Every parent — or, every good parent, we should say — wants their children to have better lives than they did. Unfortunately, to ensure this, families need to generate more and more wealth through the generations, which is much easier said than done. There is a famous Chinese proverb that states “Wealth never survives three generations” — but is it true?
Studies on economic mobility have found that, at least currently, two-thirds of Americans are earning higher incomes than their parents (after adjustment for inflation). However, children are most likely to end up in relatively the same economic position as their parents:
- 42 percent of children born in the bottom one-fifth of income distribution remain in the bottom
- 39 percent of children born in the top one-fifth of income distribution remain at the top
Meanwhile, children born to middle-income parents have a near-equal likelihood of rising or falling into any tier of income, which is equally promising and distressing to parents in this income range.
If you hope to change the pattern and ensure continued prosperity for your family for generations to come, you need to start taking drastic measures to increase your wealth today. Here’s how.
Avoid Succumbing to the Dream
The dream is being able to by anything you want at any time. The dream is not worrying about money because you have so much of it. Unfortunately, the dream is just a dream. Only the people at the tippity-top of the wealth ladder don’t worry much about wealth, and that’s because they pay other people to worry about it for them.
You will need to work exceedingly hard to build substantial wealth for your family, and you will need to teach your kids that they’ll need to work hard, too. Only after several generations does new money become established wealth, so you can’t let yourself give into the dream too soon.
Utilize Several Strategies for Building Wealth
There isn’t just one way to increase your wealth. In fact, wealthy people have their fingers in all sorts of money pies, and you should do the same. Here are some solid strategies:
- Multiple sources of income. Everyone in your family who can should have a job, and you might try to have two. Then, you can place all that income in a high-yield checking account, to ensure it continues to work hard for you.
- Real estate. This is an obvious source of wealth, but also a relatively easy one for many people to obtain. Start with low-value properties in undesirable areas and work your way to the prestige properties.
- Business investment. Putting money into promising ventures can provide significant growth, but it is also one of the riskiest ways to make money. It’s best to start small and increase your investments as you gain experience and confidence.
- The stock market. This is often where those hungry for wealth want to start — but in truth, the stock market isn’t an ideal place to build wealth. The most attractive stocks are simply too volatile to promise steady wealth growth. If you must dabble in the stock market, stick to value and dividend stocks, which perform the best over the long term.
Push for Early Financial Literacy
If you want your family wealth to survive more than two generations after you, you need to build a foundation of financial literacy in your kids. You can start teaching financial literacy from the time kids start to talk; the sooner they understand fundamental economic and financial concepts, the better. You should also give your kids access to financial tools, like savings accounts, checking accounts and payment cards, to help them understand the value of money and practice saving and spending.
Then, you should ensure that all that financial literacy doesn’t go to waste in the generation after that. You can set up checks and balances on the wealth you accrue to prevent your kids or their kids from going ham on the family fortune. A trust fund, a financial manager or some other barrier to the bulk of your wealth — in addition to the incessant lessons on financial literacy — should help the family wealth continue to grow.
It is impossible to become wealthy without taking risks, but if you want your family to enjoy your fortune long past your lifetime, you need to be smart about the risks you are willing to take. By tempering your financial moves with stable and sensible financial knowledge in yourself and your scion, your family should be blue bloods in no time.