Generational wealth pertains to the transfer of assets from one generation to the next. Wealth can be transferred while the donor is alive or after his/her death in the form of an inheritance. Forms of assets that are passed from one generation to the other include real estate, businesses and financial assets such as stocks, bonds and bank deposits.

It’s important for us to focus on building generational wealth, whatever the age. There is tremendous financial advantage for people who inherit generational wealth versus people who don’t. It negates dependency on costly education loans or credit cards. Funds can be directed towards assets that are increasing in value and which can generate streams of income.

A survey done in the USA, tracking people between 30 and 40 years old, revealed that nearly half of money inherited is squandered by spending or poor investing, while the other half is saved. Financial literacy is, therefore, needed to guide beneficiaries on how to invest wisely.

Research shows that about 30 per cent of wealthy families retain their wealth in the second generation. Just about 10 per cent of families remain wealthy beyond the third generation.

Generational wealth plan

In order to retain generational wealth, one has to be strategic. Create a financial plan that will ensure that assets are protected for generations to come. Funds saved in retirement should be invested in long-term instruments that will compound over time and create an inheritance for children, grandchildren and other family members. Investing in stocks is one of the best financial vehicles to create and retain generational wealth.

It is important to always have your money working, benefit from capital appreciation and earn income from the dividends. Compound interest and time will preserve generational wealth.

With the onset of retirement, it’s best to diversify assets to minimise risks.

Make sure to include real estate in your generational wealth plan. Investment properties can provide passive income for generations. Real estate will appreciate in value over the long term. Homes can be sold and funds invested in purchasing other investment properties or proceeds can be invested in financial assets that are increasing in value.

Make saving and investing a habit. Decide how much you need to save or invest before spending. Create a budget for spending. Know where your money goes. “Beware of little expenses; a small leak will sink a great ship.” (Benjamin Franklin, former US President) Ensure adequate life insurance is in place. Have an estate plan and put in place a trust fund if necessary. Never neglect to make a will.

Financial literacy

Transferring financial knowledge to the next generation is just as important as passing on wealth to families. Financial literacy provides the template to preserve current and future wealth. In Jamaica, BPM Financial Limited leads the way in helping to improve financial literacy through weekly spots on radio stations that appeal to a local and global audience.

Digital learning is another way forward and appeals to the younger generation.

The Great Recession of 2008 to 2009, caused by the subprime mortgage collapse in the USA, is regarded as the worst recession since the 1930s. All age groups saw reduced wealth during that period. Since then the wealth of seniors has increased and the wealth of the younger generation has decreased.

The Great Recession affected millennials’ job outlook, as well. They are more educated, but enter the workforce with student debts, are marrying later and delay buying homes and starting families. The advent of COVID-19 is expected to cause this trend to continue. The millennials have longer time horizons; hence, they have more time for wealth accumulation and have the opportunity to achieve pre-retirement living standards while in retirement. With an aging population, the younger generation will obtain inheritance at an older age than previous generations. But millennials will face greater economic burdens and lower rates of return on investments than in years gone by.

An early start on wealth creation through business acquisition, investing in stocks and real estate will most definitely pave the way for building generational wealth. A licensed and experienced financial advisor can assist with your generational wealth plan.

Grace G McLean is a financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit www.bpmfinancial.com. She is also a podcaster for Living Above Self (livingaboveself@gmail.com).