. Imagine your children owning their homes, your grandchildren graduating debt-free, or your family having a financial safety net for generations. That’s the promise of generational wealth.
Ready to take the next step? At SmartFinancialLifestyle, our mission is to empower families to build wealth through knowledge and action. Explore our tools and guides, join our free wealth-building webinar, or download our latest e-book to deepen your journey.
Remember: the best time to plant a tree was 20 years ago. The second-best time is now. The same goes for building your legacy. Start today – your future generations will thank you.