3 Ways to Start Building Wealth for the Next Generation TODAY
When I was growing up my mom and my grandmother were the women who taught me about how to manage finances. I suppose what I observed and heard from them about money was a mixed bag of positive and negative lessons. One of the most important lessons that I learned came out of one of the saddest times of my life. In 2008, my grandmother passed away after suffering a fatal heart attack. At the age of 40 she migrated from Trinidad where she had been a housewife and mother to eight children. When she arrived in New York City she started working her very first job as a housekeeper. Over the next 38 years, my grandmother never made more than $25,000 a year, yet she managed to pass down real estate properties to her surviving children, remain completely debt-free and save enough money to cover all of her funeral expenses. My grandmother didn’t know much about investing in vehicles like the stock market, bonds, and treasury bills, but she did know the value of a dollar and that she did not want to leave a legacy of debt and hardship for her children.
That brings me to ask the question What legacy are you building for your children? There is so much information being shared these days about how to make more money. Perhaps you’ve seen headlines like 7 Side Hustles You Can Do While Working Full Time or 7 Quick Ways to Make Money Investing $1,000. While finding ways to generate additional income can help with paying off debt and building up emergency funds faster, saving for your next vacation or even adding more money to you existing investment accounts, it is extremely important to consider how you are building wealth for the next generation. Robert Kiyosaki, author of the bestselling book Rich Dad, Poor Dad reminds us that “it's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for”. Let’s take a closer look at three ways that you can use to build wealth for future generations.
#1: Stock Market Investing
Over the past century, the stock market has consistently provided a compounded return of 7%-10% on long-term investments. What’s even more exciting is that it has never been easier to start investing in the market. Brokerage companies like Robinhood and Stash provide easy-to-use platforms and it only takes a few minutes to set it up. When you open your account consider setting up a custodial account for your child as well. You can make investment decisions together and when they turn 18 they will have full control of their account. If you put in the time to learn about investing together, your children will be more likely to handle future investments wisely.
If you notice, I am specifically talking about active investing where you and your child make investment decisions together. If you have a retirement account with your current employer, you are not actively involved in making decisions about those investments so you are not really learning about how the market works, nor are you teaching your child the power of this amazing investment vehicle!
Even as a passive investor with your retirement accounts, you can pass down wealth by ensuring you have a beneficiary listed. So if you haven't done so already, make sure you do add your beneficiary’s name as soon as possible.
#2: Life Insurance
Life insurance is probably one of the fastest and easiest ways to pass down wealth, and one of the BEST KEPT SECRETS of the wealthy! The amazing thing about life insurance is that it can serve you with income to invest while you are alive as well as provide your beneficiaries with tax-free money after you pass on. Yes, you read that correctly…you can use money from your life insurance policy while you are alive! I always advise my clients that the best way to use the cash value in your policy is to purchase other investments. High cash value permanent life insurance and equity-indexed whole life insurance are both great options to look into if you want to be able to use the cash value in your policy towards real estate, starting a business or purchasing any other investment that will appreciate in value over time. The wonderful thing is that this money can be used tax-free and your death benefit continues growing so that you can pass wealth down to your children after you pass on. Becoming your Own Banker is a great book to read to learn more about how to use life insurance to finance future investments.
#3: Education
I’ve saved the best for last. This final strategy is by far the most important and it is definitely the one that changed the trajectory of my entire life. In fact if you dismiss this strategy, then your chances of building generational wealth is slim to none. It is estimated that “70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third”. The primary reason why future generations come to such an unfortunate end is the lack of education about money and how to handle it responsibly. If you want wealth to last for generations, you must invest time in teaching your children the fundamentals about money as well as why it’s important. Having conversations about family finances are a great place to start.
You remember when I said that my experience in learning about money was a mixed bag of positive and negative experiences? In my family, adults never discussed financial decisions with children. As a result I learned money management the hard way. I went into over $1,000,000 dollars of debt before the age of 30. Within three years I was completely debt free, but the journey towards debt freedom was a very tough learning experience. I read books, attended seminars and invested in a financial coach to help me through my mess. At the end of this ordeal, I discovered my purpose and I have since dedicated my time to helping others increase their financial IQ so that they are equipped to make intelligent financial decisions.
You can save your children the time and pain of going through these tough life lessons about money by making financial literacy a priority in your home. The wonderful thing is that learning about money doesn't have to be boring! You can increase your family’s financial IQ by reading books like How to turn $100 into $1,000,000 or A.F.I.R.E, playing games like Cashflow 101, and watching movies like The Ultimate Gift that teach about wealth building in a fun and engaging way.
The conversations that you have about money should also be connected to your core family values. If your family places a high value on feeding the hungry or providing housing to the homeless, then you need to help your children understand how being a responsible steward over finances can position them to be long-term supporters of these worthy causes.
There you have it! Three easy ways to build generational wealth. When it comes to growing money time and consistency are most important, so don’t delay. Get started today.
If you want to learn more about how to build wealth for you and your family as well as how to achieve financial independence sooner, click here to get access to our Generation Wealth free resource library.
