How Single Moms Can Build Generational Wealth

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The goal for many parents is to give their children a better life than they had. You want to know that your kids will be successful and happy even after you’re gone. One big way to do that is by passing on your wealth.

Generational wealth is building lasting or legacy wealth that can be passed down from generation to generation. According to Ksenia Yudina, a CFA and founder and CEO of UNest, an app that helps parents invest for their children’s future, “It’s extremely important because it can help close the wealth gap for the next generation. By providing your children with a financial head start, you are setting them up for future success.”

But if you’re a single parent — particularly a single mother — that can be much tougher to do. In fact, single moms are one of the most disadvantaged groups in the country, with nearly 30% of their families living under the poverty line, according to the U.S Census. 

Yudina noted that with a single-income household, it is more difficult to break the cycle of poverty. “Marriage comes with advantages including dual earners, tax breaks and the ability to split expenses,” she said. “Single moms are at a major disadvantage from the outset due to the gender pay gap and the fact that they don’t have a partner to help with finances or childcare.”

These challenges can definitely feel overwhelming. The good news is you can overcome them with some planning.

Ways Single Mothers Can Build Generational Wealth

There’s no getting around it: Women have to work harder than men to generate the same level of wealth as men. Not only are women paid less, but they’re often penalized for leaving the workforce to shoulder caregiving responsibilities. And due to a longer average lifespan, their earnings need to stretch further.

So as a single mother, your focus needs to be on earning extra income and investing your money in tax-advantaged accounts. Here are a few ideas for what to do.

Take on a Flexible Side Hustle

Getting a second job with a rigid schedule doesn’t work for single moms who have to be around for their kids after school, according to money-saving expert Andrea Woroch. “However, there are plenty of flexible side hustles that you can work as little or as much as you can when you’re free or even from home,” she said.

For example, you could sign up as a virtual tutor via Tutors.com, offer pet sitting services via Rover.com or pick up and drop deliveries like takeout orders or dry cleaning via Uber Eats or Postmates, which you can do while running errands on the weekends, even with your kids in tow. “The extra cash you bring in should be used toward building wealth, whether investing it or saving it towards your kid’s college fund or your own retirement,” Woroch said. 

Acquire Real Estate

Real estate is one of the best tools for building generational wealth. It generally appreciates over time and comes with special tax advantages.

“Purchasing a property now and deciding to keep it in the family means that one day, once the home or mortgage have been fully paid off, your children and/or grandchildren will either be able to continue renting out that property or they can live in it themselves without having to pay additional fees (aside from utilities and insurance),” said Erin Ellis, an accredited financial counselor at Philadelphia Federal Credit Union (PFCU).

Rent Out Space in Your Home 

Another way you can leverage any property you own is by renting out an extra bedroom or livable basement to travelers on Airbnb or VRBO. This extra money can help cover the bills so you have extra money to put towards savings, Woroch said. “You may feel more comfortable renting to a professional who stays longer, like a traveling nurse, or only renting it when your children are visiting their other parent,” she noted. “But it’s a great option to increase cash flow without taking time away from work or your children.”

If you’re not a homeowner or don’t feel comfortable sharing your home with strangers, other things you can rent include:

• Your car when you aren’t using it via GetAround.com
• Your parking spot via SpotHero (Woroch noted this is great for someone who lives near a popular attraction or close to city center for travelers)
• An RV via Outdoorsy
• Your swimming pool via Swimly

Invest in Your Children’s Education

While higher education is becoming costlier as the years go by, Ellis said that higher education of any form — from the traditional university, community college or even trade school — is extremely valuable in helping future generations learn and create prosperous opportunities for themselves. 

“If your children are young, consider setting up an education savings account for them now, so that they will be well-positioned when it comes time to receive additional education that could help them establish themselves professionally, and in turn, increase their projected salary,” she said. For example, you could open a 529 plan, which is a tax-advantaged investment account that allows you to save for qualified education expenses for a designated beneficiary, including K-12 tuition, apprenticeship programs and student loan payments.

Buy a Life Insurance Policy

Life insurance is one way to ensure that your children aren’t burdened financially if you die. You can opt for term life insurance, which lasts around 20 to 30 years and pays tax-free death benefits if you die during the term, according to Ellis. Or you can invest in permanent life insurance, which is active for your entire life and comes with a cash value component (though it’s much more expensive).

Either way, prioritizing that monthly premium payment now can help set your children up to be financially secure once you’re gone.

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