Over the past month, I have reflected on the fragility of life and what generational wealth means. These topics have been on my mind a lot in recent years. But my father’s sudden passing this year has brought them to the forefront in the last few weeks. Building generational wealth is something that many people aspire to do; unfortunately, most wealth does not make it past the second generation. I wrote a blog post on this topic earlier this year.
It is a phenomenon most communities deal with to some extent. However, building generational wealth is an even bigger struggle in Black communities around the world. Most Black kids raised in wealthy families are unable to maintain the wealth. After countless research, the issue comes down to financial education and preparation of the next generation.
What does generational wealth mean?
Generational wealth represents assets passed down to descendants. A lot of the generational wealth conversations focus on building and passing down money. But generational wealth is about so much more than money. The tools, education, and values that you transmit to your loved ones are what will carry the wealth for generations to come. As you focus on building wealth for yourself and your family, you should equally focus on ensuring they have the right mindset regarding money.
Why doesn’t generational wealth make it past the second generation?
Personal finance is rarely taught in school, and most parents, including many rich parents, don’t have the knowledge to teach their children. You can earn millions of dollars, but if you don’t learn the skills necessary to grow that wealth, then at some point, you or your children will run out of money.
An acquaintance of mine went through close to a million dollars in inheritance in 3 years. At the end of the 3 years, she had not invested any money in anything that could produce income for her in the future. She grew up in a wealthy family and had no idea how to maintain her lifestyle, let alone put her money to work. Her story is one of many I have come across in the United States and Africa.
It’s one of the reasons behind my decision to write my first book, Dream of Legacy, Raising Strong and Financially Secure Black Kids, that focuses on helping families build generational wealth. Here are a few questions to help you in your attempt to encourage your children to develop the mindset conducive to building generational wealth.
Do you value the things you spend money on?
I recently took a trip to my home country of Cameroon, where I lived for 13 years and was so happy to see the car in the picture. For anyone who read my book, this is the car I mentioned in Dream of Legacy. My father drove this car for so long even though he could afford to purchase another vehicle. The car is now 35 years old, and it’s been in the family as long as I have. Though my father is no longer here, I’ll never forget the lessons I learned from this car. The most important one is that being able to afford something is not a good enough reason to buy it. As much as possible, you should spend money on things you value.
Are you teaching your kids the value of money?
There are many ways you can teach your kids the value of money. Encouraging them to earn money from a young age, teaching them to save for the things they want, and being transparent about bills are just a few examples. There’s one particular. X. experience that stands out from my childhood. I grew up in Cameroon, an African country where the currency is pegged to the Franc (the French currency, before the adoption of the Euro). When I was nine years old, the CFA franc, the currency in many parts of Africa, was devalued by 50%. As a result, going forward, the CFA franc would be worth half of what it was worth compared to the Franc before that, including any cash or savings held in that currency. As the baby of the family, my siblings would often “send me” to my parents to ask for money to go to the movies. But every time, I had to hustle to get the equivalent of $10 from my parents. I was nine and knew nothing about currency devaluation, but it was the first word my parents would say to me. My father would tell me he didn’t have any money because of the devaluation. My mother would do the same. They would send me back and forth for probably 15 minutes. Eventually, one of them would give me the money after reminding me that they worked hard for it and money didn’t grow on trees.
Do you spend money on maximizing joy?
It’s okay to want material things and enjoy the finer things in life. But it’s important to acknowledge there will always be new cars, watches, handbags, shoes, expensive gadgets to buy. How are you ensuring that every purchase you make actually brings you more joy, not just temporary enjoyment?
If you are always looking to buy more, you will never run out of things to buy. That’s a lesson we have to learn as parents and help transmit to our children.
Do you know how much money will make you content?
Money is undeniably a necessary tool in life. The lack of it can make life extremely difficult. Wanting more money is normal, but it shouldn’t be the end goal. What matters most is what you do or plan to do with the wealth. When you make chasing money your end goal, you will never have enough. Understanding how much money you need to live the life you want is key.
Related article: Achieving financial independence
I recently listened to an episode of the Marriage, Kids, and Money podcast. In the episode, Andy’s wife Nicole expressed that she wasn’t sure whether she wanted a raise at work. In a nutshell, she was concerned that she would lose some valuable time she spends doing things she loves more than work if she took the raise. I enjoyed interviewing Andy Hill, the founder of Marriage, Kids, and Money, for my podcast recently. On the podcast, he shared that the couple recently became millionaires. One might reasonably argue that Andy and his wife can afford to make that decision because they are millionaires. But they are plenty of people in a similar situation who would have taken more money because they believe that you should never turn down more money. By all means, you should strive to earn all the money you aspire to make. But understanding how much money you need to be content can help you get out of the never-ending race for more. On your way there or once you have reached that point, it is an option to opt out of the race and be more mindful of what you are giving up to get more. It’s also important to consider passive ways to earn money so you can take back control of the most valuable resource, time.
How are you helping your kids learn how to manage money?
The person who earns the money will most likely value it more than the person who inherited it. We often raise consumers and expect children to think like income producers just because we leave them an inheritance. I interviewed author and speaker Barbara Huson, whose father was the co-founder of H&R Block. He built an incredible amount of wealth and told her not to worry about money because there was plenty of it. When Barbara received her inheritance, she didn’t have the tools to manage it, so she let her husband handle it. Unfortunately, he dilapidated the money. Barbara had to learn the hard way that she needed to get good with money. Assuming that your kids will pick up on your financial habits can be very detrimental. Very few people learn by observing. For most, it takes mindful education to pick up healthy financial habits. In addition to teaching your children how to earn money, you should take the time to teach them about giving back, and sharing what you know about personal finance. That includes books, podcasts, and other resources to help them develop the right mindset for wealth building. It is more important than leaving financial assets. It is what will help your children continue to build wealth, but it is often overlooked.
Final Thoughts
Building wealth is an exercise that requires time, commitment, and education. Raising financially savvy children who understand the value of money and how to make money work is necessary if you want to avoid the most common pitfall of generational wealth.
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” Ayn Rand