What is generational wealth and how can you build it?

Generational wealth: at a glance

• What do I need to know? Generational wealth refers to passing down finances to younger family members.
• What does it mean for me? Generational wealth can provide your family with financial security, even in uncertain economic times.
• Why does it matter? Improving financial literacy can help to increase the success of your generational wealth strategy.

Generational wealth can help your family benefit from what you’ve built over the course of your career.

But beyond gifting money to family members, generational wealth starts with teaching your children how to grow their finances responsibly.

In this guide, you’ll learn how you can create generational wealth and pass it on to loved ones efficiently. You’ll also discover how generational wealth differs from personal wealth, and how to protect and grow your finances for the long term.

What is generational wealth?

Generational wealth refers to the assets you gift to family members, especially children and dependents. When paired with effective financial literacy, your loved ones can build on your gift to pass on additional gains to future generations.

Your wealth includes cash, property, businesses, trusts, stocks and bonds, and any other valuable items you own.

Your loved ones can inherit generational wealth before or after you pass away. Speak to a financial advisor to find out which option allows you to gift in the most tax-efficient way.

How is generational wealth different to personal wealth?

Generational wealth is designed to last - to be preserved and protected for the future. It requires money, education, and a shared interest in growing its value.

Personal wealth is kept by one individual. Some people may feel reluctant to pass on their wealth to family members.

Why do some people choose not to pass on generational wealth?

Celebrities including Jimmy Carr, Gordon Ramsey, and Bill Gates have spoken publicly about their intention to keep their fortunes away from their children when they pass away. Many fear it will create a sense of entitlement or a lack of ambition in younger generations.

‘But wealth isn’t the issue,’ says Claire Jones, Head of Strategic Relationships and New Business at Flagstone. ‘Studies have shown that Baby Boomers are 33 times wealthier than Gen Z yet, despite this generational wealth gap, just 6% of over-20s said they’d received a cash gift over £500.

‘The hesitancy to share wealth could be due to a perception that generous inheritances encourage entitlement. But access to funds doesn’t have to mean a lack of ambition. Whether launching a business, funding charitable causes, or expanding investments, money can build a legacy that endures long after you’ve passed away, provided it’s spent responsibly.’

Generational wealth isn’t just a generous gift. Passing on money, and the knowledge to protect and grow it, can be the key to overcoming the financial challenges facing younger generations.

Rising costs have made it difficult for young people to achieve financial security and stability, like buying property instead of renting. Over the past 25 years, the average cost of a house in the UK has risen by 257%. Average annual earnings for full-time employees rose by under half as much over the same period, reaching a 110% increase, not accounting for inflation.

Generational wealth can give children the tools to thrive, despite difficult financial times.

‘The current trend of wealth avoidance and refusing to pass down savings and assets won’t necessarily teach the next generation financial responsibility,’ Jones continues. ‘Preparing children to handle money wisely begins with open conversations around wealth responsibility from an early age.

‘There are more resources than ever to teach young children advanced financial concepts in an accessible way. Consider reading with them to enhance their curiosity around healthy spending and financial growth.’

How much money is considered generational wealth?

There’s no specific amount you need to start building generational wealth. As long as your intention is to support your loved ones financially, and encouraging them to do the same, you’re working towards building generational wealth.

But it is worth bearing in mind the amount of Inheritance Tax your family may pay. This relates to the wealth you own when you pass away, known as your ‘estate’.

How to build generational wealth

Building generational wealth requires a long-term strategy, which can include:

• Investing early: Growing your money over a longer period lets you take advantage of compounding interest.
• Growing what you’ve got: Creating lasting wealth is about getting the most out of your money. This could mean moving cash into high-interest accounts where it can outpace inflation.
• Diversifying investments: Spreading your wealth among property, businesses, and other asset types can protect against risk.
• Maximising tax relief: Structuring wealth transfers - for example, in trust funds or within annual gift allowances - can limit how much you need to pay in tax, though the rules are complex.
• Teaching young children about money: Starting conversations about money with the next generation normalises the idea of growing wealth.

Examples of generational wealth

Any type of wealth you accumulate could become the foundation for generational wealth. This means you can follow the same principles that create personal wealth to make a start.

Some assets you might pass on to your family include:

• cash
• investments
• property
• businesses

How do people lose generational wealth?

Generational wealth can be eroded by:

Tax: If wealth transfers aren’t structured properly, your family could be left with a greater tax bill than necessary.

Low-interest savings: If cash deposits don’t earn interest faster than the rate of inflation, your money becomes less valuable over time.

Lifestyle: Those who don’t know how to nurture their inheritance can make poor choices with their money - from spending it rapidly to investing unwisely.

Frequently asked questions about generational wealth

What is the key to generational wealth?

The key to generational wealth is careful planning and education. While there is no guarantee that your wealth will continue to grow once you’ve passed away, you can set your family up to have the best chance for success.

If you’re unsure how to structure your finances in the most efficient way, consider speaking with a qualified financial advisor.

What is the fastest way to create generational wealth?

There is no quick fix to building generational wealth. Although it may not sound exciting, a slow and steady approach can yield impressive results over time, thanks in part to compound interest.

Balancing this more cautious approach with some higher risk, higher reward investments can help you achieve a healthy return on your money. But it is worth bearing in mind that you can always lose money, especially with higher risk investments.

Growing your finances is the first step to generational wealth

Building generational wealth means passing on the money and financial literacy needed to help your family thrive.

There is no limit on what counts as generational wealth. But increasing the value of what you put aside, and the knowledge of how best to use it, means you can empower your loved ones to take your legacy forward.

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