As the baby boomer generation ages, there is a significant shift in wealth underway. Liz Koehler, head of advisor engagement for BlackRock, states that baby boomers are projected to pass on over $68 trillion to their children as part of the “great wealth transfer.” However, recent reports indicate a growing disparity between the expectations of millennials and Generation Z regarding their inheritances and what their parents actually plan to leave them.
According to USA Today Blueprint, 68% of younger generations anticipate inheriting an average of nearly $320,000, with some expecting even more. However, a survey by Alliant Credit Union reveals that 55% of baby boomers plan to leave behind less than $250,000, indicating a significant gap in expectations. Furthermore, studies show that inheritance is not equally distributed among different racial groups, with only one-third of white families and one in ten Black families receiving any inheritance at all.
The upcoming intergenerational transfer of wealth comes at a time when younger generations are facing several financial challenges. Rising costs of living, including food and housing, coupled with lower wages adjusted for inflation, have made it difficult for millennials and Gen Z to achieve the same financial stability as their parents did at their age. Additionally, the burden of large student loan balances further exacerbates the financial strain on these young adults.
Isabel Barrow, Director of Financial Planning at Edelman Financial Engines, emphasizes the importance of open communication between parents and adult children regarding financial matters. The lack of transparency and planning among parents is a significant issue, with 90% intending to leave an inheritance but almost half not having a specific plan in place. Therefore, it is crucial to discuss the transfer of wealth as part of a comprehensive financial plan, including setting common family values and expectations around philanthropy.
BlackRock’s Koehler notes a shift in attitudes towards inherited wealth, with parents wanting to ensure that the next generation shares their values around wealth creation. Successful firms and advisors are facilitating conversations that promote transparency and align family values, fostering a more holistic approach to intergenerational wealth transfer. The need for a well-defined strategy for passing down wealth is underscored by the Edelman report, highlighting the importance of not only determining the amount to be inherited but also discussing how it will be distributed.
The impending wealth transfer presents both opportunities and challenges for millennials and Generation Z. While the potential for substantial inheritances exists, it is essential for families to engage in open dialogue, establish clear plans, and align values to ensure a smooth transition of wealth to the next generation. By addressing these issues proactively, families can navigate the complexities of inherited wealth and lay the groundwork for financial stability and success in the future.
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