Setting Financial Goals, building a Savings Plan, and creating Passive Income are very important steps toward building generational wealth. However, these mostly focus on building personal wealth. Step 8, Invest In The Next Generation, takes us into the realm of generational wealth, as we think about the generations that will succeed us. Once you have taken care of yourself, it’s time to focus on investing in the next generation. For many, this involves investing in your kids. For others, it’s investing in younger family members or organizations that help our youth. This is what building generational wealth is all about! In this step, we will discuss why it’s important to invest in the next generation, how to do it, and how it can benefit you and your community.
Why is it important to invest in the next generation?
We live in one of the most highly competitive countries in a highly competitive world. K-12 education is competitive. Sports are competitive. College admissions are competitive. The job market is competitive. Most industries we work in are competitive. Even the process of building personal and generational wealth can be competitive. The goal of Next Gen investing is to give your next generation, whatever that means to you, a leg up in this competitive world. While the bootstraps approach in previous decades may have worked for many, it’s becoming much more difficult. The classic rags to riches story is still a possibility but it is far from a probability. The reason for this is that some people in previous generations, typically the wealthy, have already taken steps to give their next generation a leg up. Every generation that isn’t invested in has a steeper and steeper mountain to climb to keep up with their peers. My goal is to give every person, not just the wealthy, the strategies and tools they need to build generational wealth and close the ever-widening gap between the haves and have-nots. A key component to that is investing in the next generation.
If we invest in the next generation from an early age, we can give them an advantage in the competitive world of early education. This will in turn give them a competitive advantage in higher education, which will give them a competitive advantage in the job market, which will give them a completive advantage in their career, which will in turn give them a competitive advantage in building personal and generational wealth.
One other huge reason to invest in the next generation is to give them the capacity to take risks and pursue their passions. While not all successful entrepreneurs come from rich families, most come from stable families. In a stable family, the younger generation has the foundation where they can take greater risks. Typically doing something impactful, like starting a Fortune 500 company, requires a lot of risk in the beginning stages. It typically takes a huge investment of time and money. People from unstable families typically cannot afford to take these kinds of risks. I’m not saying it’s impossible, but it’s much less likely.
Investing in the next generation also gives them the opportunity to pursue a career or livelihood that they love. Careers of passion like acting, writing, teaching, coaching, etc. don’t always provide enough to pay the bills, especially in the early stages. People who are fortunate to pursue those careers usually are aided by the stability or investment from their family which allows them the comfort to pursue them despite the risk of lower pay. Those from unstable households usually must land a job to pay the bills at an earlier age, which may delay or permanently erase their ability to pursue their passions. Investing in the next generation can at least provide them with the option to pursue whatever they are passionate about.
My final reason that investing in the next generation is important is because it allows them to have a greater impact in their community. People with more resources typically have more time and capacity to have a positive impact on the friends, family, and community around them. They can do so through more impactful careers, donations, more time spent volunteering, and countless other ways. People that are fighting to make ends meet typically just cannot afford the time and money needed to make a change in their community. If your goal is to have a positive impact on your community during your lifetime, you can enhance this by investing in the next generation. All the people that are impacted by your investment then have greater capacity to have an impact on the community. So, by investing in the next generation you are greatly multiplying the impact you can have individually and ensuring that impact continues into future generations.
How do I invest in the next generation?
Early Education
One of the most classic and time-tested strategies for investing in the next generation is to invest in their education. Education is one of the keys to unlocking the paths to personal wealth and then generational wealth. There are many ways you can invest in education.
If you have kids, start by investing your time in their early education. Young children are consistently learning so if you make sure they are stimulated, exercising creativity, and learning how the world works, they should be well equipped once they start school. If you have the means to invest financially in their education, do so. Find them the best schools, teachers, and tutors to give them a completive advantage as they move to high school and beyond. If you don’t have the financial means, don’t stress, just invest your time. Make sure your kids understand the importance of education, build strong habits, and set themselves up for a bright future. In my opinion, this investment of time is even more impactful than financial investments in education.
Early education goes beyond the classroom. Invest in giving your kids a variety of world experiences. Get them involved in something creative like art, dance, or music. Get them involved in team and individual sports. Both offer amazing learning experiences that cannot be learned in the classroom. If you can, travel with your kids. They will benefit from getting a broad perspective on the world, learning history, and pushing themselves outside of their comfort zone. There are so many ways to invest in your kids’ early education, the key is to do it.
If you do not have kids, you can still invest in early education. Maybe you have other young people in your family you can have an impact on. Help your niece with her math homework. Coach your nephew’s baseball team. Invite your cousins on your next trip. There are countless ways to have an impact. You can also volunteer your time with early education organizations. Volunteer at a preschool. Read books to children at your local library. Get involved with a non-profit that focuses on education. If you have the means, you can provide financial support to early educational organizations. Many of these places are underfunded and need financial support. Find a local non-profit that focuses on early education and donate. Overall, there isn’t one perfect or “right” way to invest in early education, but if your goal is to create generational wealth, you just need to try.
College and Professional Training
After early education, kids reach the critical stage of college and professional training. These things typically require quite a big financial commitment, which can scare young people away. This is unfortunate because these days you usually need some sort of secondary education to get the type of career that allows you to build personal and generational wealth. Investing in college or professional training is a very impactful way to invest in the next generation.
If you have kids, do what you can to prepare them for college or career training. You could do this by starting up a 529 College Savings plan, setting them up for a scholarship, or teaching them about different career paths at a young age. Financial investments are great, but investments of your time can be just as impactful. Not every student needs to go to Harvard to be successful, but these days, some sort of secondary education is critical.
If you do nott have kids, do what you can to invest in secondary education. Maybe you help kids learn about college opportunities, remind them about trade school opportunities, or volunteer at a junior college. If you have financial means, invest in your alma mater, donate to nonprofits that prepare kids for secondary education, or contribute to programs that teach students about career paths in firefighting, policing, or teaching. There are countless ways to make in impact, but to build generational wealth, just do what you can.
Financial Literacy
Another key component to investing in the next generation is to start teaching them early about how to build their own personal and generational wealth. This is often referred to as financial literacy. Make sure your kids or the younger people in your life are learning how the world works, how money works, and what financial literacy can do for them.
One way to build financial literacy includes starting bank accounts for your kids and teaching them how to budget and save for their goals. You can also add your kids as authorized users on your credit card. This allows them to learn how credit works and helps them start building their credit history which can help their credit scores later down the road. Let your kids work a little. This teaches the value of income and the value of working hard for a financial reward. Financial literacy goes beyond just learning about finances. Teach your kids about narrowing in on their core values. This can help them learn what they should spend their time and money on, and what they should not. Teach your kids the importance of helping others. This will help them learn the importance of creating generational wealth and having an impact on their communities for generations to come.
If you don’t have kids, do what you can to help young people around you learn about money. You could do this by setting up a savings account for a younger family member or donating to a non-profit that focuses on financial literacy for young people. Whatever you do, increasing the financial literacy for your community at large is rewarding and will have the big-time impact of creating generational wealth within your community.
Intentional Giving
For those that have already built significant personal wealth, another way to invest in the next generation is through intentional giving. I would like to emphasize the word intentional. Don’t just give money to your kids or the next generation without a plan. If you do this, they will not accurately learn how the world of money works nor develop the skills they need to build their own generational wealth. However, if you give to them strategically, you can actually speed up the process of their generational wealth building journey, while also ensuring they learn the necessary lessons and skills to continue on that path long after you stop supporting them.
One strategy for intentional giving is to set up an emergency fund or safety net for the next generation. This can keep them from falling into significant debt and can also give them the confidence and freedom to take risks. I’m not talking about risks like skydiving or gambling. I mean career related risks. If someone has a safety net, they can invest their time and efforts into starting up their career. For someone who is entrepreneurial, it would give them the capacity to start up their own business. Typically, it takes years for a new business to be profitable. If someone doesn’t have a safety net, they may not be able to afford making little to no money in the early stages. For someone who is more creative, having a safety net may allow them to pursue a career they are passionate about, even if it is not lucrative. Some example careers include a teacher, an artist, a musician, or non-profit employment. With this type of intentional gifting, I’m not suggesting that you give the world to kids, but rather just a safety net so they have the confidence and security to pursue their passions.
Another strategy for intentional giving is to invest in learning opportunities outside of the classroom for your kids or the next generation. One great example is to take your kids, no matter how old, on your family trips. Travelling is a great way to learn about history and other cultures, all while spending some quality family time. I think travelling also makes us all better global citizens by making us more understanding and empathetic of others.
One other great strategy for intentional giving is to help the next generation make difficult financial jumps. Two big examples of difficult financial jumps include home ownership and starting a business. Home ownership, especially these days, can seem impossible to young people. You must save up for a large down payment and commit to a large monthly expense, all at the same time you are paying off student loans and starting your family. Most people agree that home ownership is a smart way to build wealth over time, but it has such a high barrier to entry. One form of intentional giving would be to help the next generation make their first home purchase. Just a little bit of assistance can be enough for them to make the jump from renting (which does not build wealth) to owning (which does build wealth over time). Starting a business is another difficult jump for someone to make. Typically, starting a business takes a large investment of time and money. By becoming a ground stage investor in the next generation’s businesses, you can give them the jump they need to create a successful career out of it over time.
One important disclaimer to this step is to make sure your giving is intentional and comes alongside financial education. Don’t simply give the next generation money. If you do this, they won’t learn the value of hard work or the financial skills to continue building generational wealth over time. However, if your goal is to build wealth that lasts generations, it is wise to give intentionally to your kids to give them a competitive advantage on building their own personal and generational wealth.
Protection
The last way to invest in the next generation is to invest in financial protection for yourself. Make sure you have proper financial protections in place like life insurance, disability insurance, and long-term care insurance is key. You can have a great plan for investing in the next generation, but if you don’t plan for the worst and the worst happens, it will all be for nothing. Life insurance creates a tax-free pool of money for your beneficiaries if your life ends prematurely. Disability insurance creates an income stream for you and your family if you lose your ability to work. Long Term Care insurance pays for expensive health care expenses for seniors, so that your assets don’t get depleted before your pass them down. Long Term Care insurance is also key to make sure the next generation isn’t struggling to pay for your expenses because your failed to plan. Failing to plan can greatly hamper the next generation’s ability to build their own generational wealth.
In addition, you should make sure you have a strong Estate Plan. If you own significant property, make sure you have a trust, so that your loved ones don’t have to pay exorbitant probate fees when you pass away. Make sure you have an Estate Plan that minimizes taxes, so your heirs don’t lose out on too much value to Uncle Sam. If you are passionate about any organizations like nonprofits, schools, or churches, make sure they are accounted for in your Estate Plan. Estate Planning is a key part of investing in the next generation for everyone. Many think that Estate Planning is reserved for the wealthy, but it isn’t. Everyone should have some sort of plan to make sure all your personal wealth turns into generational wealth that will continue to have an impact long after you are gone. Section 9 of my guide goes into the importance of Estate Planning in more detail.
How investing in the next generation can benefit YOU:
All of this may sound great, but you might be asking yourself: “how does investing in the next generation impact me?” Well, it can impact you in several ways.
First, your kids and the next generation might be the ones taking care of you in the future. If that’s the case, you want them to be as prepared as possible from an educational, financial, and emotional standpoint. Even though you may not want to think about these tough times ahead, for most families there comes a point where the providing generation becomes the “cared-for” generation. If you invest in the next generation, they will have the capacity to help you when you need it the most.
Another reason that investing the next generation benefits you is by solidifying your legacy. If your goal is to leave a lasting positive impact on your community, helping the next generation is a major component to this. By doing so, you will live on forever in the memories of your friends, family, and your community.
The last way that investing in the next generation benefits you is that it makes the process of building generational wealth more rewarding. When you have future generations and your community in mind, you get a greater sense of accomplishment when you succeed. Building personal wealth is great, but if this is your only goal, you will most likely not feel fulfilled in the long run. Investing in the next generation and building generational wealth gives you a much better chance of feeling fulfilled and provides more motivation for you to continue making smart decisions.
Final Thoughts
Investing in the next generation is an essential component to building generational wealth. Without this important step, you really are just building personal wealth. We have reviewed so many ways to invest in the next generation, and yet we barely scratched the surface. I recommend finding the way that works best for you and your family, then sticking with it. There is no right or wrong way to invest in the next generation, the key is to try. If you do, I promise you will greatly increase your chances of building generational wealth and will feel fulfilled in the process.
This blog post is a rough draft for Chapter 8 of 10 for my Step-by-Step Guide for 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 continues to motivate me.