Forget Cash — Dave Ramsey Reveals the Real Wealth To Pass Down
Written by
Crystal Mayer
Edited by
Cory Dudak
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Along with owning a home and the ability to retire comfortably, many people dream of being able to build generational wealth, or wealth that can be passed down to their children and grandchildren.
However, famed personal finance expert Dave Ramsey recently told his 6.2 million followers on Instagram that money isn’t the greatest inheritance; it’s the wisdom to manage it.
Passing Down Discipline
In his social media post, the best-selling author explained that many families pass down money only to see it disappear within a generation or two because they don’t pass down the discipline necessary to properly manage it. He noted it is not just about what is being left, but rather, more about what is being taught along the way.
Third-Generation Curse
When Ramsey refers to the fact that generational wealth can disappear quickly, he isn’t wrong. According to Soteria Trusts, research has shown that as many as 70% of families lose wealth by the second generation, and 90% by the third. Known as the “third-generation curse,” this statistic highlights the reality that wealthy families don’t always remain wealthy. Experts point to a lack of financial literacy as one of the primary reasons this phenomenon occurs.
Financial Literacy Concerns
Ramsey, who is known for advocating a debt-free lifestyle, understands the importance of financial literacy. Unfortunately, less than half of Americans surveyed could answer basic finance questions. According to the World Economic Forum, only 48% of respondents in the U.S. correctly answered questions related to basic financial principles.
While many people lack financial literacy, they believe that they have a firm grasp on the subject. Despite less than 30% being able to answer all questions correctly, respondents rated themselves a 5.1 out of 7 for financial knowledge.
Differing Viewpoints
While it is sound advice to pass down basic financial principles, such as paying off high-interest credit cards and establishing an emergency fund — both of which are advocated by Ramsey — generations may have differing ideas about how to build and keep wealth. Today, the world looks significantly different from how it did 30 years ago.
Younger generations see influencers becoming millionaires and the death of what were once guaranteed retirement sources like pensions. These changes have prompted them to think differently about how to generate income and even what to invest in.
Where older investors may have focused their attention on stocks and bonds, a Bank of America study of wealthy Americans found younger adults are more willing to invest in assets such as cryptocurrencies and alternative investments. According to their findings, conservative investors between the ages of 21 and 43 had 40% of their investments in stocks and bonds. In comparison, conservative investors 44 and up allocated approximately 67% of their portfolio to the more traditional investments.
How To Preserve Wealth
Passing down basic principles of wealth management can help ensure future generations have the financial means to live a comfortable lifestyle and the knowledge they need to continue building wealth. Whether passing down millions of dollars or simply helping a new generation stay out of debt and have a solid emergency fund, financial literacy can ensure a bright future for tomorrow’s youth.
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