Were you born into a rich family or a poor one?
The one thing every human has in common is that they have no control over which family they are born into. This should a uniting factor. In reality, humans still tend to make judgments about other people based off the family they are born into. It’s part of our nature, likely a survival mechanism that causes us to fear those different from us.
Even though we may not have control over what family we fall into, the level of wealth your family has is one of the strongest indicators of your future wealth level. This doesn’t mean that if you are born into a poor family, you are doomed to be poor. It also doesn’t mean that if you happen to fall into a rich family, you are guaranteed to be rich. There will always be exceptions to the rule.
It is true, however, that those born poor will have to take more steps to reach generational wealth. Those born with money will have a head start on the journey toward building generational wealth but will still need to make a few wise decisions to maintain their wealth and pass it on to the next generation.
My main mission as a wealth advisor and Certified Financial Planner® is to create generational wealth building plans for educators, public employees, and non-profits. I want to help those who dedicate their lives to helping their communities live the financially comfortable lives they deserve. I also want to help them make wise decisions so that they can leave a lasting positive impact on their communities long after the individual is gone.
I believe every person in every profession deserves to build generational wealth, but I especially love working with those that serve our youth or other underserved communities. Often times, those doing this important work, get neglected by financial advisors because they don’t all have million-dollar accounts. However, if those that work with our youth and underserved communities learn to build generational wealth, my hope is that their knowledge will trickle down to their students, clients, and children.
What is generational wealth?
Generational wealth refers to financial assets passed by one generation of a family to another. Those assets can include cash, investments, real estate, and family businesses. Generational wealth is different from personal wealth. Personal wealth is the level of wealth one reaches during their own lifetime. Creating personal wealth does not always lead to generational wealth. A person can create great personal wealth but if they spend all of their assets and leave nothing to the next generation, they have not created generational wealth. Personal wealth is part of generational wealth. In fact, you typically need to build personal wealth in order to then build generational wealth. Personal wealth is a good goal, but I’ve found that generational wealth is a better one. The goal of generational wealth is more motivating because it gives you purpose outside your individual needs. It’s also more impactful, because if you are successful, not only will it impact you positively, but it will also impact your loved ones and your community for generations to come.
I believe that building generational wealth is the solution for many problems plaguing modern society, especially in the US. In recent years, generational wealth has become a focal point in discussions about the racial wealth gap and the increasing concentration of wealth in the U.S., because it plays a substantial role in both.
Generational wealth and the lack thereof are a huge reason for the racial wealth gap.
For hundreds of years in the US’s history, white America intentionally prevented black Americans from creating generational wealth. Throughout this time, many white Americans were able to get a huge head start on the generational wealth building process. Multiple generations were able to build wealth, strategize to leave the next generation better off, and execute that strategy over and over. This occurred while black America was unfairly being prevented from building generational wealth due to things like the slave trade, Jim Crow laws, red lining, and other discriminatory policies. So, even when black Americans started to gain the same liberties white Americans already had, they were generations behind. We still see the impacts of this today when we look at the racial wealth gap and when we see communities that seem to be left behind. While this has been building for centuries, I do think that starting and continuing the cycle of generational wealth building could be a solution for closing the gap. We just need to make sure that we are teaching the steps to build generational wealth to the communities that were left behind.
The concept of generational wealth is also very important when we talk about immigration and families that are new to the US.
Building generational wealth takes time. It takes generations. So, we need to be fair to families that are in their first or second generation in America. If someone leaves their home to start a new life in America, they are likely going to start the process of building generational wealth from scratch. It wouldn’t be fair to compare the generational wealth levels of a 1st or 2nd generation family to that of 10th generation family. The 10th generation family has had decades more time to build their wealth. In my experience, however, I have found the 1st and 2nd generation families aren’t always being taught the steps to generational wealth. This is no fault of their own. It has a lot to do with language barrier, focus on assimilating to the culture in power, and the incentives of financial professionals. While most financial professionals will admit that 1st and 2nd generation families need the most financial education and attention, they would, in reality, rather work with the 10th generation family that can afford to pay them more. I hope to be one of the financial professionals that flips this paradox.
Generational wealth, just like an investment, compounds over time.
Each generation that continues to build their wealth and makes wise decisions when passing money down to the next generation compounds upon the work of the last generation. So, if some progress can be made between generation 1 and 2, even more can be made between 2 and 3, and even more can be made between 3 and 4, and so on. This has a lot to do with the compounding nature of investments, but also the advantages that the next generation has when they start with wealth. The compounding nature of generational wealth makes it exceptionally powerful. A wise decision you make in life today not only benefits you, it benefits the next generation even more, and the next generation even more than that. So, one small decision you make could have a huge impact on someone a few generations down the line.
Throughout the year, I will be creating a step-by-step guide to building generational wealth. There will be 10 steps and I will assume the reader is starting from zero.
In reality, people will start from wherever they currently find themselves, but the purpose is to guide someone starting with zero toward the path of building generational wealth. For now, each step will be in the form of a monthly blog post. I really hope to get your feedback and thoughts. After finishing the step-by-step guide, I plan to revisit each blog post, add detail, implement changes based off of your feedback and thoughts, and then publish the guide into a book. While creating a book is a daunting task, the impact that I think this book will have on my community will keep me motivated.
Let me know what you think!
Alex