5 Ways to Build Generational Wealth

Jun 28, 2021

This past year has reinforced the importance and value of forward-looking financial planning, whether that be family planning, estate planning, budgeting—or in this case, laying the groundwork now to build generational wealth for your family members in the future.

There is a common misconception that you can only build generational wealth if you already have a plethora of funds or a family business, but there are a few different ways you can achieve this that vary in regards to the amount of initial investment.

Here are five ways you can start building generational wealth now:

Investing in real estate by acquiring a rental property

Maintaining a rental property is one of the most commonly known ways to build generational wealth, but requires quite a bit of capital investment. Purchasing a property now and deciding to keep it in the family means that one day, once the home or mortgage have been fully paid off, your children and/or grandchildren will be able to either continue renting out that property and making money off of it, or, they can live in it themselves without having to pay additional fees (aside from utilities and insurance).

However, if considering this path, be sure to evaluate and weigh the current state of the real estate market against your current financial situation, because you could wind up overpaying for the home if the market isn't trending in your favor. You should also consider whether the value of the home you're considering acquiring will increase or decrease with time, as well as if the home will require a significant number of repairs or renovations. If you're constantly repairing the home for tenants or the home depreciates over time, it may not be worth the initial investment.

Obtaining a life insurance policy

Life insurance policies are a direct way to secure funds for the next generation. It requires less work than owning and managing a property, but it does require a recurring financial investment.

By paying a premium to your insurance company, your beneficiaries will receive a tax-free payout if you die while the policy is active. The cost of your life insurance policy depends on the amount of coverage, policy length, and how risky you are to insure based on your health, age, and hobbies.

Many employers offer life insurance as an employee benefit, so be sure to reach out to your company's HR department to see if you can establish a policy for yourself and your family.

Investing in stocks

This is a great way to make an initial investment of any amount you're comfortable with, while giving it the chance to grow with interest while the next generation(s) grow in tandem.

However, if your goal is to build generational wealth, you must be very strategic with the stocks you intend to purchase. Make sure you're investing in a company that has a trajectory of long-term growth or sustainability, as investing in a fad or a company that is only popular based on current trends can put you on a slippery slope that may not be fruitful by the time your children or grandchildren are looking to cash in.

Because investing in stocks can be a little tricky, consider consulting a professional if it's your first time.

Investing in a child's education

While higher education is becoming costlier as the years go by, higher education of any form—traditional university, community college, trade school, etc.—is extremely valuable in helping future generations learn and create prosperous opportunities for themselves.

If your children or grandchildren are very young, consider opening a savings account now for their future college education through the PA529, as it's never too early to start saving up for their education. By stashing savings with the intention of spending it on higher education now, they will be well-positioned when it comes time to receive additional education that could help them establish themselves professionally, and in turn, increase their projected salary.

Teaching children about personal finance

One tactic to build generational wealth that many people overlook is taking the time to teach children about personal finance. While this doesn't require any financial investment, the money advice shared now and passed down through generations is invaluable.

Teaching the youth how to think about, save, budget, spend, and even invest their money sets them up to be critical thinkers when it comes time to manage their own finances, putting them at an advantage.

But, try to take this one step further than just giving firsthand financial advice. Share third-party financial resources with them so they have an idea of who they can turn to for information—whether that be a credit union, bank, financial news outlet, or other financial institution that provides educational materials.

You should also get them started with a children's savings account so they can begin to form healthy money habits early on during their most fundamental years, while also taking on a unique level of responsibility and autonomy. This will ultimately set them up for financial success and true financial independence at any age.

Building generational wealth isn't such a daunting task when you break it down to uncover what's at the core: finding a strategic way to let your money make money for you and your family. And the beauty of it being wealth that is passed down from generation to generation is that you can start with even a small investment, and watch it grow with interest throughout the years.

Erin Elis 
Erin Ellis
Accredited Financial Counselor ®
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