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How to create generational wealth

Eight things anyone can do to leave a legacy for their loved ones.

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If you’re a parent, you’ve probably asked yourself what kind of financial legacy you’d like to leave for your child or children. Maybe you’ve even taken the important steps of buying life insurance to provide a financial safety net or creating a will to ensure your assets will be distributed according to your wishes.

But you might not have thought about how your children’s inheritance will be passed down to your grandchildren — or how the lessons you teach your children could eventually be passed along to future generations. Generational wealth compounds, which means that anything you give your children could help them build a better life for your grandchildren, who in turn could pass along assets, skills and knowledge to your great-grandchildren. It’s the kind of legacy that could continue to generate wealth long beyond your lifespan.

We reached out to three financial experts to learn more about how to create generational wealth, why generational wealth is a key component of the racial wealth gap, and how to think about generational wealth in terms of not only money, but also skills, values, assets and resources. Not all of us can leave our children a significant financial inheritance — but we can all do our part to give the next generation the tools they need to succeed.

In this article:

What is generational wealth?

Generational wealth refers to the money, assets, skills and values you pass along to the next generation. Many parents hope to leave their children an inheritance, for example — but even if you can’t leave your children money, you can still pass along skills, values and tools that your children can use to improve their lives, increase their opportunities and build wealth that might someday be passed down to your grandchildren.

This kind of wealth — both asset-based and skills-based — is especially important if your family is part of a group of people who have been historically marginalized or disenfranchised. “Generational wealth benefits families because it gives them the opportunity to succeed despite socio-economic issues and barriers that could otherwise limit them,” says Bola Sokunbi, founder and CEO of Clever Girl Finance.

That said, you don’t need to pass down a significant inheritance in order to give your children the opportunity to succeed. “You don’t need to leave a lot, if someone has the right tools launching into life,” Tom Anderson, financial planning expert and author of The Value of Debt in Building Wealth, explains.

Helping your children graduate from college without taking on student loan debt, for example, could give them a huge head start in life — and those kinds of financial boosts can help your children create wealth that can be passed on from generation to generation.

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What can you do to create generational wealth?

There are many ways to leave your children an inheritance — and not all inheritances involve money. In addition to making your children the beneficiary on your investment accounts or your term life insurance plan, you can also give your children other life-changing tools and skills such as a good education or strong financial values.

Here are eight different ways of creating generational wealth.

1. Homeownership

“Homeownership is the chief way we build wealth in this country,” says Lynnette Khalfani-Cox, CEO of financial education company The Money Coach and author of Zero Debt: The Ultimate Guide to Financial Freedom. “The average American who owns a home, they have a leg up in many ways.”

Not only do homeowners get federal tax breaks that are unavailable to renters, but owning a home gives you equity — and you can tap into that equity to start a business, ride out tough financial times or help fund your children’s college education. “The lack of a house can be a serious financial drawback,” Khalfani-Cox explains.

Sokunbi agrees, noting that investing in real estate can be a way that wealth is passed down from one generation to the next. Anderson, however, cautions homeowners to be wary of treating their nest like a nest egg. “The challenge with a home is two-fold,” Anderson told us. The first challenge is ensuring that your home appreciates in value over time — which, if you remember the way the housing market crashed during the Great Recession, might not be entirely within your control.

The second challenge is ensuring you keep your home long enough to pass its value down to your children. “We’re all living a lot longer, and it’s rare that we’re still living in the house that we thought would be an asset at the end-of-life period.” Many people downsize to a smaller home before moving to a senior care center, assisted living center or nursing home — and the value of the home is often put towards the high costs of end-of-life care.

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2. Small-business ownership

home isn’t the only major asset you can leave your children. If you run a small business, you have the ability to not only earn your own money and be your own boss, but also to pass the business along to your children as they get older — and give them the opportunity to continue growing the family’s wealth.

“If you look at millionaires in this country, the vast majority of them have made their wealth through property ownership and business ownership,” Khalfani-Cox explains. Your small business might not make you a millionaire, but it can still give you the opportunity to take control of your career and support your family — and who knows? Maybe your children will be the ones who take the family business to the million-dollar level.

If you’re concerned about the risks involved in starting and building a business, keep in mind that there are also risks involved in working for someone else.

“Even though it may be difficult to launch and start an enterprise, it’s sometimes easier to create a business than it is to find a job,” says Khalfani-Cox, “especially for women, African-Americans and people who might feel like they’ve hit a certain ceiling.” Starting a small business could change your family’s life — not only right now, but also generations from now.

3. Investments

Sokunbi, Khalfani-Cox and Anderson all spoke to the importance of investing — and the ability to turn your long-term investments into generational wealth. You don’t need to be Warren Buffett to pass along stock market returns, either. If you have a 401(k), you have money that could eventually become part of your children’s inheritance.

“Designate beneficiaries on any assets you might already have, no matter how small,” Sokunbi says, “For example, workplace retirement investment accounts.” This is one more reason why you should always sign up for your employer’s retirement plan — and always take advantage of any matched funds that your employer offers.

4. Education

“Knowledge in itself is wealth,” explains Sokunbi, “because once you know what something means and how it works, you are able to take the actions necessary to implement your knowledge.” Helping your children with their homework when they’re young, for example, can turn into helping them apply for scholarships when they’re ready to go to college.

You can also pass along skills that can make your children’s lives easier and more affordable, such as the ability to cook, plan meals in advance and grocery shop on a budget. If you have a side hustle or small business, teach your children how you earn income — because they might be able to use what they learn to start their own businesses in the future.

Make sure they understand not only the tools of the trade, but also the skills involved in bookkeeping, marketing and client management.

5. Values

Many parents want to pass certain family values down to their children, like kindness, generosity or compassion. If you’re thinking about building generational wealth, you should consider passing down financial values as well. “Children observe your behaviors and actions,” Sokunbi explains. “Simply seeing the action of you budgeting, paying down debt and saving can be incredibly impactful to their financial decision-making in the future.”

Anderson agrees. “Train your children to save, and they will be wealthy relative to their needs.”

You can start by setting up the classic three-compartment piggy bank: one compartment for spending, one for saving and one for giving. From there, Anderson suggests asking yourself the following questions: “What would be the coolest values for my kids to have when they are older? What values would set them up for success?”

Maybe you want to teach your kids the importance of hard work. Maybe you want to teach them the value of being their own boss. Maybe you want to teach them about financial independence and the ability to live a life that isn’t dependent on a job. Choose your values carefully, because they’ll become part of your children’s inheritance.

6. Life insurance

“Life insurance is one of the easiest, no-brainer ways to help pass along wealth to the next generation,” Khalfani-Cox told us — and we agree. An affordable term life insurance policy can help protect your family from unnecessary financial strain, and the value of your life insurance policy can become part of your children’s inheritance.

Why is an affordable life insurance policy, and estate planning in general, one of the key components of generational wealth? Because it allows you to set aside funds for your beneficiaries without having to save the money yourself.

“It might take you 20 years to save $250,000 or $500,000,” Khalfani-Cox says. “You could just as easily buy a term life insurance policy, and that policy would have a face amount of coverage of $250,000 or $500,000. If something happened to you, your beneficiaries would get that payout.”

Plus, a good life insurance plan can help reduce the racial wealth gap. “Life insurance is one of the very easy ways in which Black people especially can start to build wealth,” Khalfani-Cox explains.

“Life insurance is one of the easiest, no-brainer ways to help pass along wealth to the next generation.”

—Lynnette Khalfani-Cox

7. Annual gifts

You don’t need to wait until your death to pass along generational wealth to your children. If you have the money to spare, giving it to your children while you’re still alive can help them buy their first home, pay off debt and set them up for a strong financial future.

That said, it’s a good idea to hold off making annual gifts to your children until you’ve saved enough money for your own retirement and end-of-life needs. “You’re either on track to a comfortable retirement or you’re not,” Anderson says. “If you are, start annual giving.” Read the IRS’s rules about giving and gift taxes to ensure you aren’t getting yourself into a tax pickle — in 2023, for example, parents can give children up to $17,000 each before gift taxes kick in.

8. Philanthropy

There’s one more way of passing along generational wealth — and that’s by giving it to organizations that are designed to support, promote and educate the next generation. Making philanthropic contributions, whether as a bequest, an endowment or a recurring monthly donation, is an excellent way of ensuring that your money goes towards a good cause.

People without children often wonder what to do with their assets both during their life and after their death. Philanthropy can help you use your accumulated wealth to help others — whether you’re making a charitable gift in addition to the gifts you’re passing along to family members, or whether you’re designating a charity or organization to be your primary inheritor.

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How has generational wealth contributed to the racial wealth gap?

“You can’t really talk about the history of generational wealth in this country without having a conversation about racism and about how structural inequities were created specifically to disenfranchise some populations, especially Black people,” says Khalfani-Cox. “The idea was to not let them be able to build wealth!”

There are many reasons why the racial wealth gap between Black Americans and white Americans is so large — and several of those reasons are directly related to the concept of generational wealth. A first-time homeowner, for example, is not only purchasing an asset that can be passed along to the next generation. That homeowner may also be giving their children the gift of stability, as well as helping their children understand how the homebuying process works and teaching their children that owning a home is an important family value.

Even if their children never inherit any money from the home itself, they will have inherited several related skills and tools that they can use to build their own security, stability and financial success — and that kind of generational wealth also compounds over time.

But not everybody has access to something as important as homeownership. The Urban Institute recently reported that 71.9% of white Americans own homes, compared to just 41.8% of Black Americans — the greatest gap in 50 years — a deficit that has its roots in redlining, the practice of not allowing Black citizens to buy homes in predominantly white neighborhoods.

When you are part of a community that has been disenfranchised for generations, building generational wealth can seem like an impossible goal — but that doesn’t mean there aren’t opportunities to leave your children the skills, values and tools that can help them take advantage of opportunities and build their own wealth.

If you are part of a community that has been historically privileged, you also have the opportunity to use some of your own wealth to help people who haven’t received the same benefits. Philanthropy, mentoring, activism and allyship are all ways to pass along the money, skills and resources that have helped you succeed — and sharing some of what you’ve earned and learned can take us all a bit closer to closing the racial wealth gap.

“You can’t really talk about the history of generational wealth in this country without having a conversation about racism and about how structural inequities were created specifically to disenfranchise some populations, especially Black people”

—Lynnette Khalfani-Cox, CEO and author

Remember, generational wealth isn’t just about giving your descendents an inheritance. It’s about using what you have to ensure that the next generation might have it a little bit better.

By understanding that wealth is not always correlated with money, and that you have the opportunity to share your skills and resources with both your family and your community, you’ll be better prepared to pass along your wealth to the people who need it most — and since generational wealth compounds, your legacy might be the seed to someone else’s success, generations into the future.

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About Nicole Dieker

Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate,, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.

Read more by Nicole Dieker

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

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