This checklist has a major flaw!
A fb friend posted this last week. It was part of a gofundme campaign to raise money for a man to help him get started in life. Unfortunately, it did not show how the donors could be assured the funds would be used as intended.
I can check all five boxes. My parents and probably my grandparents could as well. But that is not the point.
Just because you can check the boxes does not mean your family has what most people think of as generational wealth. You could simply be comfortable and responsible.
There is a big difference between having assets and having what most people think of when they think “generational wealth”. (ie: the Rockefellers or the Du Ponts)
Technically, generational wealth is any asset(s) that can be passed down from one generation to another. By this definition, passing down $1 could be considered generational wealth.
I am thinking the majority of people would consider “wealth” to be considerably more.
The thing with generational wealth is that it is fragile. Even if you manage to create it, it is only as safe as the next generation. Look at the wealthy families from a century ago. The majority lost their wealth through dilution or choices. Very few have maintained their wealth.
The first reason is logical. As each subsequent generation has children, marries, and has more children, there are more people slicing up the pie. If the assets are not able to grow as quickly as the family tree, each slice is worth less.
If the first generation bakes the pie and they have two children, the pie will be cut in half. If each of Gen 2 has two children, there are now four slices. If Gen 3 each have two children, you now need 16 slices. It does not take long before each heir receives only a sliver of the original pie. Add inflation and that pie is even smaller.
The second reason is more common. The first generation creates the wealth. They pass it on to their kids, who may take care of it. But if Gen 3 or 4 is raised with a sense of entitlement they can lose all the money very quickly and have nothing to pass on to future generations.
To avoid this, many families will put their assets into family trusts. As long as the assets can grow faster than inflation, the assets can be passed along for decades. They are not foolproof, but they definitely help. In recent years, the family trust has become more common as a tool to avoid the death tax or have the assets be drained to pay for long term care. If this sounds like a potential option for your family, talk to an estate attorney and CPA who specialize in estate planning.
This checklist is a good first step, but it is not the end goal. If you want to create generational wealth, start by being responsible with the money you have now, no matter how small it may seem. Save some, invest some, educate yourself and your children, give/tithe some, use some of it to have a little fun, and pay your bills in full and on time.
It is about ongoing learning and taking action. If you have plan for your money and are responsible for what you have now, more will be given. Money loves a purpose. Be mindful of your spending habits.
If you want to learn more, or if you cannot quite figure out what your next step should be, email me for a free First Steps financial strategy call. We will discuss where you currently are, where you want to be, and come up with your best first steps for your specific situation. And, if you family has not done it yet, I hope you are the generation that will create the generational wealth that we all dream of- and that you will prepare your heirs to maintain that wealth for generations to come!