Personal Finance

Is the biggest factor to financial freedom actually just generational wealth?

Joey Frenette

Published: February 5, 2025 4:44 am

Generational wealth will play an increasing role as the great generational wealth transfer (from Baby Boomers to Millennials) continues on. Indeed, many Boomers who are well-off, with swollen financial fortunes and enough to retire comfortably, may send generous financial gifts to their children way sooner rather than leaving everything for the inheritance. Either way, it’s hard to deny the profound impact that generational wealth has on younger generations.

In this piece, we’ll react to a Reddit poster who’s wondering if it’s just generational wealth that’s key to long-term financial success. Let’s not kid ourselves; generational wealth is a massive deal. But not everyone will be on the receiving end of a fortune.

Though a generational wealth transfer is well underway, not every young person is fortunate enough to have a fat inheritance coming their way or a fat trust to help cover the monthly bills. And while generational wealth can act as a massive head-start for many young people, I do think that children who aren’t financially literate stand to crack open the nest egg coming their way rather than add to it and grow it for the next generation.

Generational wealth is a big deal. But it tends to be destroyed in just a few generations.

That’s why educating oneself on asset allocation, investment management, compounding, and all the sort are so fundamental. The last thing an heir of a fortune wants to do is cause generational wealth to erode to zero within a generation or two. Indeed, generational wealth can span a few generations, but without financial literacy, it’s bound to erode with every passing decade.

Around 70% of wealthy families lose most of their wealth by the second generation, with around 90% shedding it by the third generation.

These are jarring numbers that show how vital it is for heirs to inherit not just the cash but also the know-how to manage and continue to grow such cash. Indeed, when invested wisely and unlocking the power of compound interest, a fortune should grow by leaps and bounds with each passing generation.

While not every child will be good with money, especially money they haven’t had to work for, I think it’s on the parents to set the right environment so that their child can gain a financial education while also building their own fortune.

Is there a bigger factor in achieving financial freedom?

Though generational wealth could cause one to achieve a comfortable retirement even before they’ve had to launch a career (they may be thinking, what’s the point if they already have more than enough cash that’s been given to them), I do believe that it’s a personal finance education that’s the more significant factor to achieving financial success that spans generations.

Undoubtedly, in a prior piece, I referred to a sound financial education as akin to a “fishing rod,” while an inheritance (or amount of wealth received from a loved one as a gift) is akin to a mere “fish.” You can do incredibly well in feeding yourself whether you getting the fish or the rod. However, it’s the rod that can help one run their own race towards the financial freedom finish line.

Indeed, someone who’s still young, with decades to compound their wealth, can build a fortune for themselves with the right financial habits practiced early. Whether that entails budgeting wisely, saving and investing in the right low-cost investment vehicles, or just being motivated to push for professional success, there are more ways than one to achieve financial freedom. Arguably, it’s more gratifying to be a generational wealth creator than a destroyer.