Most of the Western world is bankrupt in its thinking. Generational wealth is a term that we should all know and understand. For most families in the Western Hemisphere, this is a rare mindset, but if you examine the eastern parts of the world, you’ll find examples of generational wealth spanning centuries and not just cycles.
A simple definition of generational wealth is ‘the transmission of significant and stable financial resources to future generations’.
Here are 3 tips to create, build and protect your family’s generational wealth.
Tip #1 – Build wealth in something that maintains or increases its value
Physical assets such as land, art and gold last longer and outperform riskier paper assets such as stocks and bonds. In fact, stocks can do well for long periods; Stocks, bonds, and even cash carry some claim on a third party. Every paper currency in the history of the world has ultimately proved useless and there is little reason to believe that the current champions of paper money – the US dollar, the euro or the yen – will prove to be any different.
By virtue, the value of land, art, and gold are intrinsic. Some liquidity is absolutely needed for day-to-day expenses, but in these physical holdings there are no issuers who can suddenly make your land disappear or turn your gold into confetti.
Tip #2 – To protect generational wealth, DON’T divide it
Different personalities equal different investment ideas. Generally speaking, when mom and dad die, their assets are divided among the children. When family assets are divided, each child has the power to do as they please with their share, but all too often the financial discipline of mom and dad is not an inherited trait, and fortunes often change.
When assets remain intact and are managed as if they were a business, families will see their wealth differently and will not hesitate to make a $5 million investment. As assets are passed down from generation to generation, each generation does not see the assets as “theirs” but rather sees themselves as the guardian of something greater.
Tip #3 – Foster “wealth” attitudes in the next generation
Once you’ve achieved your wealth (or while you’re building it) talk to your kids about how you made it; because you did; and what she wants done with it once she passes it on. Also, consider delaying the wealth transfer until after age 30. This allows children to earn their own success rather than having feelings of entitlement.
Conversations about wealth with your heirs (children) should be a regular occurrence at the dinner table. This will also give you the opportunity to “assess” whether or not they are suitable to continue your fortune.
In today’s economy, educating yourself on the ways to create, build, and protect your wealth is imperative. If done correctly, you too can have generational wealth for your family.