Generational Wealth: 3 Tips for Creating, Building, and Protecting Your Family’s Generational Wealth
Most of the western world is bankrupt in their thinking. Generational wealth is a term that we should all know and understand. For most families in the Western Hemisphere, this is an uncommon mindset, but if you examine the eastern parts of the world, you will find examples of generational wealth that span centuries and not just cycles.
A simple definition of generational wealth is “the transmission of significant and stable financial resources to future generations.”
Here are 3 tips for creating, building, and protecting your family’s generational wealth.
Tip No. # 1: Build Wealth On Something That Maintains Or Increases Its Value
Physical assets like land, art, and gold last longer and outperform riskier paper assets like stocks and bonds. However, stocks can perform well for long periods; stocks, bonds, and even cash carry some claim to a third party. Every paper money in the history of the world has finally proven useless and there is little reason to believe in the current champions of paper money: the US dollar, the euro or the yen will turn out different.
By virtue, the value of land, art and gold are intrinsic. You absolutely need some liquidity for day-to-day expenses, but in these physical holdings there are no issuers that can suddenly make your land disappear or turn your gold into confetti.
Tip No. # 2: To protect generational wealth, DO NOT divide it
Different personalities equate to different investment ideas. Generally speaking, when mom and dad die, their assets are divided among the children. When family assets are divided, each child has the power to do as he pleases with his share, but too often mom and dad’s financial discipline is not an inherited trait and luck tends to change.
When assets remain intact and are managed as if they were a business, families will view their wealth differently and will not hesitate to make a $ 5 million investment. As assets are passed down from generation to generation, each generation does not see them as “their own” but rather sees themselves as the guardians of something greater.
Tip No. 3 – Foster “wealth” attitudes in the next generation
Once you have obtained your wealth (or while creating it) talk with your children about how you made it; because you did; and what you want done with it once you pass it on. Also, consider delaying the wealth transfer until after age 30. This allows children to achieve their own success rather than having feelings of entitlement.
Wealth conversations with your heirs (children) should be a regular occurrence around the table. This will also give you the opportunity to “assess” whether or not they are suitable to continue your fortune.
In today’s economy, it’s imperative to educate yourself on ways to create, build, and protect your wealth. Done right, you too can have generational wealth for your family.