How to build generational wealth
We’ve all heard the term “generational wealth”. But do we know what it truly is? Generational wealth is all in the name, really; basically, wealth that is passed down from one generation to the next. Recently, some experts have rephrased the term and call it family wealth or legacy wealth.
For most people, generational wealth, or the ability to pass down one’s financial status to their offspring, is a goal. But people sometimes fall short of achieving this goal due to financial hardships in their own lives. You also have people who don’t seem to care about generations after them because they feel they didn’t benefit from the generation before. As a certified financial planner, I would always advise any client to think about future generations so that you can leave a financial legacy behind for your children or grandchildren. When you do this, you are contributing to the growth of generational wealth in your family. It can, in some way, be tied to the story of Moses, because he never saw the promised land, but he helped lead the people of Egypt to it.
Building generational wealth can begin in many forms such as real estate, stocks, bonds, mutual funds and good life insurance. But building generational wealth comes with a very strong mindset, diligence and a realization that you may never be able to benefit from this wealth. That is a concept that is hard for most people and, quite frankly, many Bahamians. We must start thinking and planning for offspring that aren’t even here. It goes without saying that you must spend less than what you earn. A key component of generational wealth is empowering your children with financial literacy skillsets, but not allowing it to cloud their judgement and restrain them from living life.
Here are a few investment options that can help you build generational wealth:
Invest in the local or international stock market. The Bahamas International Stock Exchange (BISX) can be a great way to build wealth over a long period of time. Most shares listed on the exchange have shown a good long-term value. And a great factor about building generational wealth is that you don’t need to make a lot of money in a small amount of time. This is a great option because it has the potential to continue growing for decades. A good generational wealth investment nugget is to invest in insurance companies that have shown long-term success. Those kinds of businesses will stand the test of time.
Invest in real estate. Real estate is by far the surest and most effective way to build wealth for the long-term. With the increasing values over time, real estate can be a reliable path to wealth. The idea of building a real estate empire can be intimidating, especially in The Bahamas. Another investment nugget is that the Quieting Titles Act of 1959 is still on the books… (shhhh!)
Build a business to pass down. Most families that have generational wealth are directly tied to a business that will be handed down to a member of the family. In the United States of America, more than 30 percent of family-owned businesses transition to the second generation. In The Bahamas, I’m sure the number is above 75 percent. Handing over a successful business to your children should be very rewarding. But, let’s just say your children have no interest in a business that you’ve built, then it would be better to just sell the business to fund generational wealth in another form.
Take advantage of life insurance. Now, this is very important because a good “whole” life insurance plan can springboard your children or family. A good life insurance can always help settle unfinished debt at death and provide financial capital for other generations.
Invest in your child’s education. In The Bahamas, I think most persons understand the importance of a good education. Education can provide a way for your children to support themselves and maximize their potential in this life. But, simply acquiring a college degree doesn’t guarantee success or contribute to generational wealth. Teaching your children about the importance of personal finance starts at a young age. Open an account for them as soon as possible and let them see their money slowly grow. Believe it or not, it helps train their young minds about the importance of saving.
Write a will. All those points won’t mean anything without a will. Writing a will isn’t as tedious and costly as you may think in The Bahamas. A will simple ensures that your family will benefit from all that you have accumulated in this lifetime and provides them with generational wealth to pass on to future generations.
Building wealth to last for generations is no easy feat, but it is an admiral undertaking. After you have your own financial situation under control, safeguarding your family’s future should be the next step. Take the time to implement a wealth-building strategy that works for your family. Not everyone wants to invest in real estate or build a business. So, find something that works for your situation. Whatever strategy you choose, be sure to pass down your financial know-hows to your children. Arm them with all the personal finance knowledge you can. Your kids will already be one step ahead of the game as they make their way into the world. Generational wealth is a relay and the first leg begins with you.
• Quinton C. Lightbourne is a certified financial planner with the Chartered Institute of Bankers in Scotland and vice president of the Bahamas Investments & Securities Business Association (BISBA). E-mail: quinton_lightbourne@ hotmail.com.