Generational wealth: What it is & how to build it for your family

As a parent, you want what's best for your children. Imagine being able to provide the freedom to pursue their dreams with the comfort of financial security. That’s the promise of generational wealth. When younger generations can start adulthood without debt or a savings crunch, they can live life more freely: Save for retirement. Pursue an advanced degree. Start a business. Put simply, generational wealth unlocks options - all while powerfully expressing your family's values and making a difference in the world.

The term generational wealth refers to money and assets passed down from one generation to another, such as investments, real estate, family businesses and other holdings. It also includes intangible wealth such as a family’s reputation, relationships, community impact, education and values.

According to the Federal Reserve, baby boomers own $16 trillion in real estate, $23 trillion in investment and retirement funds and $15 trillion in pensions, much of which will be passed down to loved ones. This massive wealth transfer has many Americans asking how they can leave a legacy that will endure for generations.

Even if you don’t have an inheritance coming your way, you can build generational wealth for loved ones with thoughtful planning, saving and communication.

If you’re still decades away from passing on your legacy, here are some steps you can take right now to plant the seeds for your own family’s generational wealth.

• Start with a purpose
• Make financial literacy a family value
• Diversify your investment portfolio
• Consider life insurance
• Start a college fund
• Explore big dreams
• Create an estate plan
• Build your financial team
  

What opportunities do you want your children to have? How do you want to give back to your community? Why do you feel inspired to share your blessings?

Write down your answers to these questions and others that come to mind as you reflect on the meaning behind your generational wealth. Share your thoughts with your family, as you feel comfortable. Having a sense of purpose that’s larger than money will help you stay committed to your long-term goals.

Improving your financial literacy will help you create a strong financial foundation today while you build generational wealth for tomorrow.

Like anything else, learning about finances takes time. It may feel a little intimidating at first, but there are plenty of resources to help you get started. Start with the basics like budgeting and building credit, and move on to investments, insurance and other financial topics.

If you have children, teach them about financial literacy in age-appropriate ways; don’t assume they will learn it in school. Use an allowance or gifts to teach young children the basics of saving, spending and donating money. Even very young children can learn values such as generosity and gratitude: involve them in charitable activities and teach them to show appreciation for gifts.

Older children should learn how to create and follow a budget before they leave home, and they should understand the basics of credit and the importance of investing. As they approach adulthood, talk to your children about generational wealth and ensure they see themselves as stewards of your family’s legacy for future generations.

Preparing for your retirement is key to generational wealth because it means that your adult children won’t need to financially support you. Diversifying your investment portfolio early can help it grow for decades, withstand market fluctuations and benefit from compound interest.

Many people start with 401(k)s since some employers offer them as part of a benefits package. If you have an employer-sponsored 401(k), consider contributing to it. Typically, contributions come directly from your paycheck and are made before income tax is taken out, so there may be some tax benefits. If your employer matches a percentage of your contributions, try to take advantage of the maximum amount they offer since that's like free money in your account.

Your 401(k) isn't your only option for investing. You can open individual retirement accounts (IRAs) and other types of investment accounts on your own with contributions automatically withdrawn from your bank account. Investing in the stock market can be another way to build wealth over time.

Real estate is a popular strategy for building generational wealth because home values continue to rise. Once your mortgage is paid off, your home will be an asset with a cash value. It can be passed down to your beneficiaries and sold if they don’t need it.

Investing in real estate is another option. Many investors start by buying a multi-family home, living in one part and renting out the others to cover the mortgage and begin to build wealth. Others purchase vacation homes that they can rent out when they're not using them.

Life insurance has many benefits, but its primary function is to protect your loved ones financially after you die. They can use your death benefit to pay a mortgage, square up debt or serve as income replacement. Not having life insurance protection could leave your loved ones struggling to make ends meet and unable to save for the future.

You may think a life insurance benefit through your employer is good enough, but it may not fully cover your family's basic needs. And it might not be transferrable to a new job, which could leave your family unprotected. If you're young and healthy, life insurance may be one way to help build generational wealth because it is usually more affordable the earlier you start your coverage.

Get started by calculating your life insurance needs.

One of the most meaningful gifts you can give to younger generations is the opportunity to attend the college of their choice.

The cost of college has risen over the years, and many Americans are spending decades paying off student loans. While new government programs may help lighten the load for some borrowers, it’s hard to know what the future holds. But those who are fortunate to have relatives help fund their education can avoid loans and start adulthood with little or no debt.

Starting early to save for your kids' college education can help them avoid significant debt later on. Consider looking into 529 plans,¹ which are college savings vehicles with tax benefits. You may be able to use money from a 529 plan for qualified expenses other than college tuition, like textbooks and computer equipment.

What would you do if you could not fail? Start a business? Change careers? Found a nonprofit?

Generational wealth can come from bold decisions whose impact adds up over time, such as starting a business or pursuing an advanced degree.

For Thrivent clients Joshua and Annie Brown,² opening a pharmacy was a professional and personal goal that took years to achieve. But with careful planning, they made their dream come true. Joshua is a pharmacist and Annie provides part-time marketing and management support for their business. By building generational wealth through insurance, retirement plans and a giving strategy, they were able to open their pharmacy and create a family asset that may someday be passed on to their three daughters.

Intangible wealth also plays a role in achieving these kinds of goals. The relationships and values of a family can be solidified through focused, intentional expressions of those values. For example, you might create generational wealth by renovating a vacation home your family can visit together or writing a book about your ancestors.

We can’t promise your bold idea will work. But with time on your side and a generational view of your future, you can take small steps in that direction while keeping the risk low.

Start a separate savings account for your big dream, give it a name that inspires you, and contribute steadily over time. Meanwhile, begin accumulating the knowledge you need to be successful: Read books and attend free seminars or networking events. Talk to people who are doing the thing that interests you and ask them what they’ve learned. With more resources and knowledge, your big dream might seem a little less big and a little more attainable.

As you start thinking about generational wealth, you'll want to consider how you will pass it down to your loved ones. That's where having an estate plan comes in. Estate planning—facilitated by an attorney—can help ease the transfer of your wealth, assets and other material goods to your loved ones after you pass. You and your attorney will work together to make arrangements and ensure you have the proper documentation for your estate plans.

Once you have your estate affairs documented, it's a good idea to review them regularly. You may wish to check your will, life insurance and any beneficiary designations yearly or after a significant life event and make any necessary changes.

While not impossible, it's hard to build generational wealth by learning about it independently. Life can get in the way and send things off track.

Gathering a team of financial experts can go a long way toward meeting your needs. They can look at your current situation and help you plan for the future. Here's who to consider adding to your team:

• Financial advisor
• Accountant
• Attorney
• Tax expert
• Estate planning attorney

Building wealth over time isn't guaranteed, but it may not be as difficult as you think. It also can be a powerful, inspiring way to connect with your family, align with your values and uncover a vision much larger than yourself.

Do you want to start creating a plan for your family and learn more about generational wealth? Connect with a local Thrivent financial advisor who can work with you to start developing goals and putting a plan in place for the future.