Financial Literacy and the Impact on Generational Wealth

Financial Literacy and the Impact on Building Generational Wealth

What is financial literacy?

Financial literacy is a term many of us have heard, but often don’t fully understand. Financial literacy can have a major impact on building generational wealth, which is why it’s so important. 

Well, if you’ve ever found yourself asking this question, then you’ve come to the right place. 

Financial literacy is simply the ability to understand personal finances and make confident and intentional choices about your money. Yup, it’s that simple. 

Now, of course, there’s more to it, but the basic concept is all the same. The more you learn about managing your money and planning for your future, the more financially literate you will become.

And the great thing is, once you’re on a path to understanding your personal finances, you won’t want to stop at just understanding. You’ll be motivated to take your financial knowledge a step further.

Here’s the thing. Most people love money. They love what it can do for them, how it makes them feel to have it, and many love the status it brings them. But, many fear learning about money. Why? Because just as much joy as people think money can bring them, the lack of money or understanding of money, can bring on just as much pain.

But, once financial education becomes available that fear of the unknown surrounding money starts to dissipate. 

Take this example for instance. Imagine you have an exam to take. Now imagine these two scenarios:

Scenario 1 – You were told you’d have this exam a month ago. You’ve studied for weeks, read over all your notes from class, and joined study groups.

Scenario 2 – You were told yesterday you’d have an exam this morning. You just finished cramming for the exam an hour before the exam is scheduled to take place. You didn’t have time to review all of your notes or study with any of your classmates.

Now, in which scenario would you be more terrified?

That’s right, you guessed it, scenario 2. And why is that?

Well, because in scenario 2 you weren’t prepared. You didn’t have the confidence that more preparation and more time to study would have given you. 

It’s the same thing with financial education. When given the tools you need, and the time to learn and prepare for different financial scenarios, you’re more likely to build confidence in your financial choices. 

Financial Literacy is Important

So why is financial literacy so important?

The main component of financial education is understanding money – how to earn it, use it, save it, invest it, and much more. 

When you have a better understanding of money, then you’ll start to see how financial literacy can impact your ability to build generational wealth.

And of course, money is pretty important. We need it, there’s no question there. We need it to meet our basic needs (food, shelter, clothing, etc.). So if we’re able to earn money, wouldn’t we also need to be able to learn to manage it so we could have access to food, shelter, and clothing? Yup, we sure do.

Image if you were to get a pet. Something you really wanted and have always dreamed of having. You’d need to understand what the pet needed to keep it alive, right? You’d need to understand what kind of food it needed, what type of shelter or environment it needed to be in, and basically how to keep it alive! 

Well, the same goes for money. Since we know understanding money is a key component to financial education, and we need money to meet our basic needs, it would make sense that we’d need to understand how to manage money in order to meet our needs – literally so we won’t die! 

Ok, so that was a bit extreme, but you get the point.

So why wouldn’t most people become financially literate?

Financial Education Unavailable in Schools

The quick answer – Lack of availability of financial education.

The long answer – Financial education is a branch of education that truly has been pushed to the sidelines. In fact, less than half the states in the country require financial literacy as a high school graduation requirement. 

In addition to not learning about financial education in school, many people also aren’t learning it at home because their parents didn’t learn it in school and neither did their grandparents. 

You may be wondering, well why wouldn’t someone just Google it? 

You’re absolutely right, some of this is information that can be Googled. But, people still have to be willing to Google it. They still have to know what question to type into the search bar. 

And what about that person who doesn’t think it’s important because no one has ever told them that personal financial planning was even necessary? 

That’s where quality financial education programs come into play. 

Quality financial education that can give the user information that he or she didn’t even know they needed, is the key. Unfortunately, you can’t just Google that. Fortunately, we’ve got you covered. 

You can get access to the financial education resources you didn’t even know you needed right here on this website!

Who needs financial education?

Everyone Needs Financial Education

The short answer – everyone.

The long answer – anyone, of any age, who has ever cared, or will care whether or not they have enough money to live. Boom! That’s it. 

If you want to be sure to have enough money to meet your basic needs, to buy the things you want, and to take care of yourself and your family, then you need financial education.

Going a step further, financial education is critical if you want to build generational wealth.

There’s often a misconception that age matters when it comes to financial literacy. Well, I’m here to tell you, age is only a number. 

No matter how old you are or how long you’ve been on your financial journey, you can always benefit from more financial education. 

In fact, you should continue to build upon your financial education as you navigate life. As you grow and change so will your financial goals and interests. You will likely need to focus on certain financial topics at different times in your life because of this.

Ultimately, the key is to just get there. Accelerate your financial literacy to get you to whatever stage you need to be in to meet your financial goals. 

You’ve already taken the first step by visiting this site and reading this article. You already have an interest in your financial well-being, so keep that momentum. You’ll thank yourself for it later.

Ok, we’ve covered the whats, the whys, and the whos. Now let’s get to the really good stuff.

What impact will financial literacy have on me?

At Wild About Wealth, our focus is providing financial education that will help you build generational wealth. 

Say that with me one more time, because this is important.

WE WANT YOU TO BUILD GENERATIONAL WEALTH!!

You see, simply building wealth is cool, but using financial literacy to help build GENERATIONAL wealth is ice cold…see what I did there? Ok…ok…I’ll stop with the jokes for now.

When associating financial literacy with the impact it has on generation wealth, we first need to discuss wealth itself. The ability to build wealth is not just about having enough money to be considered rich, it’s about having the appropriate mindset about building wealth. 

The keywords here are BUILDING WEALTH!

Wealth is built, and when you’re successful, you can pass that wealth down to your children and your children’s children, and so on.

And guess what? Improving your financial literacy, then teach your children the habits resulting from your financial education, then you will give your children the tools to build the wealth as well.

Generational Wealth Building

What is generational wealth?

Generational wealth is wealth that transfers from generation to generation. The next generation would acquire wealth that the previous generation had already begun to build, and then build on top of that. 

Here’s a basic example for you. Imagine playing with legos (don’t judge – my toddler is sitting next to be building a boat-castle thingy). 

Now let’s say you have enough legos to build a small but sturdy little house before you run out of legos. Then your brother comes over and does the same thing with his legos. He’s able to build the same size house as you before he runs out of blocks. Then your sister comes over and does the same thing. Now you all have three separate houses. 

Now imagine you start with your little house and when you run out of legos, your brother comes over with his legos and adds to your little house, and now you have a big house. Then your sister comes in with her legos to add on, and now you have a castle! 

That’s essentially the concept of building generational wealth. Each generation builds on to the previous generation’s wealth. Sure you could have three separate houses, and you could live quite comfortably. But what if you could live in a castle? I don’t know about you, but I want the castle.

Why is generation wealth important?

Much of what we experience on our financial journey is the direct result of the efforts of our ancestors, specifically including our parents and grandparents. 

Knowledge and information are transferred down in many different ways. Since we’ve already established financial literacy is rarely taught within our formal education system, it has historically been the responsibility of our parents to “show us the ropes,” so to speak. 

Unfortunately, there are many instances where parents have little to no financial literacy to teach or pass on to their children. With no knowledge to learn and build upon, generation after generation after generation will likely make the same mistakes as those who came before them. 

This is a problem because when you know better you do better. But how do you know better when no one has ever taught you? This is where financial literacy comes in. Improving your financial literacy can bode well for building knowledge and ultimately generational wealth.

Building Generational Wealth

Create generational wealth in 5 steps

Wild About Wealth will to teach you to build generational wealth in 5 steps.

Step 1: Financial Literacy

Understanding how money works is the key, and the very first thing you must do to start building generational wealth. Continuing to improve financial literacy can perpetuate generational wealth. 

Once you have the knowledge and continue to pass that knowledge down to the generations that follow you, you will have created a positive cycle.

Step 2: Money Management

I cannot stress this enough. Good money management skills will not only help you learn to budget, save, manage accounts, and much more, but they will also help you establish good financial habits. 

Building generational wealth is not a sprint, it’s a marathon. That means, being mentally and emotionally vested in creating effective money management habits.

Once those habits are formed, and the motivation is there, that’s when the fun starts. And by fun, I mean creating a kick-ass budget. One that is realistic, detailed, and easy to maintain and follow. 

A good budget can be an invaluable tool to help plan your financial future. The primary goal of a budget is to track expenses within a month or a year, budgets are also used to help meet long-term goals. 

Taking it a step further, setting goals and savings targets enables you to plan for the future and the unknown. If there comes a time when you have a desperate need to pay for a large expense, and you don’t have access to the cash because you didn’t save, there’s a greater chance of you using debt to help pay for that expense. Events like this can derail your financial goals, so try to be as prepared as possible. 
Check out our Money Management page for more tools to improve your money management skills.

Step 3: Debt Management

Oh debt – there’s a lot to say here. Debt can be a lifesaver, feel like a death sentence, or help you build wealth. That’s right I said it, debt can actually help you in some situations. 

The problem most people face when it comes to debt is not knowing how to manage it. From not understanding the terms of a loan, to only paying minimum balances on credit cards, to drowning in student loans they needed in order to have the slightest chance at educating themselves.

Understanding debt management can mean the difference between being stuck in a debt repayment cycle for years, or being able to use debt to help build wealth. Either way, managing debt requires EXTREME discipline. Exploring this topic will require you to understand your willpower as a person. This is KEY to understanding how you should approach debt.

Check out our Debt Management page for more.

Step 4: Credit Management

Similar to debt management, credit management requires a full understanding of what you’re getting yourself into! Credit follows you, so if you start on the wrong foot, that wrong foot will continue to follow you for years and years. And who wants a smelly foot hanging around? 

I don’t, and I’m guessing you don’t either. 

Building credit, or reviving your credit can be hard because it requires a lot of discipline and willpower. However, once you get there…..ohhhhh, that’s when it gets good. Having good credit can have a huge impact on how much money you can SAVE over time. How about that?

We discuss this more in the Credit Management section, but ultimately understanding what credit is, what it means to have good credit, and how to build or keep good credit is a great resource to have as you navigate your financial journey.

Step 5: Building Wealth

Prior to this step, we were laying the foundation, building the habits, and getting ready to light the fire. Building wealth is the fire. This step is where you start to build and protect the nest egg. 

Here are some things you’ll focus on in order to build wealth.

Focus to Build Generational Wealth

Investing – Now this is a broad topic, however, the basic concept is simple. No matter which investment vehicle you use the ultimate goal is to invest your money in appreciating assets. This creates an opportunity for your money to work for you instead of you working for your money. 

Let that sink in. If done correctly, you could be making money while you sleep and generating passive income. At that point, kiss the 9-5 good-bye! Your money will earn the money for you.

Entrepreneurship – Start a family business or purchase a business. Entrepreneurship creates an opportunity to not only have unlimited earning potential, because you control the process, but also provides tax benefits and savings you wouldn’t have access to as a W2 earner. 

Also, if you maintain and build the business over time, you’ll likely be able to pass that business on to your children. 

Life Insurance – So here’s the thing. The basic premise of generational wealth is to pass down what you’re able to build over your lifetime. But what happens if your life is cut short? You’d still want to enable your family to build generational wealth and pass down what you’ve started to build right? 

Guess what? You can actually do it without having a lot of money saved! Yup, that’s right. You could leverage life insurance to leave your family money if you are unfortunately unable to help them build wealth through other avenues.

Estate Planning – This involves mapping out how your assets will be disbursed after you pass away and creating a will. Many people, especially younger people, don’t like to even think this far in advance. However, if you are at all concerned about protecting your assets, and making sure they end up in the right hands if something happens to you, then you need to take the necessary steps to secure your assets.

Build a Wealth Legacy

Final Thoughts

Building individual wealth is great and certainly a respectable goal to have for your financial journey. But imagine if you could take that a step further. Imagine being able to give the next generation a head start or a boost.

Leaving a legacy for your loved ones will span well beyond your years. Generation wealth can provide the tools needed for your children, grandchildren, and great-grandchildren, to maintain and build upon wealth passed down to them them without the specific need to “start over” every single generation. It opens doors to investing and saving that many, unfortunately, can’t walk through within an entire lifetime. 

As you navigate your financial journey and build your financial literacy, you’ll begin to see things differently and start planting seeds that will continue to grow over lifetimes. With a solid financial education, you will be in a position to not only pass down knowledge but also pass down good financial habits. 

Teaching your family about the importance of financial literacy and showing them, through your actions, how empowering financial education can be will drastically change their circumstances and have a positive impact on their financial journeys.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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