Even if you’re a Singleton like me, the implications of intergenerational wealth may have touched your life at some point. I like to think of intergenerational wealth as a faucet of income that helps younger generations to start their adult lives without debt. It’s a financial tool that allows young adults to master the skills of successful adulthood without being burdened by the yoke of debt.
In my case, my parents were able to pay for most of my education. They did the same for my brother. And had I not moved out during my second degree, they likely would have paid for all of it. I graduated with $15,000 in student loans and was fortunately able to pay them off within 2 years of graduating.
I’ve mentioned before that my parents weren’t rich, but they were long-term thinkers. My “Baby Bonus” cheques were deposited into the bank to buy Canada Savings Bonds from the time I was born. Interest rates were good – the money grew – my (and my brother’s) university was paid for – hooray! This is but one small example of the power of intergenerational wealth.
The parents in my social circle are using Registered Education Savings Plans (RESPs) to fund the costs of their kids’ educations. I’ve no idea how they invest their money, but I admire their determination to ensure that their kids have access to this form of intergenerational wealth when the time comes.
This week, I was listening to Beardy Brandon of Bigger Pockets on his YouTube channel. (Rest assured that I’m not getting paid for mentioning this website.) If you don’t know who he is, Brandon is a very successful real estate investor who runs a very, very successful blog teaching other people how to be successful real estate investors too. In one particular episode, Brandon mentioned buying properties for his children and having them paid off by the time that his kids started post-secondary school.
Wait! What?
Yes – you read that right. Part of Brandon’s plan to create a faucet of income for his family is to buy his children a property when they’re young, have it paid off by the time they graduate high school, and use the rental income and/or equity to pay for their post-secondary schooling. Along the way, Brandon’s kids will learn the real estate investment business while having some skin in the game.
Plans are the Result of Dreams Mixing with Money
Intergenerational wealth starts with a plan. This is not surprising. Yet, a plan without the money to implement it remains a dream. If Brandon didn’t have money, then he couldn’t have bought homes for his children. If my parents hadn’t had money, then they couldn’t have bought Canada Savings Bonds for their kids’ education. Sam Walton had to have the cash set aside to buy the first store way back in the day, long before the Wal-Mart empire took over the world and ensured that his kids never had to run a cash register for a living.
What I find so incredible about the stories of intergenerational wealth is that the parents (or grandparents) set a living-and-breathing example of delayed gratification for their children. They are long-term thinkers who find ways to use today’s money to fund the dreams of a tomorrow that may be well over a decade away. I always imagine young parents holding their new baby for the first time and thinking “How are we going to pay for med school?”
The decision by an ancestor to keep a little bit back in order to invest it in something profitable changes a family tree. The parent is taking a leap of faith, although hopefully a well-researched one. No one knows what tomorrow will bring and there are no guarantees that the investment will pay off. However, choosing to never invest in anything is guaranteed to bring a return of absolutely nothing.
Start Adult Life Without Debt
If not for my stubborn decision to move out of the house, I could have graduated completely debt free. My parents had created a faucet of income that would’ve allowed me that privilege. Instead, I made a short-term decision and there was a debt to pay.
Now that I’m well into adulthood, I have a better appreciation of how significant a gift it is to start adulthood without debt. I’ve paid off a mortgage, car loans, and student loans during my time. I took out the debt knowing full well that I had an obligation to pay it back – no argument there.
However, that doesn’t stop me from envying Brandon’s children who won’t have to take out a mortgage for a home. If they want to live in the homes that their father has bought them, they can. Should they decide to live in another home and have the first one pay the mortgage on the second home, they can do that too. And if they want to travel the world, their rental income can fund their travels. In short, they don’t have to take on debt because their father has created a faucet of income for them. It’s a plan that’s 15+ years in the making – another example of that long-term thinking that I was mentioning before.
Intergenerational wealth is a way to avoid assuming crippling debt burdens in your 20s. Beneficiaries of such largesse are able to start their adult lives on a firm financial foundation.
For example, take student loans. For some people, they’re a path to a financially secure future. After all, one can’t become a cardiologist without somehow footing the bill for medical school. However, there’s no denying that student loans can also trap people on a hellish repayment treadmill because they borrowed $100,000 for employment that pays $35,000.
It’s astonishing to me that people as young as 18 are allowed to take on huge financial debts, yet they’re not allowed to legally imbibe alcohol in many jurisdictions in North America.
“I’d like to borrow $30,000 per year for a degree, please. I have no idea how much I’ll have to pay back for these student loans once the interest is calculated. I’m not certain whether the salary of my desired career will allow me to pay off these loans while still saving for a home, a family, and a retirement. I also have no idea how to calculate how much my anticipated monthly repayment will be.”
“Sure – not a problem. Just sign here.”
“And I’d like a beer.”
“What the hell is wrong with you?!?!! You’re too young to drink!”
Play the Hand You’re Dealt
When you have access to intergenerational wealth, then debt isn’t such a significant factor in your life. You don’t have to borrow money for your education. You might not have to borrow money for a home! Just imagine how different your life would be if you didn’t have any debts to re-pay.
The reality is that not all of us are born to parents who have the money to buy properties for us. Some of us have parents who have the money but also believe that we should take out loans or find another way to fund our educations without their help. What can I say? You play the hand you’re dealt and you do the best you can.
Singleton or not, you have the power to create a faucet of income for someone else.
Living hand-to-mouth means that there’s no room for savings. This is a tough way to survive since you’re always living on the edge. Your income is barely enough to satisfy your necessities of life. This is a poor foundation from which you can build intergenerational wealth, but I’m not saying it’s impossible to do so.
You might want to think about how you’d like your money to be spent when you don’t need it anymore. Do you have nieces or nephews? Maybe there’s a neighbourhood kid who doesn’t drive you crazy? Perhaps you’ve always wanted to start a scholarship for kids interested in the things that tickle your fancy?
Even if you’re not a parent, you have the ability to create intergenerational wealth for someone in your world.