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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
No festive family gathering would be complete without elder relatives waxing lyrical over “the good old days”, as millennials mumble anxiously about their future. Baby boomers were indeed a lucky bunch. After the second world war, many were able to accumulate substantial fortunes as fast-growing economies propped up earnings, real estate values, and stock markets. By contrast, younger generations today have been hit by low productivity growth and several economic crises, from the 2008 financial crash to the Covid-19 pandemic. Many young adults cannot afford their own digs. And to top it off, there is the threat of climate change and geopolitical instability.
But mum, dad and the grandparents’ good fortune — and, of course, their hard work — means millennials and Gen-Z do have something to look forward to: a decent inheritance. In the next 25 years, over $100tn in assets — ranging from property, aged wines and artwork — will be transferred from the boomers and older generations to their heirs in the US alone, according to Cerulli Associates, a wealth manager. Vanguard — another such firm — recently projected that over $18tn in wealth will be handed down globally by 2030. It will be the largest intergenerational transfer of assets in history.
What might it mean for our economies, markets and societies? First, not everyone will be lucky enough to have a wealthy benefactor. In America, the wealthiest 10 per cent of households will pass on the majority of the wealth. In Britain, research by the Resolution Foundation think-tank finds that the wealthiest boomers are more than twice as likely to pass on gifts to their children than their poorer counterparts. In other words, intra-generational inequalities could become entrenched, particularly if advanced economies still struggle to raise their paltry growth rates.
The economic impact also depends on what happens with the money. The financial windfalls may go largely towards paying off mortgages and the grandchildren’s university fees, or even for retiring earlier to hotter climates. That would be a plus for indebted millennials, and sunny destinations. But it may dash hopes for an inheritance-led surge in spending. Whatever happens, cash-strapped governments will take keener interest in ensuring they are taxing bequests, judiciously.
When it comes to investing, millennial and Gen Z investors tend to be less confident with traditional assets like stocks and bonds. A recent Bank of America survey found that younger generations allocate three times more of their portfolio to alternative investments such as private equity, start-ups, and crypto assets, compared to boomers and Gen X-ers. They are also more drawn to purpose-driven financing. This may add volatility to future portfolios, but it could also be a boon for environmental and social causes, as well as helping to spread finance farther.
Some inheritances could also go to waste. A 20-year US study found that 70 per cent of wealthy families lost their wealth by the second generation, and 90 per cent by the third. Estates can get tied up in family squabbles and lawsuits. Young beneficiaries with sudden riches could fritter away cash on exotic investments, or the latest meme stock craze. Succession planning and financial education will become more important. Just 40 per cent of young adults in Britain are financially literate, according to a 2023 survey. Elders might be extra precious about how they want their money to be spent.
In the coming years Christmas gifts may even take on a different meaning: instead of wrapped presents, elder relatives may seek to pass down their assets early, tax-free. That will surely enliven family holiday discussions to come.
