What is Generational Wealth?

The term generational wealth is tossed around a lot these days so I thought I'd expound on what I think it means at the most basic level.

Let's say a couple was able, just barely, to buy a modest house in 1932 for $4,000 (average in that year). They have 3 children. They are not rich but are able to get by. When they die in 1975 the house is worth $33,000. Each adult child gets $11,000, a substantial sum in 1975

Child One uses the money to start a small family business, employing their 2 kids (and eventually grandkids and great grandkids). The business does well and everyone's financial situation improves. Some of the great grandkids carry on the family business, other cash out and do other things.

Child Two make some home improvements which pay off later when they die and the house is sold. Their 3 kids don't' get the inheritance until later in life so they don't benefit directly, but they use the money to help send their grandkids to college (the 1932 couple's great grandkids) and help them with home purchases, start a businesses, etc.

Child Three uses the money to help send their 4 kids to college, two of them to higher degrees. They also start a small business which goes bankrupt, but their kids (the 1932 couple's grandkids) do really well and the parents are secure in old age.

The 4th generation, the 1932 couple's great grandchildren all have a good start in life. The “wealth” is not strictly monetary. They were brought up in nicer areas with better schools and had many other non-monetary benefits due to peer associations, ability to relocate for advancements, etc.

And so on.

What if the original sum passed down was much smaller. Let's say the second generation only got $1000. But one was able to buy a car to get to a better job they could not have gotten without it. It will take longer for the wealth to build up in this family, more generations most likely, but the same process will occur.

Generational “wealth” doesn't mean big sums for most people. We're not talking millions. Nevertheless, each generation has better opportunities, in small increments. This is why it's so important to provide opportunities for all no matter where they start out.