Building wealth for future generations

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One of the most important steps to financial freedom is an honest and clear personal budget. Picture: iStock
One of the most important steps to financial freedom is an honest and clear personal budget. Picture: iStock

VOICES


Harnessing the power of money today will ensure its posterity, writes Carol Mazaka.
The contentious green paper on comprehensive social security and retirement reform that was recently published by the social development department, and was subsequently withdrawn, has undoubtedly left many thinking about how we look after ourselves and our families financially as we age and after we die.

After all, wanting to give your children a better future – one with less financial challenges than you had – is universal desire. A key part of this consideration needs to focus on the role of generational wealth.

GENERATIONAL WEALTH

Broadly speaking, this is the ability to transfer financial and other valuable assets to your children and future generations. It can take many forms and can include cash and savings, property, life insurance, investments and trusts, family-owned businesses, and heirlooms with financial value such as jewellery and art.

In South Africa, the ability to build generational wealth is not just a factor of a family’s willingness to focus on wealth-building for years.


Ours is a country dealing with a past of dispossession and segregation that built a firm foundation for wealth inequality to endure well beyond the end of apartheid. This history has been compounded by years of low economic growth, a global recession and the Covid-19 pandemic, which has driven up the country’s unemployment rate to a staggering 44%. Understandably, this reality makes the aspiration of generational wealth seem like a pipe dream for countless families living in abject poverty.

READ: Success is not a big step in the future, it’s a small step taken right now

On the other hand, international real estate consultant Knight Frank estimated in its 2021 annual wealth report that South Africa had 44 605 high-net-worth individuals (with liquid assets worth more than $1 million [R14 million]) and 742 ultrahigh-net-worth individuals (with liquid assets worth more than $30 million) last year.

Compare these numbers with Stats SA’s 2021 mid-year population estimate for South Africa of 60.14 million people and it means that these groups represent 0.07% and 0.0012% of the population, respectively.

READ: The pathology and disability of being black in SA

When it comes to understanding how wealth is transferred from generation to generation, a recent UN World Institute for Development Economics Research working paper “estimating the distribution of household wealth in South Africa” noted that there was a lack of data available to track intergenerational wealth dynamics in the country.

WEALTH CONCENTRATION

This means we know there is wealth concentration, but we don’t understand how, and to what extent, this wealth is either lost or passed down in families.

Despite these complex challenges, generational wealth shouldn’t be considered out of reach for all but already wealthy South Africans – just like tackling inequality doesn’t need to be a simple choice between increasing or decreasing the number of high-net-worth individuals.

READ: The difference between being rich and wealthy

There are more young South Africans from increasingly diverse backgrounds receiving post-school education and earning reliable incomes today. Nurturing generational wealth-building for these South Africans needs to be a focus for the financial sector. This is one tangible way we can help build a middle tier of future wealth that combats inequality.

BLACK TAX

Our approach to helping South Africans build wealth needs to consider people’s different circumstances.

Our country is notorious for having a poor savings culture and high consumer debt. Young working South Africans also often support their families or have dependants, often referred to as black tax. These individuals may be the first in their families to have received post-school education and there can be significant demands on their income from family members who have little or no income themselves. With persistent high unemployment, it is likely that more South Africans are going to find themselves in this tough position.

READ: Making a plan for protecting your legacy

A recent survey of our customers highlights this pressure. It showed that most of the people surveyed don’t have generational wealth, yet more than 80% felt that they were expected to create it for their families. Only 39% understood what generation wealth was and how to create it. For these individuals and their families, generational wealth needs to be reconceived with a realisation that there need not be an all-or-nothing approach.

If anything, the concentration of wealth and significant levels of poverty discussed above show that, for many South Africans, the journey to building generational wealth needs to start with small steps and a basic approach.


Tackling debt, making informed decisions about financial services (including understanding the opportunity cost of buying funeral cover over life insurance), understanding what constitutes generational wealth and the options available for saving and investment are all vital first steps on this journey.

READ: Taxing inheritance will entrench, not decrease, racial inequality

Equally imperative is changing a family’s approach to finances. In families where wealth and finances are openly discussed and financial education is prioritised, successive generations can begin to inherit wealth, benefit from it, invest it, grow it and then leave it to their children.

We believe that access to high-quality and free financial education can help South Africans in these circumstances be empowered to say: “Generational wealth starts with me,” thereby taking the first steps to leaving a more financially secure legacy for their children.

That is why our financial literacy programme, Truth About Money, is available for free to South Africans who wish to start this journey. It gives valuable insight into building generational wealth, regardless of where you are starting from.

Building generational wealth is possible for many more families in this country, but it will take financial institutions working hand in hand with them. This is by no means the solution to South Africa’s inequality problem, but it is a vital step worth taking and we are proud to be doing more to put more families in South Africa on their wealth journey.

Mazaka is consumer director at 1Life Insurance


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