Updated: Oct 17, 2022
In this week's episode I welcome realtor Nathaniel Getzels and we start talking about generational wealth.
What is generational wealth, why is it important, and why should an entrepreneur care?
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.
Most generational wealth is passed down as an inheritance with a vast majority of American inheritances being under $50,000.
Ever heard of the term ‘trust fund baby’? A trust fund baby is a person, typically a younger adult, who is independently wealthy and does not need to work to earn a living. The wealth that was created before the trust fund baby is generational wealth - wealth passed down from one generation to the next.
But why is any of this important?
Generational wealth gives an individual more options in life, but generational wealth is also directly tied to wealth inequality.
Take a race with 100 people for example - this example can also be found on YouTube.
We will start each individual at the starting line; however, we will ask a series of questions before the race. If you answer yes to any of these questions, you may take 2-steps forward before the race begins.
Here is a social experiment to help explain.
The video above helps illustrate why generational wealth is important, especially for our communities of color.
In 2019, white families had a conditional median expected inheritance of $195,500. Meanwhile, Hispanic families expected a median inheritance of $150,000, while black and other families looked forward to only $100,000.
Only 10.1% of black families and 7.2% of Hispanic families actually received an inheritance, while that figure is notably higher (29.9%) among white households, per Fortunly.
I am all about entrepreneurism, but it is also important to note that Mark Zuckerberg got a $100,000 cash injection from his father, Jeff Bezos’s parents were his investors in Amazon, and Elon Musk was born into a wealthy South African family.
But this is also why an entrepreneur should care.
Generational wealth gives family members the financial ability to secure their family’s future.
Going back to the video (example): take 2-steps forward if you didn’t have to pay for college, take 2-steps forward if you didn't have to worry about where the next meal would come from, take 2-steps forward if you didn’t have to pay for a cell phone bill, car bill, or insurance.
Those opportunities created, at times through generational wealth, have also created inequities. As the old saying goes, “you gotta have money to make money”.
But how? How can we create generational wealth starting from zero? It starts with a plan.
First, understand where you stand financially. Tackling personal debt, saving money, or pursuing other financial goals like starting a business are ok too, but they are not always creators of generational wealth.
A few examples of generational wealth
Invest in the stock market where there is potential for continued growth for decades. Having a general understanding of stock market sectors, stocks vs bonds vs crypto, and risk are important. I am not a financial advisor and highly recommend you seek one out.
Investing in Real Estate is another way to create generational wealth. Well placed rental properties can be a consistent source of cash flow, and the value of the property may increase throughout the years.
Build and pass down a business! That is what I am here to teach you how to do. As one guest said, "builder's build" - so let's build. Walmart is family owned and has been since 1962. BMW, Dell, Comcast, Esteè Lauder - they are all family businesses.
Life insurance - take advantage of it. Talk to a professional about it.
College savings funds for the kids (plus it’s a tax write off). Student loan debt is setting generations back - help your children by setting up a college savings plan like a 529 plan. Again, talk with a professional about it.
And teach these kids personal finance. Help them understand credit cards, loans, interest rates.
Lastly, create an estate plan or will. Consult with an attorney.
Generational wealth is important to understand and leverage, entrepreneurs.
Visit Getzels Group to learn more about real estate.