financial planning

How to Build Generational Wealth for Your Child's Future Success

Passing wealth down from generation to generation used to be a common practice in most cultures, whether cash, property or knowledge. With changes in societies and economies over the years, that’s no longer the case, but there are still many ways for families to set future generations up for financial success.

4 women of various ages pose for a selfie

What parent doesn’t want the best for their children? How you raise your children influences who they become as adults. Building generational wealth for their future is a desire all parents have. However, if you don’t give them the proper tools to maintain that wealth you worked so hard for, they can lose it all.

Generational wealth refers to any kind of asset that families pass down to future generations, whether in the form of cash, investment funds, stocks and bonds, properties or even entire companies. Owning a home is a great example of a prime asset on which to start building your children’s future, but investing in their college education will help them build on those assets.

While the amounts and assets are different for everyone and determined by individual goals – both yours and your children’s – the most intangible things of value that you can leave your children are your values, culture, and, most importantly, education. One of the main factors contributing to younger generations losing what those who came before them worked so hard to accomplish is lack of financial education.

Lack of financial education and poor money management skills have put many generations at a loss, but with all of the free financial education resources out there, families can shift back to the right course. According to an article from GoBankingRates, an astonishing 70% of families lose all their wealth by the next generation, with 90% losing it the generation after that.

Building generational wealth requires more than just owning financial assets. If people don’t understand how to harness and leverage those assets for future financial success, they won’t see much more advantage than they would with a low-yield savings account. In this current world, our life is intertwined with technology, and there are hundreds of resources you can take advantage of to become financially literate…and a bunch of them are FREE.

Both NCUA and FDIC offer courses designed for parents and children at every stage of life on topics such as savings and spending, setting financial goals, and even earning and investing. If you’re already a member with SunWest Credit Union, you also have access to MoneyEdu (see the end of this blog for registration code), which is completely free to use and offers courses just like these and many more.

With MoneyEdu, you can also watch videos, set your budget and track your spending with personalized recommendations, and other interactive tools to help you learn how to keep your financial life straight. As you improve your own financial literacy, you can more easily adapt financial plans to teach your children how to build and sustain generational wealth.

Children model what they see. They need to see you making smart spending and savings choices, and they also need a way to comprehend those financial decisions in a way that is relevant to them. Family games such as Monopoly and The Game of Life simulate real-life situations and subtly teach kids about growing wealth by investing in real estate and thinking critically about how to spend their money. After all, taking all your sister’s money after she landed on Park Place where you had a hotel on it is a valuable life lesson that you’ll probably carry with you forever.

If games aren’t your family’s thing, have your kids help you put together the grocery list, and take them shopping with you to learn about prices and budgeting. Making it a fun learning experience will introduce them to crucial life skills and help them retain and develop those skills throughout their lives.

Preparing your children for the future presents many challenges, especially when you don’t have a defined plan to start. Some save to prevent their kids from accumulating debt such as college tuition. Others teach them trade skills to pass down the family business. Whatever your plan is, there are several types of accounts you can look into to prepare you children for their future.

529 Education Plan

A 529 is a tax-advantaged savings plan designed to help pay for education from the state. These funds are only to be used for education purposes, however, if your child does not end up going to college, you can still withdraw these funds and pay a penalty that varies from state to state. Use free online calculators to help you figure out how much their education expenses will be, so you can plant that seed in their lives.

Investment Accounts

If a college career isn’t in the cards, consider an investment account such as stocks, property or shares. These types of investments can help your money grow by buying assets that may increase in value. Keep in mind, though, while you could gain the most wealth through investing, these assets are subject to changes in the market which makes them a much riskier financial endeavor with little to no guarantee of a return.

Traditional Savings Account

Saving accounts vary between short and long-term goals for anything from saving up for a large purchase, to keeping cash liquid for an emergency. They are also a safe resource for you to set money aside for your children little by little. While savings accounts do earn dividends, they are often very low – much less than an investment account. Look for youth or kids accounts that earn higher dividend rates. Most credit unions, including us at SunWest, offer kids accounts that will care for your child’s financial path.

See how your child can earn 3% on a youth account at SunWest! For the tiny crawlers just starting to explore the world, check out Pounce Accounts (Ages 0-12). For the teens becoming the next age of influencers, check out Future Funders Accounts (Ages13-18).

If you need a little more help building out your children’s financial path, get family and friends involved. Recommend cash for birthday and holiday gifts instead of toys. You can split that cash to buy a toy so they don’t lose that childhood excitement, and save the rest. By having that extra support from those around they will also be contributing for your child’s future success.

Building generational wealth for your children’s future success is something that takes careful planning. Finding the right financial resources are the key to growing generational wealth that will help your family for years to come. Have a clear vision for your family’s future and create a strategic plan to help you get there. Educating your children is done over time, and you may find yourself learning in the process.

Register for free at MoneyEdu with code MYSUNEDU, and get access to a treasure trove of financial education resources to help yourself and your children learn about growing wealth today, tomorrow, and all the days beyond.

September 25, 2022

Published by SunWest Credit Union

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