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Generational wealth is something that most parents aspire to create. But, statistics show that it is very challenging to accomplish. An estimated 70% of families lose their wealth in the second generation.
Chelsea Ransom-Cooper, a financial planner and managing partner at Zenith Wealth Partners, shared with Insider the most common mistakes she has seen clients make on the road to building generational wealth.
1. Not saving and investing for their own retirement
Many parents save and invest for their kids without making sure that their own retirement is secured. Ideally, parents can do both. However, if they must choose between their retirement and college savings, many parents prioritize the latter at the expense of securing their future. The decision they make to give their kids the best possible chances may hinder them in the long run as the children may have to take care of their parents financially in retirement.
“Because of student loans, a lot of people have a chip on their shoulder. Many parents don’t want their kids to have student loans because they realize how long it can take to pay them off. But there are other tools that they can use. There is work-study and different education options, but parents need to make sure they prioritize their retirement and then focus on the education savings,” Ransom-Cooper told Insider.
2. Not understanding which investment vehicles to use
Until recently, people relied heavily on pension and Social Security benefits to secure their retirement. But with pension benefits fading away and talks of Social Security running out of money in the future, parents have to learn how to utilize newer retirement-savings options effectively.
“Accounts like the Roth IRA and the 401(k) are all still fairly new,” said Ransom-Cooper. These accounts have been around 23 and 43 years, respectively, and many people still do not understand how they work, and how much of an advantage they can provide from a tax standpoint.
In addition, Ransom-Cooper noted that many parents don’t understand the power of investing and
. As a result, they often leave money to their kids in savings accounts instead of investment accounts, where it’s unlikely to grow much if at all.
“I still come across a few parents that are saving for their kids in general savings accounts. I spend a lot of time helping my clients understand how the stock market works, so they feel more comfortable investing those savings for their kids and allowing that growth to compound in their …….