What does generational wealth really mean, and how can you build and protect it? In this article, CERTIFIED FINANCIAL PLANNER® certificant Kerry Connell shares tips for creating generational wealth & common mistakes that could quietly erode your efforts.
Table of Contents
What is Generational Wealth?
When Should Families Start Financial Planning?
4 Tips for Building (and Preserving) Generational Wealth
4 Common Mistakes that Undermine Wealth Building Efforts
How HTG Advisors Helps Families Build and Protect Generational Wealth
What is Generational Wealth?
Generational wealth looks different for every family, and it involves more than passing on a large sum of money – which is unrealistic or undesirable for many families.
Generational wealth means preparing future generations for success through financial support, financial literacy and shared values, after first ensuring your own financial security.
As a CFP® professional, I take a comprehensive approach to generational wealth building, encouraging clients to look at the full picture, involve their family, consider the long-term implications of financial decisions, and start earlier than most people think they should.
When Should Families Start Financial Planning?
In short: as early as possible. Don’t wait until you’re nearing retirement or college tuition becomes urgent. Working with a financial advisor early helps you define your goals and build the wealth you need to reach them.
If generational wealth is important to you, build it into your plan from the beginning. These four tips can help you integrate generational wealth into your broader financial plan.
4 Tips for Building (and Preserving) Generational Wealth
Generational Wealth Do’s and Don’ts
1. Understand Your Financial Baseline and Define Your Goals
You cannot support future generations without first ensuring your own financial security.
Work with a CFP® to clarify:
- Your long-term goals, including lifestyle, retirement, charitable giving, and legacy priorities.
- Income and savings strategies needed to reach those goals (typically more than maxing out your 401(k)).
- How tax planning and estate planning fit into your overall strategy.
- Appropriate investment strategies based on your goals and risk tolerance.
- Whether you’re on track for your desired retirement timeline and lifestyle.
Once you understand your goals and ensure you have what you need, then you can figure out how to support future generations – whether that means funding education, earmarking assets to transfer, or providing financial education and values guidance to help them reach financial success on their own.
2. Start With Basic Wealth-Building Steps
Start with straightforward priorities:
- Build an emergency fund: Build a 3-6 month safety net for emergencies (layoffs, medical expenses, major home repairs, etc).
- Plan for the unexpected: Secure appropriate life, disability, and income replacement insurance policies.
- Regularly review your budget: Ensure spending isn’t outpacing saving. A good rule of thumb: put half of every raise or bonus into savings.
- Budget for indulgences: Budget for travel or hobbies so your plan is realistic and maintainable.
In short, enjoy your life while balancing long-term security. With good habits and long-term goals in place, you’re more likely to build wealth that you can share with your beneficiaries.
3. Involve the Whole Family in Financial Conversations
Generational wealth planning is far more effective when it isn’t limited to just you and your spouse.
This is especially true for “sandwich generation” families who may be supporting aging parents while also helping young adult children get established. Clear communication helps protect your own financial security and ensures expectations are clear for all generations.
For example, we help our clients put estate plans and powers of attorney in place while also encouraging conversations with aging parents to ensure those protections exist throughout the family.
And conversations about money should start at a young age. This doesn’t require sharing detailed account balances, but should include being open about goals, values, and decision-making.
Some easy ways to build financial literacy include:
- Explain everyday financial decisions, from simple matters like why you choose one product over another to bigger concepts like prioritizing certain expenses.
- Share what’s important to you – education, traveling, charitable giving, or something else – and why.
- Be honest about your mistakes and what you learned from them.
- Give age-appropriate opportunities to manage money, from helping your preschooler understand needs vs. wants when spending their allowance, to giving your elementary-aged kid a budget and letting them shop for a family meal, to helping your college-aged children develop a spending budget.
These conversations help children develop their own values system. If they eventually inherit assets, they are more likely to make smart financial decisions that align with your family values.
4. Work With a CFP® Professional to Compare Wealth-Sharing Options
If you accumulate assets you want to pass on, work with an advisor to choose options that minimize tax burdens and align with your values.
Here are a few options to consider beyond keeping assets in an estate:
- Donor-Advised Funds (DAFs) to support charitable giving across generations. This communicates to beneficiaries that you want them to still give back to society and not just live off generational wealth.
- Funding education, such as 529 college savings plans or private school or college tuition support for children and grandchildren.
- Generation-Skipping Trusts (GSTs) for tax-efficient asset sharing to beneficiaries at least 37.5 years younger than you.
- Roth IRAs for post-tax contributions that shield future generations from future tax increases.
- Family investment vehicles that allow generations to invest together, work towards a common goal, and make use of wealth sharing that isn’t subject to gift taxes.
- Family Limited Partnerships (FLPs) to preserve generational wealth by gifting tax-free shares in a shared business or holding.
- Annual gifting strategies to transfer assets to spouses, children, or grandchildren while staying within annual gift exclusion amounts to avoid excessive taxes.
There is no right or wrong option for redistributing wealth. A CFP® professional can help you determine what options will work best for you and your family.
4 Common Mistakes that Undermine Wealth Building Efforts
1. Sacrificing Your Own Financial Security
Supporting children at the expense of your retirement plan – like borrowing from your retirement to fund education – isn’t an option.
A lot of parents want to support their children during college or as they transition into the professional world, but financing a lifestyle they can’t maintain themselves is unsustainable and sets them (and your budget) up for stress down the road.
Communicate your intentions early, including if (and how much) you’re able to help. Encourage them to make smart enrollment choices – like attending a state school or applying for scholarships – and teach them strong financial skills in college.
After college, avoid financing expenses that aren’t sustainable – like a high-cost Manhattan apartment – and instead help budget for a lifestyle they can maintain. This helps them stay motivated to build their own wealth and financial stability.
2. Allowing Lifestyle Creep to Erode Savings
We often see clients’ spending increase with – or outpacing – income increases, which significantly reduces savings over time.
We encourage clients to put at least half of all raises or bonuses toward savings, then keep spending in check by assessing wants vs. needs and prioritizing which “wants” are worth funding.
Work with your advisor to evaluate whether current spending and savings patterns are sustainable and support the retirement you want.
3. Being Overly Conservative With Growth & Investments
People work hard to build up their wealth and naturally want to protect it, but if excess assets sit in your estate, you’ll end up missing growth opportunities and increasing tax exposure.
Once you understand how much you need for your lifetime, consider moving excess assets out of your estate and allocate them toward:
- More aggressive investments with increased growth potential
- Charitable strategies that provide meaning and tax benefits
- Lifetime goals like travel or education support
Balance current priorities and security with growth across longer time horizons.
4. Treating Generational Wealth as a Standalone Goal
If generational wealth is a priority, it should be integrated into every aspect of your financial plan.
That includes having regular conversations with your kids about their budget and financial goals and talking to your parents about estate and insurance decisions.
We also encourage clients to regularly reflect on their goals and habits to ensure spending, investments, estate planning, and tax strategies support rather than interfere with objectives.
How HTG Advisors Helps Families Build and Protect Generational Wealth
At HTG Advisors, we take an integrated approach to financial planning that goes beyond managing assets. We look at the full picture – including insurance decisions, estate planning, and tax strategies – to support your goals.
We place education at the center of our advising strategy, helping our clients make empowered decisions and providing financial education to younger generations for multigenerational success.
We pride ourselves on building strong relationships with our clients. By understanding their unique goals and family dynamics, we can develop a tailored approach that supports their goals.