Generational Wealth is defined as assets passed down from one generation to the next. For many African Americans, systemic racism has been a barrier to building that wealth within our families. But, there are pathways to creating generational wealth in our community.
Wealth creates options in life. Accruing wealth and being able to pass it down to our children and other descendants can give them the freedom to make their dreams come true. Generational wealth does not mean that your children will never experience hardships, but it could mean they will have more ability to manage them.
“Building generational wealth, begins with simple, actionable steps. Invest wisely, save consistently, and prioritize financial education,” says Clyde Anderson ~Economic Empowerment Coach and author. “Your journey to securing a prosperous future for your family starts with the choices you make today.”
Anderson adds, “The power of generational wealth is like a torch that can light up the path for your family’s future. It’s not about having a lot of money right now; it’s about making choices today that will ensure a brighter, more secure tomorrow for your loved ones. Start small, dream big, and let the flame of generational wealth guide your way.”
Here are some tips for building generational wealth.
- Invest in education
- Open a 529 savings plan. According to CNBC, 529 plans are beneficial for parents who place importance on a college education and want to save money when making financial contributions. The advantages are too good to ignore — contributions grow tax-free, and as long as you use the withdrawals for qualified education expenses, they’re also non-taxable.
These plans could mean that your children will go to school with money saved toward their college education and therefore will accumulate less debt–which is key to building wealth.
2. Invest in real estate
- One of the biggest assets that can be passed down from one generation to the next is a hard asset like a home or commercial property. In general, real estate appreciates with time–which could mean income if it is ever sold. Further, real estate can mean additional investment money including using it as a rental property.
3. Create a business
- According to the Family Business Center, More than 30% of all family-owned businesses make the transition into the second generation. 12% will still be viable into the third generation. However, only 3% of all family businesses operate at the fourth-generation level and beyond. The statistics mean that the growth of the business should be considered for the long term and planning for it should done accordingly. A family business could generate income, and tax protections, as well as a place where younger family members can learn and grow.
4. Invest in stocks
- Maximizing your 401K investment for passive stock investment is a great way to begin investing. As you start to learn more, apps like Robinhood and ETrade are great places to begin the process of understanding the stock market. Low-cost S&P low-cost index funds, which provide long-term growth opportunities at relatively low fees are the best way for beginners to start.
5. Invest in life insurance
- Being able to pass something down to children and beneficiaries after death is valuable. Life insurance allows for family members to grieve without financial burdens. Also, if you pass and have descendants who are dependent on your income–their lives could be negatively impacted by your loss. Further, leaving behind significant financial assets can mean that our descendants can further grow their own investment portfolios.