Recent studies have proven there is a staggering disadvantage in generational wealth between African-American homes, in comparison to caucasian households. Historically speaking, generational wealth has mostly been an advantage for white families.
It gives their children a head start socially, economically, and otherwise. If their children have any ideas, they can easily get the financial muscle to drive them to reality. The big question is, how can Black families create generational wealth too?
While gentrification, redlining, and credit discrimination stack up against Black families, there are still many innovative ways for Africans to build their own empires and pursue every opportunity in their own way.
So, what exactly is generational wealth and how do we build it for the future of our families? We will tell you all about it.
What is generational wealth?
Generational wealth is a financial investment passed on to the family’s younger generations. The major parts of generational wealth that get passed down are the likes of assets, property, businesses, and life policies from the deceased.
Families who leave an inheritance to their future generations provide their dependents with an advantage to succeed in their own futures.
How much money is needed for generational wealth?
According to Charles Schwab’s annual Modern Wealth Survey of 2019, a minimum of $2.3 million is the benchmark to be considered rich in the USA. However, this is a small amount compared to what is considered generational wealth in 2022.
The average amount required to support the next generation (and beyond) is now in the region of $10 million—although this amount cannot be measured by cash alone. You’ll need to consider real estate and other assets, too.
How long should generational wealth last?
Typically speaking, generational wealth should last up to three generations—and more. However, how long generational wealth last is strongly determined by how it is used down the line as well as by economic changes like inflation.
For generational wealth to last up to three generations, there should be a financial adviser monitoring expenditures to make sure savings are not depleted on unnecessary stuff. Also, the next generation should make efforts to grow the available wealth too.
What is the quickest way to build generational wealth?
The quickest way to build generational wealth is to start saving a part of your income. It is true that savings alone cannot make you rich. However, saving and spending minimally on luxury allows you to grow capital that you can channel toward investment.
It’s an absolute priority to educate yourself on where to invest. Without having the knowledge of the right place to invest and how to manage your portfolio, you may end up throwing all your savings to the wind.
The best ways to build generational wealth
Make no mistake, physical cash is not the only way to build and transfer generational wealth. Here, we highlight other ways black families can use to break the cycle of financial exclusiveness.
How many of them do you already have? You should also include one of them in your to-do list as we step into the new year. Ideally, every Black family need at least four of the eight ways we highlighted to start building generational wealth.
According to a 2017 report by Stanford CEPA, there is a substantial education gap between African Americans and other groups. The report suggests that African Americans score lower on tests on average. Getting to adolescent, many of them fail different courses and eventually drop out of school.
Education is the safest form of investment for your family’s future in terms of generational wealth. The majority of the time, a solid education will provide a platform for sustaining a great income. Also, the right quality of education will allow you to think about problems and ponder on creative ways to solve them.
University degrees often guarantee a higher wage. Making money is one thing and spending it wisely is another ball game altogether. The knowledge for the latter can come from enrolling in short financial courses. Interestingly, the more prudent you are in spending, the easier it is to build wealth.
#2. Real Estate Investment
The most common form of generational wealth is real estate. The real estate business encourages growth and there are numerous ways in which you can earn a consistent income with a great property.
The reason why real estate owners often end up very rich is that properties appreciate exponentially, thanks to the increasing population and urbanization. In real estate investment, you either buy homes and resell them at a premium or you sell land.
ALSO READ: 5 Ideas for Online Investing in Africa
#3. Family Business
The term “family business” is broad. There are lots of corporations and small businesses alike that are owned by families. A good example is Ubisoft, which now has branches across various continents.
Such businesses with strong structures will not only give knowledge to the young generations in the family, but they can also grow to take over the company by succession. However, unlike handing over cash, the young generation will not struggle with finding their foot because they are already part of the business.
Building on a family business backbone is often easier than starting a new business, right? Imagine what will happen in a decade’s time when more African families start and grow their businesses to become multinationals. Share your thoughts in the comment box below.
Similar to family businesses, entrepreneurship is a great form of education to teach the next generation. Black families should encourage their children to venture into entrepreneurship from their late teenage years.
By encouraging them to learn and start their own form of businesses (market days and garage sales), you’re more likely to see positive results when they are in a position to take over the family business or start their own.
The skillset and art of entrepreneurship is the ideal lesson to educate the youth to venture towards financial independence. When they start and succeed in setting up a business, the next goal should always be to scale.
#5. Stocks Investment
When we think of investing in stocks, we’re familiar with plenty of success stories most notably Warren Buffet. He’s popular for his prestigious investment track record.
With extensive research and self-education on stocks and shares, the door is wide open for potential generational wealth. In the beginning, the main principle is to invest in value, rather than high risks which can drain your investment.
Stock investment experts advise aspiring traders to focus on large or emerging sectors of the economy that can support long runways of growth. This will build into generational wealth in the long run.
#6. Life Insurance
While we all know we won’t live forever, something we should take into account is what happens when we are gone. Insurance firms offering solid life insurance plans help us to pass the financial baton to the next generation.
It’s reassuring to guarantee financial stability for your loved ones. There have been numerous cases where the family’s bread-winner suddenly departs throwing the entire family into debt or financial crisis.
Since we cannot predict when we will die, it’s imperative to have a comprehensive life insurance to ensure that grieving will never have to include financial setbacks for your loved ones.
#7. Retirement Savings
It’s important to prepare ourselves for the time that we’re unable to ply our trades full-time. Experts advise that you should start planning for your retirement from your first paycheck. Your savings plan will determine how luxurious your retirement would be.
When it comes to any form of savings, be sure to utilize the services of a financial advisor. With the economy becoming stiffer, you can’t afford to depend on your children to take care of you when you are old. That will simply put more pressure on them.
#8. Cryptocurrency Investment
Many individuals have gambled on newly developed cryptocurrencies, and are now living luxuriously to tell the tale. Very similar to stocks, cryptocurrencies offer a lucrative return on investments and can see your own money grow extremely fast.
It is not an overnight success and it does require lots of financial education and discipline. As a newcomer, it’s best to start small and stick to the three main cryptocurrencies, namely Bitcoin, Litecoin, and Ethereum.
Always look out for emerging financial opportunities that technological advancement offers. The world is changing really fast and you can’t afford to be left behind.
What to do once you’ve built generation wealth
The best advice for any self-made wealth builder is to spread their wealth sensibly. While money is earned through hard work, careless spending and over-the-top luxuries can see your money deplete in no time.
It is always important to invest your funds wisely so that your future generations can benefit from your hard work. On the other hand, wealth brings freedom. Take time to relax, have fun, and live healthily. It would be a shame to work hard to build wealth and don’t live long enough to enjoy it.
To see your money stretch into generational wealth, you need a clear plan. Be intentional with your approach and attitude toward making and spending money.
We are all aspiring individuals who want to leave a legacy for future generations. Therefore, it is important to implement a solid foundation on which generational wealth grows.
Can you name 10 Africans that have successfully built generational wealth? Share your thoughts in the comment box below.
Join African Vibes Community for more positive African news, exciting tips, and discussions.