The much-anticipated wealth transfer
from Baby Boomers to younger generations is a significant financial event, but
will Millennials and Gen Z inherit as much as they think? Let's dive into the
details and uncover what's really at stake in this massive transfer of wealth.
A New Era of Wealth Transfer Begins
The transfer of wealth from Baby
Boomers to their children has officially begun, and it's expected to speed up
in the coming years. Baby Boomers are set to hand
down more than $68 trillion to their offspring. That sounds impressive,
right? Yet, despite this enormous sum, many Millennials and Gen Zers may not
inherit as much as they're hoping for.
Millennials' Expectations vs. Harsh Reality
There's a growing disconnect between
what younger generations expect to receive and what they might actually get.
According to a study
by USA Today Blueprint, 68% of Millennials and Gen Zers either have received or
expect to receive an average inheritance of around $320,000. To add to that
optimism, 52% of Millennials believe they'll inherit at least $350,000.
But here's the twist: A survey
by Alliant Credit Union reveals that 55% of Baby Boomers who plan to leave an
inheritance expect to pass on less than $250,000. This gap between expectation
and reality suggests that many young adults might be overestimating the wealth
they'll inherit.
The Unequal Reality of Inheritance
Inheritance is not evenly spread
across all families. Only about one-third of white families, and even fewer
Black families—roughly one in ten—receive any inheritance at all. What's more,
the Federal Reserve Bank of Boston found
that more than half of these inheritances are under $50,000. That's a far cry
from the amounts many Millennials are counting on.
Why Are Expectations and Reality So Far Apart?
So, what's behind this discrepancy? A
big factor is poor communication. Many parents simply aren't talking to their
adult children about money and this lack of dialogue leaves younger generations
in the dark about what to expect.
Add to this the impact of rising
inflation, skyrocketing healthcare costs, and longer life expectancies. These
factors are making many Baby Boomers feel less secure about their financial
situation, leading them to be more cautious about how much they pass on.
Declining Financial Confidence Among Americans
Another key issue is the overall
decline in financial confidence among Americans. A report
by Edelman Financial Engines found that fewer people feel financially secure
today, and only 14% of Americans consider themselves wealthy. This general
sense of financial unease could play a significant role in how much wealth gets
transferred to the next generation.
Could Millennials Become the Wealthiest Generation?
Despite these challenges, some experts
believe Millennials might still end up being the wealthiest generation in
history. The annual Wealth Report by global real estate consultancy Knight
Frank suggests
that the intergenerational wealth transfer over the next decade could make
Millennials the richest generation yet.
The Financial Hurdles Millennials and Gen Z Face
Even if the wealth transfer boosts
Millennials' finances, it's important to acknowledge the financial struggles
these generations are currently facing. Today's young adults are dealing with
soaring costs for essentials like food and housing, along with wages that are
lower than what their parents earned at the same age. Plus, they're carrying
larger student loan debts.
Why Financial Planning Is More Crucial Than Ever
Given the uncertainties surrounding
the great wealth transfer, it's vital for both parents and their children to
have open conversations about money. Parents should have a clear plan in place
for how their wealth will be distributed, ensuring that their children know
what to expect.
Setting the Stage: Family Values and Wealth Management
As views on inherited wealth evolve,
many parents want to ensure that their children share similar values when it
comes to building and managing wealth. A surprising number of parents—48%,
according to the Edelman report—intend to leave an inheritance but don't have a
specific plan in place. This lack of planning can lead to confusion and unmet
expectations when the time comes to transfer wealth.
The Role of Financial Advisors in the Wealth Transfer
Financial advisors can be a crucial
resource for families navigating the complexities of the great wealth transfer.
By working with a professional, families can develop a comprehensive financial
plan that not only addresses how wealth will be passed down but also ensures
that everyone involved understands the plan. Contact us today to speak to a
Private CFO® who can help address your concerns.
How to Talk About Money with Adult Children
It's essential for parents to have
open and honest conversations with their adult children about their financial
plans. This includes discussing not only the amount of wealth that will be
transferred but also the method of distribution. These conversations should be
part of a larger financial strategy that aligns with the family's overall
financial goals.
Seeing the Big Picture: Financial Planning for the Future
Ultimately, the great wealth transfer
is about more than just passing down money. It's about ensuring that the next
generation is prepared to manage and grow that wealth. By creating a detailed
financial plan and communicating openly with their children, parents can help
secure their family's financial future.
Conclusion
The great wealth transfer is a
double-edged sword for Millennials and Gen Z. While many young adults may
inherit less than they expect, the sheer size of the transfer could still make
them the richest generation in history. But to truly capitalize on this wealth,
it's essential for families to engage in open financial discussions and develop
comprehensive inheritance plans.
