Build sustainable, lasting wealth for the next generation

By Stephen Spears

Whether it’s setting your monthly budget, searching for new income streams, or splurging on a long-desired item or experience, money is persistently top of mind for many people. And wherever you are in your financial journey, it is often hard not to feel like more people are getting to the next level faster.

A 2023 Gallup survey reveals that many Americans are impacted by this financial discouragement. Approximately 55% of people report their financial situation as “fair” or “poor” (compared to 45% reporting their situation as “good”), with 50% indicating their situation worsening instead of improving. These perceptions appear to apply to their future financial situations, impacting their children, too. Data from the National Opinion Research Center at the University of Chicago indicates 44% of respondents perceive their finances to be in worse condition than expected at their current stage of life, while nearly 80% are concerned that their children will not have a better life than they did.

The concept and value of wealth can be defined in many ways, depending on context, end goals and personal perspective. In the material sense, a person’s financial wealth is determined by the accumulated total of their assets; things like immediate income sources and cash savings paired with long-term investments like real estate, insurance, stocks and bonds, and valuables. Someone’s total accumulated wealth is calculated by subtracting what are known as liabilities – larger expenses like home mortgages, credit card and tax debt, student loans, and other financial obligations – from their assets.

Financial legacy is one of the most important considerations a person should make while building their wealth. Will you be able to pass on any of your assets to your children or other young loved ones in the future? Distributing these assets from one generation to the next to support continued financial security is called generational wealth.

The impact of generational wealth

Put simply, generational wealth is critical to setting up succeeding generations for continued success. Building this type of wealth relies on not depleting all accumulated assets in a single generation or family. Homeownership is one of the most common ways to pass on wealth. Other passed-down assets can include financial investments, life insurance, businesses, valuables and cash savings.

Generational wealth has historically been more accessible for certain groups, particularly white families. For centuries, systemic racism and discrimination through factors like income inequality, limited access to education and college, and housing discrimination have limited opportunities for Black, Indigenous and families of color to accumulate this type of wealth.

The most recent Survey of Consumer Finances from the Federal Reserve Board found that a typical white family has eight times the wealth of a typical Black family and five times the wealth of a typical Hispanic family. A 2021 McKinsey report estimated that the disparity in familial wealth between white and Black households was roughly $330 billion in the annual flow of new wealth, with over 60% coming from inheritance. Building generational wealth is an essential component to economically empowering BIPOC communities.

Fortunately, there are opportunities for people and families from all backgrounds to accumulate and pass down wealth to future generations through sound financial planning and developing what is known as a saver’s mentality. Living frugally while saving and investing early and consistently can make a significant difference in your wealth-building journey.

Below are steps to building wealth, regardless of your current income level or financial situation.

Source a consistent income stream

Before you can begin saving, you first need to consistently earn enough money to cover your necessities, including housing, utilities, food and health care. It may be worth furthering your education or gaining new skills to increase your income potential if you do not currently have a consistent source of income.

Monitor your spending and proactively save

Spending more money than you have on items and experiences is easy to do. When you track your spending, you can quickly identify where your dollars are going and areas for improvement.

Once you have a steady stream of income and understand where it’s going, it’s time to begin proactively saving. One easy, effective way to do so is to set up automatic transfers from your paycheck into a savings account.

Seek out financial education opportunities

Along with professional education, financial education is needed to ensure financial prosperity. Unfortunately, many BIPOC communities have historically faced barriers to both. Working with a financial institution or finding financial literacy classes to fill gaps in your finance knowledge and learn more about available resources are valuable ways to build wealth. Understanding how money and interest works, how to invest, improve your credit score, and effectively manage finances can go a long way.

Create a financial plan

Financial plans help identify your money goals, as well as your understanding of where you are now and where you would like to be in the future. Trusted financial institutions, professional financial planners and community organizations can serve as a valuable resource in working with you to create a personalized plan that helps set you up for success.

Consider homeownership

Homeownership is a critical way to build generational wealth by providing stability and allowing families to build equity that passes down to future generations. While BIPOC families have historically faced discrimination in the housing market, many programs and resources are available today to help break down these barriers.

Building generational wealth is important for everyone and can provide an overall improved quality of life. Having a financial cushion helps with unexpected financial emergencies, tragedies and setbacks, and has been shown to reduce stress levels. Through mindful spending, seeking opportunities for further financial education, saving, investing and creating a financial plan, you will be one confident step closer in building wealth, so that money doesn’t always have to be a source of stress– both for you and for future generations.