As a mother of three kids passionate about financial literacy, I’ve heavily researched the topic of generational wealth. I’ve read multiple stories about parents investing for their young children so that, with compound interest, they can become millionaires by the time they become young adults. I’ve also interviewed dozens of people who are building wealth for their children.
I love hearing those stories because it shows that parents are thinking about building wealth beyond their generation. But what these parents rarely share is how they plan to prepare their kids to receive large amounts of money from them.
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I’m intrigued that less than 30% of generational wealth makes it past the second generation, and only 10% makes it to the third.
I’ve been wondering how to do things differently with my kids to provide them with tools that’ll help them expand on the financial legacy we’re building as a family, hoping that they don’t follow the trend.
The solution that works best for our family is to leave a minimal inheritance to our adult children. So here is what we plan to do instead.
Invest in Our Children While We’re Alive
529 College Plans
My husband and I opened 529 college savings plans for each of our daughters before they were born. 529 plans are state-sponsored, tax-advantaged saving plans allowing parents to invest for college. Our kids are 7, 4, and 4, and we’re planning to continue to invest in their 529 plans until they’re ready to go to college.
The objective is to help them start their young adult life with a positive net worth instead of large amounts of student debt that take most people two decades to pay off. If any of our children decides to take a career path that doesn’t require college, they can always use the funds for non-traditional education. If that is not in the cards, they can pay a 10% penalty on investment gains to use the money for a different purpose to help them build their financial future.
Our family believes in investing in life experiences. Whether traveling together as a family, helping our kids take a gap year after high school to get clarity on their future, or studying abroad, we believe that those investments can help our kids on their wealth-building journey.
We’d rather invest in those formative experiences than pile up huge amounts of cash for an inheritance after our passing. In addition, we’d like to invest in resources that’ll help our children look at life through a global lens and use the privilege they have to help less fortunate people. The more exposed they are to different environments, the easier it’ll be to relate to a wide range of people. It’ll also help them develop perspective, which will be helpful as they build wealth. Then if we’re blessed to have grandkids, we’d love to do the same for them.
Projects and Businesses
While we’re still here, we’d like to assist our kids by investing in their projects, helping them purchase their first property, starting a business, and pursuing their dreams. As we plan to raise them to be financially savvy, hard-working, and grateful humans, we’d be happy to help them get a head start if we can so they can become financially independent.
Read More: How to Raise Entrepreneurs
Show Our Kids How to Build Wealth
Teaching our daughters how to earn money on their own, save and invest is a top priority. We’ve already started practicing that at home and plan to continue to do so as they get older. By the time they graduate high school, we would like them to be prepared and understand how to invest in the stock market, be familiar with different real estate strategies, understand how to build a business either as an entrepreneur or as a side hustle, and how taxes and credit work.
Each of our daughters has a high yield savings account. When they receive money, whether it’s through performing chores or from family members or friends, the money goes into a savings account up to the point where they can save $1,000. They use money in that account to make purchases or donations. Beyond that, we transfer everything else to investment accounts.
We picked $1,000 because going from a few hundred dollars to having $1,000 saved up is impressive. We wanted our kids to experience that to understand what’s possible when you live below your means and save. We also want them to get comfortable with developing a relationship with their banker. So we take them to the bank to make deposits to their account and look at how the balance on their high yield savings account is growing from one visit to the next.
We’ve also started introducing our 7-year-old to investing by using the money she earns from allowances or receives as a gift to purchase stocks of companies for which she’s a customer.
As she’s helping me in my business, the fair hourly wage she earns will go into a Roth IRA and grow tax-free until retirement. I plan to do the same with my 4-year-old twins. It will help our kids take on investing as a habit, so she understands that it’s part of wealth building.
Pass Down Wealth
The Book “Die with Zero” by Bill Perkins changed my perspective on inheritance.
In addition to investing in my kids while I’m here, I want to be around to see them become financially independent and then use the wealth that our family built over the years to create more wealth and do good in the world.
I want to be there to provide guidance along the way so they can learn from my experience and mistakes. Whether it’s real estate, stock market investments, business, I don’t want to hold on to it until my last days.
By raising financially savvy kids and guiding them to become financially self-sufficient, I hope to move to the next phase and progressively pass down the wealth to make it work for their families, future generations, and the greater good.
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Personal Capital compensates Anne-Lyse Wealth (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.