From Rags to Riches: Navigating Generational Wealth in 7 segments
Harish is the most brilliant student in the class and has a classmate Harry who is decent in studies. Harish is the eldest child with two sisters; his parents work at a construction site. He works as a delivery boy in Zomato to fulfill his basic needs and his family’s. After school, he hardly finds time to study. Harry is the single child of college professors with everything needed to live a comfortable life. Harish and Harry both want to become doctors. Harish worked hard days and nights to prepare for entrance but missed it by a few marks, so he had to take up a regular job with the pressure to support his family and could not give up his dreams one more year.
Harry failed too but took a year off prepared with the help of personal coaching and got into an excellent medical college with the donation and later opened his clinic with the help of his family support.
Harish and Harry’s examples are not uncommon; they are what we see in our daily lives. What leads to such a difference? Why is it still a rarity for the underprivileged to ascend the socioeconomic ladder, despite their hard work and efforts? Why do we see more rich kids care freely running behind dreams? While some struggle for their daily survival. Is it about the knowledge, resources, value, or a support system to fall back upon? The contrasting experiences in our previous examples shed light on the significant influence of generational wealth on opportunities and outcomes in life.
Before diving further into our discussion, it’s essential to approach the concept of generational wealth with a positive mindset. Generational wealth is not something to discourage or view negatively; instead, we want to highlight its potential and significance. We will explore how generational wealth can impact individuals and society. It plays a vital role in personal growth to community contribution. Building generational wealth empowers families to create a legacy.
By understanding its impact and its importance, we can work towards building a more equitable society.
Generational wealth: Definition and Significance:
According to Fortune, “Generational wealth is essentially any asset that is passed down from one generation to the next. This might include cash, investment funds, stocks and bonds, real estate properties, or value and knowledge. Over the next two decades, it’s projected that more than $80 trillion will be passed down from today’s older generations to their children and other heirs. Still, multi-generational wealth is not equal across the board.”
To gain a comprehensive grasp of the concept of generational wealth, we will delve into the following segments:
- 🔍 Aspects of generational wealth: Assets and resources passed down.
- 🤺 The factors influencing generational wealth: Obstacles and support.
- ⛰️ Generational wealth gap: Analysis of disparities and causes.
- 🌎 The Impacts: Impact on families and society.
- 🚧 A Broken Social Elevator: Stalled social mobility.
- 📚 Role of education: Influence on breaking or reinforcing the cycle.
- 🎯 Solutions and ways forward: Addressing economic inequality.
1. 🔍 Aspects of generational wealth:
These assets can come in various forms, from cold hard cash and investments to real estate properties, businesses, and even those priceless family heirlooms. They represent the tangible and intangible treasures passed to the next generation. While the most obvious transfer of generational wealth is through legal inheritance, interestingly, it can also transfer in the form of goodwill and gestures. Imagine receiving gifts from parents and grandparents- money, wisdom, educational expenses, or medical bills. These acts of kindness have a significant positive impact on the financial well-being of the next generation.
And it’s not just about money. Knowledge is also a valuable asset that can be shared within families. Parents and grandparents pass down their wisdom, experiences, and life lessons, equipping the younger ones with invaluable insights for their journeys. So, whether through inheritance, supporting education, or even just sharing knowledge, these transfers of assets and resources ensure that wealth continues to flow within the family, creating opportunities and advantages for the following generations. It’s like a financial baton passed from one hand to the next, setting the stage for continued growth and prosperity.
2. 🤺 The factors influencing generational wealth:
So, what are the factors at play here? Generational wealth is not universally accessible and is influenced by socioeconomic status, systemic inequalities, and historical advantages or disadvantages. Our general perception of looking at things in numbers stays false here as it is not just about it; variables like race, gender, and social mobility can have a tangible impact on one’s capacity to build and transmit wealth, leading to differences in generational wealth distribution among various communities. It is a multidimensional concept. It can include social capital and networks, cultural capital, family reputation, family legacy, brand name, intellectual property, emotional and psychological support, and other valuable resources and advantages rather than just financial assets. However, in this discussion, we will mainly emphasise its financial and educational aspects only.
3. ⛰️ Generational wealth gap:
Did you know that the share of the total wealth of the top 1% of the population has been on the rise? According to the Credit Suisse Global Wealth Report for 2021, the world’s richest 1%, those with more than $1 million, own 47.8% of all the world’s wealth. This percentage increased from 45.8% in 2020. On the other hand, adults with less than $10,000 in wealth make up 53.2% of the world’s population but hold only 1.1% of global wealth, decreased from 1.3% in 2020. Individuals owning over $100,000 in assets make up 13% of the global population but own a staggering 85.6% of global wealth. This data highlights the vast disparity in wealth worldwide.
Let’s try to understand the wealth gap in the world again but with a simple translation.
In a 1-bhk apartment building, there are 10 apartments on each of its 10 floors, making a total of 100 apartments. The 😎 richest person is the owner of 48 apartments. Among the 👨🏻💼👩🏻⚕️🤵🏻♂️12 wealthiest individuals in the building, they collectively own 38 apartments. The remaining 🧑🏻⚕️👨🏼⚕️👩🏻💼34 people in the building own a total of 13 apartments. Lastly, the poorest 👷🏻♂️53 people share a single apartment.
Looking at those statistics, it is evident that globally top few percent of the population holds most of countries wealth while the bottom, which includes most of the global population, holds very little. This wealth accumulation and economic resources disparity between various generations is the generational wealth gap. It draws attention to the uneven distribution of wealth and opportunity among age groups, frequently resulting in the continuation of economic benefits or disadvantages from one generation to the next. The generational wealth gap stems from resource disparities caused by historical events, policies, systemic inequalities, income changes, employment shifts, housing, property ownership, and retirement systems. Inherited property and assets give an advantage, but education is equally crucial for earning power and wealth accumulation. Think about it, families capable of affording education have a clear upper hand, underscoring the significant role of education in bridging the generational wealth gap.
The rising cost of education and increasing student loan debt can hinder wealth accumulation for younger generations. It goes further than this. Generational wealth disparities can interact with structural elements like systematic racism, gender inequality, and socioeconomic divisions to produce even more inequality. For specific populations within each generation, these limitations may restrict possibilities and impede wealth increase like a roadblock on the patch of wealth building.
4. 🌎 The Impacts
We know when wealth is passed on to the next generation, and it has some significant advantages. The ones who inherit this generational wealth lives with considerable benefits and opportunities. They might have access to better living, medical, and educational opportunities. In many instances, generational wealth can be a launching pad for financial success, enabling succeeding generations to pursue higher education, launch enterprises, and invest in various projects with a solid financial foundation.
It has a compounding effect, where accumulating assets, knowledge, and opportunities over time creates a multiplying impact. Each generation builds upon the wealth and advantages from previous generations for better future generations.
This compounding effect perpetuates the cycle of wealth and can significantly influence upward mobility and long-term prosperity. But here’s the thing, this generational wealth also has its downsides leading to economic inequality and the persistence of advantages or disadvantages. For people and families without access to such resources, it can exacerbate already-existing gaps and put obstacles in the way of upward mobility. Not just the money, it also includes access to quality education, affordable housing, and the same opportunities that others have. Unfortunately, these pathways to growth and success aren’t available to everyone, and that’s where the wealth gap widens. It’s the underserved communities that suffer the most obstacles when it comes to building generational wealth.
Let's now go back to our initial discussion to understand better how generational wealth acts as an asset or barrier to an individual.
- Harry’s affluent background provides him with the financial means to pursue his dreams. His parents can afford personal coaching, donations for college admissions, and, eventually, setting up his clinic. On the other hand, Harish’s family faces financial constraints, and he must work as a delivery boy to support them. This limits his ability to invest in additional educational opportunities or take a year off to prepare for exams.
- Harish’s brilliance is hindered by limited resources for quality education outside the classroom. In contrast, Harry’s financial advantage allows him personalized coaching, giving him an edge in preparation.
- Harry’s supportive family offers guidance, emotional, and financial help, being college professors, providing valuable insights into academics and careers. Meanwhile, Harish faces the responsibility of supporting his family rather than having a support system to fall back upon, adding to the pressure of his daily life.
- Harry benefits from social capital, having connections and networks that offer internships, mentorships, and opportunities for success. Harish’s limited resources mean he may lack access to these networks, hindering his progress and opportunities.
- Financial security empowers Harry to take risks, like a year off for exam preparation or setting up a clinic. Harish’s immediate need to support his family limits his ability to take such risks or delay entry into the workforce.
5. 🚧 A Broken Social Elevator:
“Too many people feel they are being left behind and their children have too few chances to get ahead”.
~Gabriela Ramos, OECD Chief of Staff and Sherpa
It’s not just the impact of wealth gap that is to be mused on, it’s the social mobility that is at the center of solicitude. According to a study conducted by OECD: As income inequality has increased since the 1990s, social mobility has stalled, meaning that fewer people at the bottom have moved up while the richest have largely kept their fortunes. This has severe social, economic, and political consequences. Given current levels of inequality and inter-generational earnings mobility, it could take at least five generations or 150 years for the child of a poor family to reach the average income, on average across OECD countries.
6. 📚 Role of education:
Education is crucial in determining generational wealth. It’s not just about getting a basic education, it’s about understanding the bigger picture. Although we frequently believe that offering the bare minimum of education is sufficient, that is only a small part of the solution.
👉Here’s the thing: we need to understand the interconnected cycle of how the availability of resources impacts outcomes and how those outcomes, in turn, affect the generation of better resources. This cycle plays a significant role in perpetuating generational wealth and its associated disparities.
Consider wealthy families as an illustration. They have the resources to provide their children with access to quality education that enhances their skills, knowledge, and networks, positioning them for better opportunities in the future. It’s like they’re set up for success from the start. And that success leads to higher earning potential, job security, and a higher socioeconomic status. It’s like a domino effect that keeps accumulating wealth.
In contrast, individuals with minimal starting resources frequently have challenges receiving a quality education. And that can greatly impact their academic achievement, the opportunities available to them, and their ability to create wealth. This serves to accentuate further the differences and inequality related to generational wealth.
The perfect example of this is first-generation students. They often come from low-income families and face additional hurdles. They may have to pay high student loan debts to afford college. And that becomes another obstacle in their journey to accumulating wealth and achieving financial security.
The wealth gap we see here doesn’t just affect families and individuals. It has broader implications for our society, reducing diversity in various places.
Further, apart from financial advantages, generational wealth also includes the education and knowledge that families pass down from one generation to the next. Families with a history of educational attainment and a culture of valuing education tend to provide a supportive environment for learning. In these families, this extra knowledge and guidance that’s readily available help individuals climb up the ladder more easily. This offers insights, tips, and tricks to help individuals sail through life more easily. More like having a secret toolkit of wisdom passed down from your family. This transfer of intellectual capital is invaluable. It builds a strong foundation, helps in personal development, and the ability to navigate various aspects of life more effectively.
7. 🎯 Solutions and ways forward:
The concept of “generational wealth” encompasses the continuous transfer of benefits and assets from one generation to the next, offering opportunities for growth and fostering a legacy of success. While it acknowledges the historical disparities, it also presents a chance for individuals from less wealthy backgrounds to break free from limitations and achieve upward mobility. It is a force for good when its power truly enlightens us. Promoting prosperity and well-being for generations to come.
Recognizing and understanding the generational wealth gap is the first step in finding solutions. It requires acknowledging the existence of this issue rather than dismissing it and understanding it as a parameter for evaluating societal fairness and justice.
To address the generational wealth gap, it is important to break the cycle of inequality and provide equal opportunities for all individuals, regardless of their background. This can be achieved through inclusive policies and interventions that create a more equitable system. These efforts should focus on improving resources in underprivileged areas, offering financial aid and scholarships, and promoting diversity and inclusion in educational institutions. Comprehensive support systems, such as mentorship programs and career guidance, can play a significant role in supporting individuals from less wealthy backgrounds to overcome barriers and achieve their goals. It is also essential to support organizations that work towards closing the wealth gap, as they can have a lasting impact on families and the economy. Reinvesting in health, housing, education, and training is vital to create an environment where individuals can access the necessary resources and support to thrive, which in return will promote a more equitable distribution of resources.
Conclusion
The goal is not to create an identical society where differences do not exist but rather an egalitarian society where differences do not determine a person’s ability to succeed. Success should be based on an individual’s abilities, efforts, and opportunities rather than factors beyond control. In such a society, everyone can contribute to their full potential, and the generational wealth gap becomes less pronounced, leading to a fairer and more just society for all.
REFERENCES
