I’ve come across several individuals lately that cringe a little when someone uses the phrase generational wealth. Owning property to create Generational wealth, to some, can feel like an archaic institution. It can look like over the top consumerism, large mansions and disregard for less fortunate community members.
Certainly, this is something it Can be. But historically, for most Americans, it looks like generational financial freedom and stability. Generational Wealth is defined simply as financial assets passed from one generation of a family to another. There is not a dollar amount assigned to it. It literally can mean that adult children are left with a house to sell and split the proceeds versus having a parent that passes away with debts that need paid. I think we all hope to leave the next generation in a better spot than we started.
Generational Stability
I much prefer the phrase Generational Stability. Setting your children and grandchildren up for less hardships. The ability to have more choices of how to spend the money you earn. The ability to choose is an incredible privilege to have and to give. And it’s not just for the next generations. Whether that’s buying a large house or whether that’s being able to give more, or not have to work in retirement. It means freedom. Freedom to choose a large house in a suburb or a tiny house on 20 acres with gardens and native plants. Freedom to make updates and changes based on your taste.
Possibly most importantly, owning your own home, includes the stability of knowing exactly what you owe and own. And not having to worry about your rent going up or needing to find a new rental housing based on someone else’s life circumstances. Renting, paying for use of someone else’s space, is designed to be temporary. Any sort of lease is. That is not bad. It’s in fact very useful, but anytime you’ve agreed to a temporary (uncertain) solution to a long-term need (housing) that puts you in a precarious situation.
Comparing Apples to Oranges
In 2022, the median wealth gap between homeowners and renters reached an all-time high of almost $390,000, and the average wealth gap is $1,370,000.
This is staggering. Now if you’re reading this as a homeowner you may still feel defeated. Your monthly bills and expenses likely eat up most, if not all your paycheck.
It might not feel that different than when you were renting. And this is where the danger lies. You can’t compare your mortgage payment to your rent. That’s comparing apples to oranges. Don’t believe me? Ask anyone who bought their home 15 years ago and sold it in the last 5 years. They were able to utilize their equity in their home to upsize, downsize
or right size. Homeownership creates a sort of forced saving system. Because you are slowly paying down the amount you owe on your home and slowly (or sometimes quickly) gaining equity as well. You are paying back yourself so that in 20 years you have hundreds of thousands of dollars in equity to do what you want with versus someone that rented for those same 20 years and has zero dollars at the end.
Finding the Right Path
Of course, some people do not have the money or credit to buy a house right now. There are some long-term solutions to this, but it will take time. This is a perfect example of when renting for a few years makes sense. But it is worth the time, effort and sacrifice to have homeownership be your long-term goal. There are some grants available and organizations that can help. I’m always happy to provide resources to get people pointed in the right direction.
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