5 Important Financial Literacy Concepts to Understand for the Great Wealth Transfer

 The Great Wealth Transfer presents opportunities and challenges, with trillions of dollars expected to shift from Baby Boomers to Millennials and Gen Z. At Beyond The Green, we believe it is the inheriter's duty to manage and grow their inherited wealth! We appreciate that it took a long time to build this wealth, with parents and grandparents making daily sacrifices to ensure they left a legacy, but with bad money management, it can be gone in less than five years. If managed well, this money could change the world! 

According to a study from "Emerging Millennial Wealth Gap," 76% of millennials are either financially coping or struggling. By 2044, millennials and G-zers will inherit 90 trillion dollars. So, even if you've been coping with money for your entire adult life, you could be set to have a huge chunk of change that will change the course of your life. This money can change policy, bring more inclusivity and opportunities for minorities, and help the environment while ensuring you meet all your needs. But if ignored, taken for granted, or spent without thought towards instant gratification, we will waste the greatest gift our generation has ever seen. And I'm not willing to let that happen! 

Financial literacy is one of two crucial pieces to feeling confident, empowered, and excited about the Great Wealth Transfer. The other component is the overall money mindset around inheriting money. for these younger generations to manage and grow their inherited wealth effectively.

This post will highlight the five most important financial literacy concepts potential inheritors should master to ensure long-term financial stability, security, and growth.

1. How to Budget

Budgeting is the cornerstone of financial management. Understanding how to create and stick to a budget helps individuals manage their cash flow, prioritize spending, and achieve their financial goals. Key steps include:

• Review Your Historical Expenses: Review your spending over the last three months and make a budget based on the average of the last three months. (This includes your debt repayment!)
• Input ALL your income: Family money, side hustles, and bonuses all count as income! Compare your post-tax income to your historical expenses. 
• Setting Financial Goals: Define short-term and long-term financial objectives.
• Allocating Funds: Open up the appropriate accounts, put savings goals into your budget, and make a debt repayment plan that allows you to save.
• Monitoring and Adjusting: Build the reps by tracking daily, weekly, and monthly. Read six tips for staying on a budget to learn more!

More budgeting resources: 

6 Tips to Stay on a Budget Without Compromising Your Life

Budgeting For Inner Peace

How Emotions are Driving Your Spending Habits

2. How to Use a Credit Card Correctly

1. Building Points: Using credit cards to build points can be highly beneficial. Many credit cards offer rewards programs that provide points for every dollar spent. These points can be redeemed for travel, merchandise, or cashback. To maximize benefits:

• Choose the Right Card: Select a card that offers the best rewards for your spending habits.
• Use for Everyday Purchases: Charge regular expenses like groceries, gas, and utilities to accumulate points.
• Pay in Full Monthly: Always pay off the monthly balance to avoid interest charges.

1. Taking Advantage of 0% APR Offers

Credit cards with 0% APR promotional periods can be a smart way to finance large purchases without incurring interest, provided you manage them responsibly.

• Large Purchases: Use these offers for significant expenses like home appliances, medical bills, or other big-ticket items.
• Monthly Payments: Divide the total amount by the number of months in the promotional period to ensure it's paid off before the interest kicks in.
• Track the End Date: Be aware of when the promotional period ends and plan accordingly to avoid sudden interest charges.

By using credit cards wisely to build points and take advantage of 0% APR offers, you can focus on building wealth and paying down any debt, charging interest. If you want to learn more about balance transfer cards, the third most important thing to know about debt, check out this blog.

3. How Rich People Stay Rich by Utilizing Debt

Wealthy individuals often use debt strategically to grow their wealth. Understanding these tactics can help maintain and build inherited wealth. Key strategies include:

• Borrowing Against Assets: Use assets like real estate or investments as collateral to secure loans at lower interest rates.
• Investing Borrowed Funds: Borrowed money can be invested in higher-return opportunities, effectively leveraging debt.
• Tax Benefits: Interest on certain types of debt, like mortgages, can be tax-deductible.
• Maintaining Liquidity: By borrowing against assets, wealthy individuals keep their cash liquid and available for other opportunities.

4. How Long Their Money Will Last Based on Their Goals

Planning for the future requires understanding how long inherited wealth will last based on personal goals. Important steps include:

• Identifying Goals: List major financial goals such as buying a home, funding education, and retirement.
• Estimating Costs: Calculate the costs associated with each goal.
• Assessing Current Wealth: This is a combination of identifying your goals, assets, and income.
• Projecting Growth: Use financial projections to estimate how long the money will last, considering factors like investment returns and inflation.

*This is a great time to work with a financial planner. Someone who can help you strategize vs a financial adviser who is just interested in making your money grow. We recommend Richard Sebastian with CIC Wealth. 

5. How Much Money Can Be Used for Riskier Investments

Balancing risk and reward is essential in wealth management. Knowing how much money can be allocated to riskier investments can maximize growth potential while safeguarding financial security. Key considerations include:

• Risk Tolerance: Assess personal risk tolerance and investment horizon.
• Diversification: Spread investments across different asset classes to mitigate risk.
• Setting Limits: Determine a percentage of the portfolio to allocate to high-risk investments.
• Monitoring Performance: Regularly review and adjust the portfolio based on performance and changing financial goals.
• This is your opportunity to invest in real estate, a passion project, small business! The world is your oyster, quite literally. Don't let financial insecurity get in the way of fulfilling your life dreams and helping others build theirs!

Financial literacy is the key to unlocking the full potential of the Great Wealth Transfer. By mastering budgeting, responsible credit card use, strategic debt utilization, goal-based financial planning, and risk management, younger generations can ensure that their inherited wealth leads to long-term financial stability and growth. Let's commit to enhancing financial literacy and preparing for the opportunities and responsibilities that come with this unprecedented wealth shift- reach out to us here for more support.