Experts explain what it is and how you can build it and protect it

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Building wealth and growing your assets are key factors in building wealth. net worth The first half of the battle is over. A plan is essential to build lasting wealth. It will help you determine how the wealth will be passed on to the next generation. This is also known as generational wealth.

According to Gobankingrates, 70% of wealth families lose their wealth within the next generation. 90% lose it in the following generation.

“According to a recent UBS Investor Sentiment [survey], 83% of investors are concerned about transferring assets smoothly but only 40% said they’ve had discussions with heirs regarding their wishes,” says Kleo Curry, vice president of Wealth Management for UBS. “While investors overwhelmingly want their legacy transfer to go smoothly, inadequate estate planning and lack of communication can not only be costly but also lead to unresolved family conflict. As higher interest rates persist and inflation concerns continue, proper distribution of generational wealth is a hedge against the rising costs of living.”

What is generational wealth? 

Generational wealth can be defined as any asset that is passed on from one generation to another. This can include cash and investment funds, stocks, bonds, real property, businesses, and even cash. It’s projected that more than $80 trillion will be passed down from today’s older generations to their children and other heirs over the next two decades, but multigenerational wealth is not equal across the board.

The latest Survey of Consumer Finances The wealth of a typical white family is eight times that of a typical Black family, and five times that of a typical Hispanic family. The role of sufficient wealth in consumer decision-making and behavior can be seen across the financial industry. Wealthier families are less likely be in debt. They have a better path to homeownership and more capital to expand their wealth through investments and businesses.

What are some of the obstacles to building generational wealth 

People of all income levels, races, genders, and ages face many factors that make it difficult or easier to transfer wealth to the next generation.

Diverse levels of financial literacy

To build and sustain wealth, you need to have a certain understanding of the process that not all consumers have. Everyday money choices can add up and translate to long-term wealth if you’re being strategic. Selecting the right investment is key to achieving your goals. mix of assets in your investment portfolio, to understanding what kinds of savings vehicles to use for your personal savings or how to start your own business—having the knowledge in your back pocket can make all the difference. You can find out more about A 2021 TIAA report found that, as it relates to financial literacy and comprehension, many consumers (61%) understand borrowing-related concepts (the relationship between loans and repayment), however, financial literacy is lowest in the realm of comprehending and understanding risk and uncertainty—which can pose challenges during more volatile or uncertain economic times.

Substantial wage gap

Disparities in pay across different racial groups play a role in each generation’s ability to build enough wealth to pass on. According to the most recent figures According to the Department of Labor Black workers make $0.76 per $1.00 earned by white workers. Hispanic workers and Native American/American Indian, Asian/Pacific Islander and multiracial workers make $0.73, $0.77 and $0.81 respectively.

Planned or undetermined transfer of wealth

Many families avoid having discussions about how assets will be handled if a family member becomes ill or dies. “Start the conversation with your loved ones and heirs about money. A step forward to achieve this goal is to plan regular family meetings quarterly or semiannually,” says Curry. “The consistency of meetings provides an opportunity to reconnect and share the family’s vision for the future. The conversations also help the next generation learn and understand finances.”

Three ways to create and preserve generational wealth 

Your path to building wealth that lasts more than a generation or two will look different from everyone else’s, however there are certain strategies you can use to set yourself up to thrive.

“Understanding that each family might have their own vision of how they want that transfer to happen poses a significant planning opportunity, both for the generation that will be transferring assets as well as those that will receive it,” says Colleen Carcone, certified financial planner and Director of Wealth Planning Strategies at TIAA.

Don’t wait to start investing

Investing This is key to making money work for you, and allowing it to grow over time. Even if you don’t have a ton of money to invest, starting with just a few dollars can add up to a significant cushion over time—one that you can pass down to your children or heirs. According to Pew Research CenterEven for families earning less than $35,000 a year, one in five have assets in stock markets.

Investing isn’t only limited to stocks and bonds. Another way to easily build wealth is by investing in real estate. High-demand properties that are well-maintained can appreciate in value and offer a lot of benefits. equity for homeowners over time.

Multiple streams of income are possible

With rising inflation, many Americans are looking for additional ways to make an income. You must have enough money to cover your current expenses and save for your future self. A new study According to Western and Southern Financial Group, 44% of Americans work multiple jobs in order to build wealth.

Create a legacy strategy

A 2022 survey by Caring.com found that only 33% of Americans have a living will or trust, and one in three Americans who have no will or living trust claim they don’t have enough assets to leave behind. However, focusing too much on the immediate future could endanger your loved ones and you. Regardless of what you have now or what you think the future holds, having documents in place that ensure a smooth transfer of whatever assets you do leave behind protects the wealth you’ve built and gives the next generation a foundation to start from.

“The most important thing to do when you are building generational wealth is to surround yourself with a team that will help you accomplish your objectives,” says Carcone. “Your team should include not only your estate planning attorney, but your tax adviser and your financial adviser.”

These experts can help create a trust that will guide your beneficiaries. It will outline how your wealth should be divided and invested and who will have access to your assets. “These are all pitfalls that can get in the way of your legacy lasting for generations, and so you will want to carefully think about who you name as a trustee of your trust, and the terms of distribution. If you are concerned that your child may not have the skill set to invest wisely, for example, you can name a professional to take that responsibility off their shoulders,” says Carcone.

This story originally appeared on Fortune.com

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