In simple terms, generational wealth is the passing down of assets from one generation to the next. Those assets that can take a variety of forms including cash, real estate, stock portfolios, education funds, and even family businesses.
A generational wealth strategy not only helps preserve the legacy of an astute investor, it also gives his/her children, grandchildren, and even great grandchildren a head start toward financial independence. Since gold has a long history of maintaining its value and purchasing power, it is an ideal asset to be handed down to the generations that follow.
Self-Made American Money
Building a successful business or financial portfolio requires discipline, sacrifice, tenacity, and old-fashion hard work. According to a new study from Northwestern Mutual, most American millionaires don’t actually consider themselves wealthy, despite working incredibly hard to surpass the $1 million net worth mark.
Almost eight in 10 U.S. millionaires call themselves “self-made” and 78% consider themselves “disciplined financial planners,” compared with 45% of the general population who describe themselves this way.1 https://www.cbsnews.com/news/one-third-of-american-millionaires-dont-consider-themselves-wealthy-survey-says/
The National Study of Millionaires by Ramsey Solutions says that despite what society might believe, only a small number of wealthy people actually inherited their money. The overwhelming majority (79%) of millionaires in the U.S. did not receive any inheritance at all from their parents or other family members.2https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research
Similarly, when it comes to the richest people in America the University of Chicago’s Booth School of Business offers some interesting perspective on wealth trends among U.S. millionaires and billionaires.
“Most individuals on the Forbes 400 list did not inherit the family business but rather made their own fortune. Chicago Booth Professor Steve Kaplan and Joshua Rauh of Stanford found that 69 percent of those on the list in 2011 started their own business, compared with only 40 percent in 1982. In other words, there are fewer people on the Forbes 400 list who came from an affluent background and eventually took over the family business, such as brothers David and Charles Koch (Koch Industries) and the Walton siblings (Wal-Mart), and more self-made people such as Bill Gates (Microsoft), Warren Buffet (Berkshire Hathaway), Philip Knight (Nike), and Stephen Schwarzman (Blackstone Group), who had an upper middle-class upbringing and eventually built their own successful companies.”3https://www.chicagobooth.edu/review/billionaires-self-made
And for all those self-made folks who have amassed significant net worth, creating a generational wealth strategy can seem daunting — particularly when one cannot pass down core values, work ethic, and money management skills.
The Challenge of Passing Down Wealth
The data on the staying power of family fortunes, is not good. According to the CFA Institute most rich families will be poorer after several generations.
“Some of the reasons for this are systemic. Taxes, for example, chip away at a family’s wealth. But most factors that diminish a family’s wealth over generations are the choices that heirs make. These include how they invest their inheritance, how many children they have, whether they get divorced, and other lifestyle choices.”4https://blogs.cfainstitute.org/investor/2024/05/06/generational-wealth-does-the-apple-fall-far-from-the-tree
Having clarity and establishing some guardrails about how your wealth is managed is critical. Sound generational wealth considerations include “legacy planning” which incorporates aspects of estate and inheritance planning. Specifically, it’s a strategy outlining how, when, and in what amounts you wish to distribute your assets after you die.
According to UBS, when setting up the transfer of generational wealth, investors should ask themselves some key questions:
- How much do I want to give away and to whom?
- What do I want my wealth to achieve?
- When should I make the gifts?
- And how transparent should I be with my heirs?5https://www.ubs.com/us/en/wealth-management/who-we-serve/specialized-advice/multicultural-investors/insights/generational-wealth.html
These are important considerations and not addressing them early on can undermine the very best of intentions for next generation. According to the Royal Mint, sustaining family money often gets derailed by gaps in planning due to failure to draft a will, to establish an advanced directive, to create a trust, and to include hard or tangible assets in an estate plan.6https://www.royalmint.com/invest/discover/invest-in-gold/generational-divide-in-investing-giving-and-preserving-wealth
Gold is an Enduring Generational Asset
Gold is considered a powerful hard asset and a time-tested store of value that is ideal for any generational wealth strategy.
The Egyptians, Greeks, and Romans all coveted gold not only for use in early coinage and as a medium of exchange but as a sign of wealth, power, and privilege. As far back as 4000 B.C. gold was used to fashion decorative objects in what is now Eastern Europe.7https://www.nma.org/pdf/gold/gold_history.pdf According to the Victoria and Albert Museum, precious metalworking in the ancient world was both sophisticated and symbolic:
“Gold, a rare and highly valued material, was buried with the dead so as to accompany its owner into the afterlife. Much archaeological jewellery comes from tombs and hoards … The jewellery worn in medieval Europe reflected an intensely hierarchical and status-conscious society. Royalty and the nobility wore gold, silver, and precious gems. Lower ranks of society wore base metals, such as copper or pewter.”8https://www.vam.ac.uk/articles/a-history-of-jewellery
Gold also played a key role in the monetary systems of antiquity. King Croesus of Lydia infamously struck the world’s first gold coins somewhere around 550 B.C. And as IFLScience states, “from feudal Japan to Renaissance Europe, gold became tied to many major world currencies in more recent centuries.”9https://www.iflscience.com/why-did-gold-become-the-go-to-element-for-money-68508
The modern gold standard, where the value of currency is linked to a fixed amount of gold, was the basis for the international monetary system from the late 19th century to the early 20th century. It hit its zenith from around 1871 to 1914.
Today, 57 central banks still hold gold to protect their cash reserves and according to the World Gold Council, gold continues to prop up the government-issued currencies of the world’s most renowned monetary authorities:
“One of gold’s primary roles for central banks is to diversify their reserves. The banks are responsible for their nations’ currencies, but these can be subject to swings in value depending of the perceived strength or weakness of the underlying economy. At times of need, banks may be forced to print more money … This increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation.”10https://www.reuters.com/plus/why-central-banks-buy-gold
Gold’s Generational Value is a “Social Construction”
It’s hard to imagine a generational wealth strategy that does not include a hard asset that has been coveted since the very genesis of money itself.
Gold has proven to be a low-risk, stable, and lustrous precious metal that has retained its value through invasions, over-throws, coups, rebellions, revolts, world wars, evil empires, depressions, recessions, and pandemics. And it will continue to hold intrinsic worth no matter what future generations may face.
According to Investopedia, “Gold’s value is ultimately a social construction; we all agree it always has been valuable and will be in the future.”11 https://www.investopedia.com/articles/investing/071114/why-gold-has-always-had-value.asp
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2 https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research
3 https://www.chicagobooth.edu/review/billionaires-self-made
7 https://www.nma.org/pdf/gold/gold_history.pdf
8 https://www.vam.ac.uk/articles/a-history-of-jewellery
9 https://www.iflscience.com/why-did-gold-become-the-go-to-element-for-money-68508
10 https://www.reuters.com/plus/why-central-banks-buy-gold
11 https://www.investopedia.com/articles/investing/071114/why-gold-has-always-had-value.asp
