May 9, 2024 | Sammy Tran

The Great Wealth Transfer


How Generational Wealth Will Change the Future

It’s been called, “the greatest wealth transfer in history,” and it’s about to make some huge changes for the younger generations.

According to recent reports, the age group struggling the most right now may actually end up being “the richest generation in history."

Here's what's currently happening, and what is likely to happen as Baby Boomers hand over their assets to the young adults who "don't want to work."

The Great Wealth Transfer Split2

The "Great Wealth Transfer"

The Great Wealth Transfer refers to an intergenerational wealth transfer that is underway in the United States, among other nations, with the Baby Boomer generation leaving significant wealth to their heirs.

Time scale comparing the differences between generationsIvan Marc, Shutterstock

Baby Boomer Wealth

Over the next 20 years or so, the Silent Generation (1928-1945), and the Baby Boomers (1946-1964) will essentially “hand over the reins” to Millennials (1981-1996) when they pass on their property and equity-rich assets.

Baby Boomers vs Millennials signM-SUR, Shutterstock

Millennials

Knight Frank says in the U.S. alone, the shift will see nearly $85 trillion of assets move between generations—ultimately making wealthy Millennials "the richest generation in history."

closeup of a young man holding a chalkboard with textnito, Sutterstock

Generational Struggles

Although the math makes complete sense, it comes at a bit of a shock, and possibly some relief for Millennials themselves.

Man upset sitting on a table holding his headSrideeStudio, Shutterstock

Milestone Challenges

Research has shown that many Generation X (1965-1980), Millennials and even some the younger Generation Z (1996-2012) adults are having a difficult time hitting the same milestones as those from previous generations.

image of a couple calculating taxesChay_Tee, Shutterstock

Rising Inflation

With inflation, young adults today are struggling to afford basic necessities, let alone finding room in their budget for investing.

Man with shopping recipe looking shockedPERO studio, Shutterstock

Home Ownership—Not Likely

Many Millennials are burdened with soaring rents, student debt, and rising inflation to the point where owning a home or even building savings are far-fetched goals.

image of a woman holding hey and wooden tiny houseUltraskrip, Shutterstock

The Generations Who “Don’t Want to Work”

These conditions, which are drastically different than the those of past generations, have fueled the narrative that today’s young adults are lazy have little desire to work—which isn’t actually the case.

Teenager don`t want to worknelen, shutterstock

The Cost-of-Living Crisis

The younger generations today are struggling with a cost-of-living that greatly outweighs their income—even for those with educational credentials and training.

This naturally diminishes their desire to ‘hustle’, when they are essentially ‘working for nothing.’

Person open his empty walletPormezz, Shutterstock

Changing Directions

Along with changing hustle culture, the younger generations have a few other ideas in mind for the future, that may actually benefit our world down the line—and this is where the Great Wealth Transfer can help.

man choosing a way marked with arrowsLemon Tree Images, Shutterstock

Prioritizing Climate Change

Liam Bailey, global head of research at Knight Frank, said the wealth transfer is taking place amid “seismic changes” in how the assets are put to use.

Climate change is one example of where there are clear generational differences in investment priorities.

image of a person holding sign for climate changesMarkus Spiske, Pexels

Sustainable Living

“Millennials appear to have got the message when it comes to cutting consumption – 80% of male and 79% of female respondents say they are trying to shrink their carbon footprints,” Bailey said.

image concept for carbon footprint3rdtimeluckystudio, Shutterstock

Building Wealth vs. Keeping Wealth

In contrast, just 59% of male boomers were found to be trying to reduce their impact, significantly below their female peers, at 67%.

These numbers support the idea that Baby Boomers are less interested in sustainable consumption and less likely to be persuaded by sustainability claims.

image for concept investmentITTIGallery, Shutterstock

Market Change

Aside from climate change, what could this historic transfer of wealth mean for the markets? That depends on the investment decisions these heirs make with their fortune.

image of a earth globe on the moneyDilok Klaisataporn, Shutterstock

The Wealthy Generation

Baby Boomers often believe themselves to be the best generation, paving the way of smart decisions for those who come after them. And they aren’t exactly wrong—after all, the Great Wealth Transfer is the product of their decisions.

image of a two hand holding wooden housePuttachat Kumkrong, Shutterstock

Boomer Concerns

With that being said, many Baby Boomers are fearful that the young adults today are not going to follow in their footsteps after all—and once again, they are not wrong.

Magnifying glass over footstepsWHYFRAME, Shutterstock

Differing Opinions

According to a survey for Bank of America Private Bank’s “2022 Study of Wealthy Americans”, 75% of millennial and Gen Z investors believe “it’s not possible to achieve above-average returns solely on traditional stocks and bonds.”

Bank of America sign and trademark logoMichael Vi, Shutterstock

Giving While Living

Baby Boomers are increasingly leaning into the trend of “giving while living,” passing assets on to their children now rather than leaving it to them in their wills.

This means, the impact of all that money changing hands could be felt sooner than expected—leading to new investment trends emerging.

image of old persons taking some documentationDmytro Zinkevych, Shutterstock

Sustainable Living Leads to New Investment Opportunities

According to Sarah Norman, head of CIO Sustainable Investing Thought Leadership, “younger investors aren’t just looking to have an impact; they believe that sustainable investing can help identify investment opportunities and mitigate risks.”

compass with a Invest icon.AB Visual Arts, Shutterstock

What is Sustainable Investing?

According to the CFA Institute, “sustainable investing balances traditional investing with environmental, social, and governance-related (ESG) insights to improve long-term outcomes. In many ways, sustainable investing can be seen as part of the evolution of investing.”

CFA Chartered Financial Analyst image conceptdizain, Shutterstock

Alternative Investments

Young adults age 21-42 today are said to be skeptical of traditional portfolio of stocks, bonds and real estate, and show a greater preference for private equity, private debt and direct investment in companies—even founding their own companies.

Lauren Sanfilippo, a senior investment strategist with CIO, says, “younger investors are more open to new financial vehicles, including alternative investments.”

image of a young man Happy with Different Opportunities For His MoneyGround Picture, Shutterstock

A New Path to Success

As this group of investors increase their wealth through inheritance, Sanfilippo foresees them pushing to make a greater variety of investing choices available, including “a broader range of digital tools that allow for customization.”

Success written on asphalt roadgan chaonan, Shutterstock

Creating Opportunities From Inheritance

A large portion of Millennials are said to support climate solutions and social equality, and the money they inherit may give them the ability to pursue alternative strategies—like private equity and hedge funds—which typically require a high minimum investment and are limited to qualified investors.

Miniature senior men and moneybeeboys, Shutterstok

Losing Faith in Traditional Investment Methods

According to the 2022 Bank of America Private Bank Study of Wealthy Americans, younger investors are less confident in traditional investments, with 75% of young adults ages 21 to 42 believing that “it’s not possible to achieve above-average returns solely with traditional stocks and bonds.”

While only 32% of adults age 43+ agree.

Burlap with dollar banknotes on gray backgroundCHUYKO SERGEY, Shutterstock

Open to Alternatives

Of the same age groups, those between 21 to 42 claim to be more open to alternative asset classes, and say that “private equity is an investment that offers the greatest opportunity for growth,” while only 15% of adults age 43+ agree.

Change the wooden cube block word from Plan A to Plan BBrian A Jackson, Shutterstock

Sustainability Approach Soon to Become Mainstream

Among those below the age of 43, three-quarters own sustainable assets already, and experts believe the lens of sustainability will move from niche to mainstream, partly as a result of the Great Wealth Transfer.

But that’s not the only way the Great Wealth Transfer will help young adults.

Businessman drawing arrows in different directionsShutter_M, Shutterstock

A Chance at Real Estate

At this time, Millennials are facing steep barriers when it comes to real estate, with rising interest rates and supply challenges, to buying a first home in many markets. But Sanfilippo says, “that’s a for-now story, not a forever story.”

Real estate broker agent presenting and consult to customerNuttapong punna, Shutterstock

Homeowners At Last

The Great Wealth Transfer should enable more young adults to become homeowners either through inherited property or the funds for a down payment.

But their homeownership choices may take a different direction.

Real Estate agent giving keys to a customerSutthiphong Chandaeng, Shutterstock

Housing Trends

The current trend toward smaller families supports smaller, urbanized quarters, but remote work options offer opportunities to spread out.

As well, younger generations are more focused on climate risks, sustainability and energy efficiency—shifting how we live in our homes.

image of a home officeNew Africa, Shutterstock

Sustainability Saves Money

The trend today is to ensure that you have sustainable energy sources in the home. Not only does this help save the planet, it also saves money.

If Millennials can use their inheritance to purchase a home and then sustainably manage it, they may finally have an opportunity to save money.

Person Putting Coin in a Piggy Bankmaitree rimthong, Pexels

Pushing for Variety

While it’s impossible to determine the overall impact the Great Wealth Transfer will have on the markets, the willingness of younger investors to push for more variety in investment options could create new opportunities for everyone in the years to come.

businessman planning long term investments and future business growthThapana_Studio, Shutterstock

How do the Boomers feel?

While all of this sounds like good news, it’s important to note how the majority of Baby Boomers feel about this impending wealth transfer.

elder's puzzled lookGiulio_Fornasar, Shutterstock

A Disconnect

According to NBC News, recent reports show a growing disconnect between how much the next generation expects to receive in the “great wealth transfer” and how much their aging parents plan on leaving them.

BC News mobile app on the displaySharaf Maksumov, Shutterstock

Expectations

In fact, USA Today Blueprint found that 68%, of Millennials and Gen Z have received or expect to receive an inheritance of nearly $320,000, on average.

As well, 52% of millennials think they’ll get even more —at least $350,000—according to a separate survey by Alliant Credit Union.

Alliant Credit Union image conceptT. Schneider, Shutterstock

Reality

However, Alliant also found that 55% of baby boomers who plan to leave behind an inheritance said they will pass on less than $250,000.

So, where is this discrepancy coming from?

A sad piggy bank behind stacks of euro coinsSmit, Shutterstock

A Lack of Communication

Isabel Barrow, director of financial planning at Edelman Financial Engines, says that “parents are just not communicating with their adult children about financial topics.”

Add inflation, high healthcare costs and longer life expectancies, boomers are suddenly feeling less secure about their financial standing—and a lot less generous.

elderly mother and young daughter communicatefizkes, Shutterstock

Sharing Values

In addition to a higher cost of living, Baby Boomers want to feel more confident that the next generation is going to have the same value system around building wealth—and they are not so sure that will be the case.

hands holding paper family cutoutSewCreamStudio, Shutterstock

The Importance of Financial Planning—and Communicating

However, the lack of communication between the Boomers and their children is part of the problem.

According to the Edelman report, 90% of parents intend to leave an inheritance to their children but 48% do not have a specific plan in place.

image with elderly people and adult planningInside Creative House, Shutterstock

Start the Conversation

Investment firms and advisors are urging people to open up the conversation, and set common family values and expectations. If the Boomers want their children to succeed, they have to teach them how.

image concept for conversationTHEBILLJR, Shutterstock

Teach, Don’t Preach

Many believe that instead of spending all of their money while they’re living, Boomers should focus on passing along valuable financial knowledge so the Millennials will know what to do with the money they are soon to inherit.

Wooden puzzles with the words Financial educationAndrii Yalanskyi, Shutterstock

Bottom Line

In the next two decades, Generation X, Millennials, and some of Generation Z will possibly inherit large sums of money from their Baby Boomer parents, as part of what is being referred to as, “The Great Wealth Transfer.”

miniature businessman standing on the bottom linechillchill_lanla, Shutterstock

Final Thoughts

While this comes with many advantages, and some concerns, it’s imperative that if we want the younger generations to succeed, it’s time to open up the dialogue and provide them with insight that could help their future investment decisions—whatever those may be.

Close up of grown up child son hugs elderly motherfizkes, Shutterstock

Sources: 1, 2, 3, 4, 5


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