Can Generational Wealth Be Used Ethically?

generation wealth

Photo by Morgan Housel on Unsplash

Millennials are poised to become America’s richest generation after 2030. 

Financial analysts estimate that nearly $4 trillion will be transferred from baby boomers to millennials over this decade. It’s one of the largest flows of wealth in history, and many financial experts are tracking it closely to see how it gets used.

One top prediction that many experts agree on is that the wealth will get distributed among a small group of people, thanks largely to the way generational wealth works. As parents hand over their real estate assets, stock portfolios, and bank accounts to their children, the wealth is unlikely to go anywhere beyond America’s well-off families.

Thus, it raises the question of whether generational wealth can be used ethically. 

At Aspiration, we believe it can. With the right guidelines and investment options, generational wealth can be used to help the planet and tackle class inequality. In this article, we explore how generational wealth can become a force for good. 

Where does generational wealth come from?

Generational wealth comes from no other place than our parents and grandparents

Any family business or real estate that’s handed down from generation to generation constitutes generational wealth. It’s anything that we inherit that has a significant financial value.

Common generational wealth assets include property, stock market investments, and family businesses. These assets usually increase the wealth of the heirs and provide them with financial stability.

Take, for example, real estate. Homeownership is widely cited as the key to becoming middle class. Those who inherit houses, land, or farms tend to be able to leverage their wealth more than others to make improvements to their lives. They may be able to get loans easily and provide more financial support to their children. 

Others may get handed down stock market investments. These long-term securities may be worth tens of thousands of dollars, and will likely continue to grow in value after inheritance.  

And, of course, there are family businesses. The Census Bureau estimates that  90% of all business enterprises in North America are family businesses. Though, despite their seeming profitability, studies have found that only about 30% of these businesses survive under the control of the next generation.    

What is it typically used for?

People who inherit wealth generally use it to build more wealth. Some others spend it on luxuries. Here’s a detailed look at what generational wealth is used for. 

Continue building wealth for the next generation

Some people who inherit large sums of money or stocks may use it to start a business.

This is usually the case if the heir has reached a level of financial stability that they’re comfortable with. The extra money is used to develop a business plan, secure more funding, and hire staff. 

The heir may even quit their day-job to focus on the business completely as they no longer have the need to look for regular income, at least for a while. Or, in some cases, they never needed to work anyway because of their family’s vast wealth.

Some notable figures who built businesses using their inherited wealth include the Kardashian sisters. Using the $100 million real estate empire they received from their father, the sisters created a multi-million dollar empire of TV shows, fashion lines, and endorsements. 

Re-investments in the family

Others with more modest generational wealth inheritances may simply reinvest the money in themselves and their family members.

They may add money to their children’s education fund. Or they may use it to boost their retirement savings. Someone thinking of buying a home might use it to pay for a down payment. 

They may also use the money to buy themselves financial freedom. Inheritance money is usually in the six-digits, averaging at about $177,000. Heirs who are saddled with high-interest rate debt might use the money to pay off their debts.

In some cases, holders of wealth might specify in their wills how they might want the money to be used. They may expect heirs to hold on to some of the assets and pass them down to future generations.

Lavish expenses

Then there are people who blow their inherited wealth away without careful planning. They may spend it on luxuries like sports cars and extravagant holiday homes. But oftentimes, it’s small, but relatively expensive purchases, that chip away at the money until nothing is left. 

An inheritance of about $200,000, for example, may disappear in a manner of months if it’s used for lavish expenses. A high-end sports car like a Porsche 911 starts at about $100,000 while a beachfront home could cost up to a million dollars

Or, as this man who inherited $250K learned, an apartment in Chicago, a custom motorcycle, tuition fees, and countless weekends of partying are enough to leave your accounts empty. 

What are the impacts of generational wealth?

While generational wealth tends to help inheritors build more wealth, it’s not without its socioeconomic impacts. 

Because it’s usually concentrated in the hands of a few already-wealthy families, it exacerbates economic disparities among the population. This wealth doesn’t get distributed, it just accumulates further in the bank accounts of the rich. 

Here’s a look at the ways generational wealth impacts our society. 

Wealth inequality

Studies have found that generational wealth tends to get passed down much more often in families with wealthy grandparents. Children in these families get bequeathed family wealth early on in life through gifts. As they get older, they receive more inheritances such as business shares and property.

The researchers also discovered that generational wealth transfers occur much more in white American families than African American families. They attribute this to poor ‘intergenerational wealth mobility’ among black households due to discriminatory policies decades earlier. 

Land ownership

Generational wealth transfers also concentrate on land ownership within wealthy families. Land has historically been expensive and difficult to acquire, which means that new buyers usually don’t have all the means to access it. 

Gaps in education and professional success

People who inherit wealth are likelier to go to college, have no student debt, and be exposed to a wide range of career opportunities. These individuals may come from families that have long histories of attending prestigious universities.

They may also have parents and grandparents who hold senior-level positions in influential businesses and local governments, giving them access to professional contacts that very few others will get. 

What are some ethical ways to spend or invest generational wealth?

Inheritors can prevent generational wealth from negatively impacting society by investing it ethically. These investments may not be the most popular ways to spend inheritance money, but they can help counter wealth inequalities created by it.

Here are some ways that you can spend your generational wealth ethically.

Invest in environmentally-friendly businesses

One of the best and easiest ways you can invest your inheritance is to buy stocks and shares in sustainable businesses.

By supporting these businesses, you help them expand their environmentally-friendly products and services. You also provide them with extra funds to strengthen their sustainable business practices, helping them become examples for other businesses. 

Some of the fastest-growing climate-friendly businesses include solar power companies, electric vehicle manufacturers, and sustainable airlines

You don’t need to go through any complicated processes to invest in sustainable businesses. Aspiration offers investments in these businesses through its Redwood mutual fund, which anyone can sign up to with just a minimum $10 deposit. 

Confront class privilege 

If you think that generational wealth should be confronted head-on, check out Resource Generation. It’s a multiracial membership community that encourages its generally wealthy and privileged members to use their money to fix the structural issues causing wealth inequality. 

Since 1998, the nonprofit has been helping wealthy people between the ages of 18 and 35 make investments in social justice movements and community development funds using their family wealth. Members work to shift power and wealth away from the elite 1% and toward communities.

In addition to wealth inequality, Resource Generation tackles a wide variety of other issues, from race and gender discrimination to oppressive immigration policies.

Contribute to charity 

You could also just go down the good old route of contributing to charitable causes.

There are nonprofits working on everything from wildfire prevention to combating world hunger, and they make appeals on their websites. You can easily find nonprofits that are aligned with the impact you want to make. 

Using your money to help these organizations lets you put your wealth to good use. Nonprofits are usually strapped for cash, which means that your donation will make a massive difference to them. 

How can green banks help you manage generational wealth?

Green banks can help you manage your inheritance ethically. 

Many are B Corp certified corporations and members of the Global Alliance on Banking for Values (GABV), meaning they adhere to strict regulations on ethical investing and wealth management. They do not lend any money to fossil fuel companies, or any business that harms the planet and human lives. 

They can help you put the wealth you’ve inherited into a high-yield savings account with minimal fees or repackage your inheritance into mortgage loans to help you multiply your wealth.  

Green banks also offer investments in IRAs, mutual funds, and college savings plans. For individuals who want to re-invest their inheritance in themselves or their families, these are all highly recommended options.

Green banks with the best generational wealth management products include Aspiration, Amalgamated Bank, and Beneficial State Bank

Aspiration, for example, offers a Spend & Save™ account that gives you up to 1.00% on your savings deposits, including the money from your inheritance that you put in. Plus, they round up every transaction you make to the nearest whole dollar and use the spare change to plant trees on your behalf.

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