What is Generational Wealth?
Generational wealth, also known as family wealth or legacy wealth, refers to the assets passed down from one generation to the next. This can include money, property, stocks, bonds, and other types of financial assets. The idea is that each generation can build upon the wealth of the previous generation, creating a cycle that can help secure financial stability.
Generational wealth is significant because it can provide financial security and open up opportunities such as education, home ownership, and starting a business. It also plays a major role in economic inequality, as families without such wealth often face more significant financial challenges and have fewer opportunities.
The accumulation and transfer of generational wealth have been influenced by numerous social, economic, and policy factors, which can contribute to disparities in wealth accumulation between different racial, ethnic, and socioeconomic groups.
While it makes sense that Baby Boomers hold more wealth in total—they’ve had more time to accumulate it—the difference in wealth trajectory is alarming. Visual Capitalist puts it in perspective, saying, “when Baby Boomers were as old as today’s Millennials in 1989, they held 21.3% of U.S. wealth. That’s more than four times higher than what Millennials hold now.”
What’s an example of Generational Wealth?
Generational wealth can come in many forms, and it represents any assets that families pass down to their descendants. Here are some common examples:
- Real Estate: Homes or other properties that increase in value over time can be a significant form of generational wealth. The family home can be passed down from generation to generation, or it can be sold with the profits being distributed to heirs.
- Investments: This can include stocks, bonds, mutual funds, and other investment accounts. These investments can grow over time and be passed on to the next generation.
- Business Ownership: Family-owned businesses can represent a considerable source of wealth. These businesses can be passed down to children or grandchildren to manage and grow.
- Cash Savings: Money saved in bank accounts or physical cash can also be passed down to future generations.
- Retirement Accounts: Pension funds, 401(k)s, IRAs, and other retirement accounts can also be inherited and can form part of generational wealth.
- Inheritance: Wealth can also be passed down in the form of an inheritance, which may include cash, real estate, personal belongings, and other assets.
- Trust Funds: A trust fund is a legal entity that holds and manages assets on behalf of another person or group. They can be set up to provide financial support to future generations.
- Life Insurance: Life insurance policies can provide a tax-free cash benefit to beneficiaries upon the policyholder’s death, contributing to generational wealth.
- Intellectual Property: Royalties from copyrights, patents, or trademarks can also constitute generational wealth.
These forms of generational wealth can provide financial stability and open up opportunities for future generations. However, it’s also important to note that the ability to accumulate and pass on such wealth can be influenced by numerous factors, including socioeconomic status, racial and ethnic disparities, and public policy.
How does Climate Change impact Generational Wealth?
Climate change can significantly impact generational wealth in several ways:
- Property and Real Estate: Climate change increases the risk of extreme weather events such as hurricanes, floods, wildfires, and rising sea levels. These events can lead to property damage or loss, especially in coastal areas or regions prone to such disasters. This could mean a significant loss in property value, a common form of generational wealth.
- Agriculture and Land: Families whose wealth is tied to agriculture or land may suffer as changing weather patterns, increased temperatures, and more frequent and severe droughts affect crop yields and livestock health. This can decrease the value of the land and the income it generates.
- Investments: Climate change can affect the profitability of certain sectors of the economy. For instance, companies in industries such as fossil fuels might decline in value due to policy changes aimed at reducing greenhouse gas emissions. If families’ investments are tied up in these sectors, the value of their generational wealth could decrease.
- Health Costs: Increased health issues related to climate change, such as heat-related illnesses or diseases spread by mosquitoes (like malaria or Zika), could lead to increased medical expenses. This could deplete resources that might have otherwise been passed down as generational wealth.
- Insurance Costs: As climate risks increase, insurance costs for property and health are likely to rise, potentially cutting into wealth that could be transferred to future generations.
- Displacement and Migration: In extreme cases, climate change could lead to displacement or forced migration, particularly for families living in areas that become uninhabitable. This displacement could result in significant loss of wealth.
These factors show that climate change doesn’t just affect the environment, but also has a profound impact on economies, societies, and the distribution of wealth. It’s a pressing issue that underscores the importance of climate mitigation and adaptation strategies.
What is Intergenerational Inequity?
Intergenerational inequity refers to the wealth gap between elder generations and the younger generations. Generational wealth transfer can be withheld, resulting in an unfair distribution of resources, opportunities, rights, and responsibilities to the next generation. It’s a concept that focuses on the ethical implications of decisions made by one generation that may negatively impact future generations. This can be applied to a variety of issues, such as environmental protection, economic development, and social welfare.
For example, current generations may be contributing to climate change, which will have a negative impact on future generations. Similarly, current generations may be using up natural resources at a rate that is not sustainable, which will also have a negative impact on future generations.
According to Thiery, et.al. (2021), a key aspect of intergenerational inequity is the impact of today’s environmental decisions on future generations. The authors emphasize the importance of considering the long-term environmental effects of actions taken now, particularly regarding climate change and biodiversity loss, in identifying and evaluating intergenerational inequity. For instance, current generations are using environmental resources at a rate that cannot be sustained for future generations, creating an “environmental debt” or burden for those in the future, who will face the consequences of ecological damage, such as the loss of biodiversity, changes in ecosystem services, and the impacts of climate change.
Addressing this inequity requires a shift in societal values and decisions to ensure the fair treatment of future generations. This involves considering the long-term impacts of decisions made today and striving for sustainable environmental management.
Intergenerational equity is a complex issue, and there is no easy solution. However, it is important to be aware of the issue and to take steps to address it. Some of the things that can be done to promote intergenerational equity include:
- Protecting the environment
- Investing in renewable energy
- Reducing our reliance on fossil fuels
- Conserving natural resources
- Promoting sustainable development
- Investing in education and healthcare
- Providing social safety nets
Examples of intergenerational inequity:
- Climate change: Climate change is a major threat to future generations. The effects of climate change, such as rising sea levels, extreme weather events, and food shortages, will be felt most acutely by future generations.
- Resource depletion: The Earth’s resources are finite. As we consume more and more resources, we are depleting them for future generations. This is a problem for both environmental and economic reasons.
- Wealth Inequality: The gap between the rich and the poor is growing. This is a problem for both social and economic reasons. Future generations will inherit a world that is more unequal than the one we live in today.
How does the Climate Crisis impact Intergenerational Inequity?
The climate crisis impacts intergenerational inequity in significant ways, essentially creating an environmental debt that future generations will have to pay. Here are several ways in which this debt manifests:
- Resource Depletion: Current generations are using natural resources – such as water, minerals, and fossil fuels – at a rate that may not be sustainable for future generations. This over-consumption leaves fewer resources for the future and often results in environmental degradation.
- Environmental Degradation: Activities such as deforestation, pollution, and greenhouse gas emissions are causing long-term damage to the planet, including loss of biodiversity, soil erosion, and air and water pollution. These impacts will be inherited by future generations, limiting their ability to rely on these environmental services.
- Climate Change: Greenhouse gas emissions are driving global warming and climate change, leading to more extreme weather events, rising sea levels, and changing agricultural conditions. These changes are likely to create a more challenging and uncertain world for future generations.
- Economic Costs: The impacts of climate change will likely lead to significant economic costs for future generations, including damage to infrastructure, increased health costs due to climate-related illnesses, and potential job losses in industries unable to adapt to a changing climate.
- Social and Health Impacts: Climate change can exacerbate social inequities and health disparities. Future generations may face higher levels of conflict, displacement, and disease as a result of a changing climate.
- Policy and Mitigation Burden: Future generations will need to undertake significant efforts to mitigate climate change and adapt to its impacts. This includes the development and implementation of new technologies, infrastructure changes, policy adaptations, and possibly lifestyle changes, which represent a large burden passed on from previous generations.
In short, the climate crisis could significantly limit the opportunities and quality of life for future generations, which is a key aspect of intergenerational inequity. Addressing this issue requires urgent action to reduce emissions, protect and restore ecosystems, and adapt to changes that are already occurring.
How to Build Generational Wealth
Building generational wealth refers to building the wealth of your family with the intention of passing on that wealth to the younger generations. These financial assets that are passed down from one generation to the next are intergenerational transfers that typically happen through a last will and testament, although transfers of ownership to a family business can happen beforehand. Transfer generational wealth can come in the form of stock market shares or other investment funds like mutual funds, passive income like rental properties, or any other form of property that has monetary value. Creating generational wealth requires a longterm plan including the creation of family businesses, creating opportunities to generate passive income like renting out a room or property, and planning for retirement investments. Building wealth in order to create generational wealth requires financial literacy in basic money management, establishing successful businesses coordination between family members to achieve financial success.
Key takeaways: It is possible to build generational wealth through the efforts of one family member who provides for the younger generations, however building generational wealth can be more successful by involving multiple generations in a successful business. Start building generational wealth by putting aside money that isn’t used for basic living expenses or vacations. This seed money can create lasting wealth by starting a real estate portfolio or for building generational wealth through investing in the stock market.
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