Imagine being able to leave a house or a good sum of cash to your children when you pass. An inheritance like that could ease their financial pressure and free up money to pay off debt, or to save or invest. It could even be the start of building long-term wealth for your family, in your children’s generation, your grandchildren’s generation, and beyond.
To help you build financial security that lasts for generations, we have planned a series of articles about generational wealth. Here, we take a closer look at what it is and why it’s important. In future articles, we’ll look in more detail at how you can build and preserve generational wealth.
In a nutshell, generational wealth is wealth, or assets, that you pass down through your family from generation to generation, over many years. Family members in successive generations inherit this wealth, benefit from it, invest it, grow it and leave it to their children.
It can be in the form of:
- Life insurance
- A family-owned business
- Valuable possessions such as artwork, antiques and jewellery
Generational wealth can last forever if it is well looked after. A well built and cared for home can be passed down through families. Wise investments can continue to grow so that future generations inherit more than their parents and grandparents.
A once-off inheritance that you spend in your lifetime – it lasts from generation to generation. Neither is it only for the super wealthy. Generational wealth is about making your money work for you and your family across generations, and you can start the process, whoever you are.
Let’s look at an example of two 29-year-old South Africans, Leo and Lebo, to show how generational wealth works and how it can benefit you and your family.
Leo and Lebo both have a university degree, are employed and earning a decent salary.
Leo has bought a house where he and his family live. He is paying off a home loan, in addition to paying for his car and general living expenses. He has very little money left to save or invest. If he faces a financial emergency, he will have to take a loan, which means he has even less to invest and save and may well end up with too much debt. Sadly, Leo is going to find it very hard to save and invest so his children have a good financial start in life, as most of his earnings are used for living expenses. In his later years, his children may have to support him financially as he has been unable to save for retirement.
Lebo inherited a house and investment fund of R500 000 from her grandmother. Because she already owns her own home, she isn’t burdened with monthly bond repayments. She has money to buy life insurance and to save for emergencies. Thanks to her inheritance, she also has more money to invest. So much so that she can invest in shares and earn interest and dividends, which she re-invests, growing her wealth further. She also invests in furthering her education and takes a part time course in entrepreneurship at a local university, which she can use to start her own business on the side.
You can see the benefits generational wealth brings to Lebo and her family. She has financial security; she doesn’t need to take on too much debt and she can afford good schools for her children. She also has the means to increase her earnings by starting a side hustle. For future generations, she can use her assets to grow her wealth and leave money and property to her family when she passes, so that they can be financially comfortable and invest and grow these assets for the next generation.
Generational wealth also benefits communities and the country. Lebo, from our example above, may decide to invest in a new business. She employs four people to run the business, giving them and their families more financial security. When they spend their money (hopefully they also save some!), they boost the country’s economic growth.
If you are able to build generational wealth, you can make sure your children and theirs have financial stability without financial stress. Building generational wealth takes careful planning, commitment, time and discipline – but it is possible. And well worth the effort.
Ready to get started? Read our next blog on how to create generational wealth for your family.