What Is Generational Wealth?

A toddler sits on a grandparent’s lap.

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Generational wealth refers to assets that are passed down from one generation to the next. Assets can include investments such as stocks, bonds, a family business, property, and other valuables, and they may help someone increase their net worth or wealth.

Definition and Example of Generational Wealth

Generational wealth, sometimes known as “family wealth” or “legacy wealth,” refers to any type of family asset that one generation passes down to the next.

  • Alternate names: legacy wealth, family wealth, multigenerational wealth, intergenerational wealth

Many people may associate generational wealth with financial wealth such as cash, stocks, bonds, real estate, and family businesses, but generational wealth can include much more than money and valuable possessions. It can also take the form of traditions, heirlooms, an educational legacy, and connections.


Typically, the transfer of assets occurs after the death of the family member in possession of the assets. However, there are occasions when valuables are passed down during the life of both the giver and the heir.

So, for example, when a grandparent dies, they may have a last will and testament that specifies that their $2 million fortune gets divided evenly and passed down to their five grandchildren. The money and assets passed to these grandchildren would then be considered generational wealth.

How Does Generational Wealth Work?

In some ways, generational wealth can be viewed as a type of financial planning. A key reason for building generational wealth is to create significant financial resources so you can help set up your children and grandchildren for financial success long after you’re gone.

When a substantial gift of money or assets is passed from one living person to another, it’s known as an inter vivos transfer.

Recipients of Generational Wealth

The bulk of generational wealth in the U.S. is generally received as an inheritance passed down after a family member dies. As a result, families that build and transfer generational wealth to the next generation have a significant advantage over those that don’t. For instance, they may not struggle with finances, shelter, or food insecurities because they were given money or assets, rather than having to work to earn money and build up their savings themselves.


Half of all inheritances are valued at less than $50,000, while only about 2% are worth $1 million or more.

A study by the Federal Reserve showed that White families are much more likely to receive an inheritance, and they’re also more inclined to expect an inheritance. The data showed 30% of White families received an inheritance compared to 10% of Black families, 7% of Hispanic families, and 18% of families of other races. Additionally, White families also anticipate receiving relatively larger inheritances.

Homeownership and the Generational Wealth Gap

The ability to hand down wealth between generations is a topic that can come up in discussions surrounding wealth inequality and racial wealth gaps. Passing down assets such as homes, property, or family businesses is a critical part of building generational wealth.

For many families, homeownership is the most significant asset in building wealth, but there are racial wealth gaps as a result of homeownership gaps. For example, in the fourth quarter of 2021, the Black homeownership rate was 43%, compared to 74% for Whites in the U.S., according to the latest U.S. Census Bureau report.

However, previous policies and practices in the U.S., such as housing discrimination, redlining, and gentrification, have severely impacted the wealth-building efforts in communities of color. For instance, in Seattle, the criteria followed by traditional lenders historically prohibited non-White buyers from getting access to the loans needed for purchasing a home.

That, coupled with the inability to access other essential resources and services such as Small Business Administration (SBA) loans, academic support, and equitable health care, has perpetuated the generational wealth gap in this area.


Aside from the obvious cash, property, or family business, another example of passing down generational wealth is through educational opportunities.

For example, there is a strong correlation between higher education and more significant earning potential. Therefore, someone who can enter adulthood with little or no debt because their family could pay for their college education may have a significant advantage in accumulating their own wealth.

How To Build Generational Wealth

Creating enough generational wealth to hand down to future generations begins with building a solid financial footing.

  • Build your savings: Having an emergency fund will prepare you for unexpected expenses. In addition, you can save for short-term goals such as down payments on a home.
  • Invest for the future: Buying stocks, bonds, and other investment vehicles can help your money grow through the power of compound interest.
  • Pay down debts: Eliminating high-interest debt such as credit cards can be a helpful strategy for building generational wealth.
  • Save for retirement: Retirement accounts such as a 401(k) and IRA can offer tax advantages that can help you create financial security for retirement and increase your potential for building generational wealth.
  • Start your own business: Building a lucrative family business can provide opportunities for you to create a financially successful life and pass it down to future generations.
  • Buy a home: Homeownership is a key factor for building wealth in the U.S. Owning, rather than renting, gives you an asset that can be passed down to the next generation as a place to live or even as a property for creating additional income.

Passing Down Generational Wealth

Some ways that generational wealth can be handed down from one generation to the next include:

  • Through inheritance after death
  • Transferring assets as a gift
  • Paying for higher education
  • Designating a beneficiary
  • Buying life insurance
  • Forming a trust
  • Having a last will and testament

Key Takeaways

  • Generational wealth refers to assets passed from one generation to the next.
  • Most generational wealth is in the form of an inheritance received by heirs after a family member dies.
  • Homeownership is the most common way of creating generational wealth.
  • Wealth inequality still plays a factor in the generational wealth gap.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Reserve. “How Does Intergenerational Wealth Transmission Affect Wealth Concentration?

  2. Federal Reserve. “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances.”

  3. U.S. Census Bureau. “Housing Vacancies and Homeownership (CPS/HVS).”

  4. City of Seattle. “Equitable Communities Initiative.”

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