Cooper Family Newsletter

Generational wealth

Lately there has been talk about generational wealth.  So lets talk about it so that we all can understand it.  Generational wealth is about more than how much money you have — though money is, of course, a key part.  Generational wealth is also about habits as small as packing your lunch instead of buying it out, or what you and your family talked about around the dinner table.

What is generational wealth?

Generational wealth refers to any kind of asset that families pass down to their children or grandchildren, whether in the form of cash, investment funds, stocks and bonds, properties or even entire companies.

One of the most common ways that people inherit and pass on generational wealth is with real estate.  You enter the middle class through homeownership, right? That’s the leap. You’re able to understand that you’re building equity.  And equity makes a difference: When you sell or refinance your home, you can draw on your equity and leverage it to grow your wealth more or improve your life in other ways. This could include moving to a more expensive house, making home improvements, padding your retirement, paying for your child’s college tuition or investing in a business venture with the potential to increase your income. This allows for a kind of social mobility and risk taking that people without wealth simply can’t afford.

I also believe that generational wealth comes in the form of education, too. Parents can teach their children about budgeting and helped them to understand borrowing and credit so that they are confident when they set out to build their own wealth through homeownership. We can also consider our own skills a form of wealth to pass along to others, as they can save a person thousands in costs and quickly help increase a person’s value.

How generational wealth impacts your ability to save?  Having wealth helps you earn more.  Communities of color pay higher property taxes.  Often that money doesn’t translate to better services. Historically redlined communities have fewer grocery stores and essential infrastructure like banks, parks and community centers. Acts as simple as grabbing lunch or withdrawing cash come with a convenience premium.  What are you going to do if you don’t have a car, and you need to go to the bank?  Well, you just go to the cash machine, and then you’re charged by both your bank and the cash machine.”

The average out-of-network ATM service fee is $4.64 per transaction, which adds up quickly.  It’s really hard to start from this position to create wealth.  The first steps to start building generational wealth.  Homeownership is perhaps the most common way families can build generational wealth, but there are lots of little steps to getting there.

The Federal Reserve reports that the median net worth for homeowners in 2019 was $255,000 compared to $6,300 for renters. That’s more than 40 times greater wealth for homeowners compared to those without property in their name.

However, my argument is that generational wealth can accumulate quicker when you apply what we know about budgeting, 

spending and saving to all areas of our financial life. 

And if you’re fortunate enough to have a steady source of income with discretionary money to spare, take advantage of compound interest and apply simple principals like “pay yourself first” in whatever small, consistent ways you can until you start seeing your savings grow. It’s never too early to begin. Know that putting aside a small amount each month, you’re building the muscle of saving.  All those small steps prepare you for the larger leaps.

You could save $1,000 in a year by putting aside $20 per week into a high-yield savings account. A savings account is a type of financial account found at both banks and credit unions. Savings accounts are a good option for achieving your money-saving goals. You'll want to choose a savings account that offers a competitive annual percentage yield (APY) on your money. It can pay to choose one that either doesn't have a monthly service fee or has a minimum balance requirement that you can meet to waive the fee.  So you could begin right now.

Start small. After making incremental deposits each week, you may notice areas in which you can cut back and save more than $20 per week. Build some momentum, and it can become even easier to save.

Once you have a budget that works for you, it might help to be purposeful. That means setting financial goals. Goals can change over time, but thinking about short-, mid- and long-term goals can help you set realistic timelines. 

Generational wealth can mean different things to different people. And things like retirement savings, insurance policies, investments and emergency funds all could be part of the process.

Think about the next generation, after building wealth, the second aspect of generational wealth is passing it on. There’s no shortage of ways to do that, but when it comes to a secure future for your kids, it’s worth considering things like insurance policies, wills or trust funds. You might also consider how your child might pay for college.

No financial plan is permanent. As your finances change, don’t be afraid to revisit your plans and budgets. A new job or side hustle might bring extra income. New expenses might make you adjust timelines. Regularly assessing your financial situation against your goals is a good way to make sure that you’re working toward building wealth.