Experts share tips for overcoming the generational wealth disparity

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You’ve probably heard of the wealth gap and generational wealth, but here’s a number for you: There’s a $200 billion annual gap between black and white beneficiaries of inheritances, according to a 2021 report from the McKinsey Global Institute, The Economic State of Black America. According to the report, black families are also less likely to receive an inheritance.

But black financial advisors say there are ways to change the situation. They offer suggestions on how to start investing now to create wealth for future generations.

What is Generational Wealth?

When assets are passed down between generations, it is often referred to as generational wealth. What type of assets? Think of property, a Roth IRA account, a 401(k), life insurance, stocks and bonds, or anything else that has monetary value.

How to start building generational wealth by investing

Investing is a way to create wealth, but not everyone has the resources or the confidence to do so.

A 2021 Wells Fargo/Gallup Investor and Retirement Optimism Index survey found that Black investors’ risk tolerance is below average. Among black investors who responded to the survey, 54% said they were more comfortable taking “only a little risk,” compared to 47% of all investors.

Systemic racism and long-standing economic disparities are also barriers to entry into the financial system, says Ayesha Selden, a certified financial planner, economic activist and entrepreneur based in Philadelphia.

“Most of us didn’t grow up in homes where we talked about wealth. We didn’t talk about investments, mutual funds, stocks. How do you pick a stock?” Selden said.

If fear is something that’s holding you back, it can be helpful to explore your financial mindset and implement some of the strategies below.

Understand the resources available to you

Chelsea Ransom-Cooper, New York-based CFP and managing partner of Zenith Wealth Partners, suggests that you start your journey by learning what tools are available, then deciding which ones work best for you.

For example, if you have a workplace retirement plan, you might have access to a 401(k), and if you’re an entrepreneur, it might be a SIMPLE IRA.

Ransom-Cooper says understanding these retirement plans isn’t always the easiest task.

“There’s a learning curve for these things. I think traditionally – unfortunately – black people have always been sort of the last to learn about these things, where we’ve seen white families using them for decades” , she says.

“Now I think millennials and Gen Z are really educating themselves about what these resources and tools are, and how they can impact their own financial journey.”

Use your benefits

Malik S. Lee, CFP and founder of Felton & Peel Wealth Management in Atlanta, says corporate pension plans are “low hanging fruit.” According to Lee, 401(k)s are an easy way to get started, regardless of your financial situation.

“If you’re new to wealth building or living paycheck to paycheck, saving through your 401(k) is the most efficient way to save because your money is paid out before taxes” , he said.

And, he says, don’t forget to get the business game.

“If your work is going to match you dollar for dollar up to, say, 5%, that’s a 100% guaranteed rate of return.”

Develop an investment strategy

Once you know which vehicles you want to use, it’s time to develop an investment strategy. To do this, Ransom-Cooper says people should figure out what their goals are and whether they want to take an active or passive approach to investing.

Consider whether you want to learn how to invest in stocks and research different companies, or whether you’d rather use a robo-advisor and let an algorithm do the research and invest for you, Ransom-Cooper says.

Another critical element is knowing what drives you to build generational wealth, she says.

“I can give clients a financial plan, but if it doesn’t really motivate them and if it’s not aligned with their core values ​​and interests, it won’t really work,” she says.

To be coherent

Having a strategy will get you on the road to generational wealth, but you need consistency to stay there, says Lee.

He suggests deciding how often you’ll contribute to your investment goals and automating contributions to your investments or retirement accounts.

Being consistent can be difficult if you have other financial responsibilities, like taking care of your family.

Among investors polled by Gallup, 69% of black investors have provided “significant or current financial assistance” to at least one friend or family member in the past few years, compared to 57% of American investors as a whole.

Selden says people sometimes feel financially responsible for their loved ones, especially if they’re the first person in the family to earn a decent income, but that leaves them with less to spend on their investment goals.

“Our priorities should be three things, and those three things should be self, family, community — in that order,” she says.

Have an estate plan in place

All the hard work put into investing can be at risk without an estate plan.

“I’m talking about making sure your beneficiaries are right, making sure things are titled correctly, [and] make sure the documentation is in place,” says Lee.

By taking these steps, you’ll ensure the assets you leave behind are easily accessible and heirs don’t rack up legal fees trying to access them, Lee says.

Once you’ve dedicated the time and resources to building your wealth, you can share your knowledge with loved ones.

Ransom-Cooper says young black investors are doing just that.

“We talk about lifting while you climb, but they also cater to their parents and older family members trying to educate them on the tools available.”

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