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How to start building generational wealth for your kids or grandkids

Building wealth, whatever that looks like, and leaving it to the people we love—it’s a goal many of us share. Here’s how to pass your financial legacy from one generation to the next.

Multigenerational family—including young kids, parents, and grandparents—vacationing together at the coast.
4 min read |

From Hollywood royalty to CEOs, there are plenty of famous stories about one generation leaving a notable fortune for the next.

What gets less attention is the average person saving what they can when they can, hoping to pass along something—from a helpful inheritance that amounts to a first-home down payment to college tuition that helps a young person start out with less debt.

If you’d like to leave a legacy, it’s worth learning how to build generational wealth, whatever that looks like for you.

These steps may help.

Step 1. Define your own financial legacy.

“We define wealth in many ways; it isn’t just money,” says Heather Winston, financial professional and product director for Retirement and Income Solutions at Principal®. “Perhaps it’s about helping future generations with money while you’re alive or leaving a tangible item like a car or house after you’ve died.”

“Maybe your legacy is experiences with your family,” says Stanley Poorman, a financial professional with Principal®. “Then the challenge becomes figuring out how you can use your money today to create a living legacy.”

Living legacy ideas:

  • Purchasing a first car
  • Volunteering as a family tradition
  • Paying for a year of college
  • Writing down stories from your family’s history
  • Gifting children and grandchildren a yearly family vacation
  • Watching grandchildren to help save childcare costs
  • Setting up IRAs for a younger generation

Each financial legacy looks different and may come at different times. Three numbers to consider:

  • The average inheritance is just over $46,000.
  • Families fund about half of college costs, on average.
  • Almost half of all parents helped their adult children financially during the pandemic.

Step 2. Talk about that legacy with the next generation.

You may have been fortunate enough to take your family on vacations, pay for a portion of college, or eliminate all your debt during your lifetime—these are no small accomplishments.

“If you’re the first generation that’s been able to build wealth, you’re demonstrating your values and instilling them in others,” Poorman says.

Perhaps you’ve also decided you want to leave money to a charity that’s been important to you. Be open with your loved ones about your wishes so they understand your decisions and can help make them happen after you’re gone.

“It’s important to have conversations about your goals for your family early and often,” Winston says. “And this includes communicating the ‘why’ behind your wishes.”

$53 trillion will be handed down from baby boomers to their heirs and chosen charities.

Step 3. Integrate your financial legacy goals into your yearly budget and long-term financial plan.

Say you want to budget for a kitchen remodel in a year or two. You’re probably already thinking about what it might cost and how you might save for the project.

Take the same approach to build generational wealth. If your goal is to pay for a year of a family member’s college, setting up and adding to an education savings plan can help. If you want to gift an annual paid-for family vacation, establishing a rough budget and creating a vacation-only automatic savings deposit gets you closer to that goal.

“Ultimately, it’s not just thinking about it but taking action,” Winston says. “That’s the difference between a dream and reality. To be real, you have to make it concrete.”


Dan Houston

Formally designating your wishes requires some legal documentation. Explore what to include in your estate plan.


Step 4. Building generational wealth is incremental.

Most of us aren’t in line to inherit “a fortune.” But building wealth is incremental from one generation to the next.

Let’s say one of your financial legacy goals was to pay all college costs for your children. Maybe you’re only able to save enough for half of the tuition and fees. Even though you may feel like you didn’t accomplish your goal, you did. Helping your children earn those degrees has trickle-down wealth potential: College graduates’ lifetime earnings are at least $630,000 more than those with just a high school diploma. It makes the effort worth it.

“Each generation can do, and typically does, a little more,” Winston says. “You can pass down ideas and beliefs about what you want, why you want it, what you hope your heirs’ lives will be like. Then what they make of it will be up to them.”

What’s next?

What are you building to leave behind? Log in to your Principal account to review your information. First time logging in? Get started.