You have likely heard about this – a massive amount of wealth, 30 TRILLION dollars to be precise, is starting to move from the boomers and baby boomers to their Generation X and millennial children.
$16 trillion of this wealth will come from ultra high net worth individuals and be passed down to their children and grandchildren, creating a whole new group of millionaires over the next 30 years. And the rest of the 30 trillion will be passed down in other North American families as parents age and transfer their wealth to the next generation.
What are some challenges of “the great wealth transfer”?
- Heirs not prepared to come into a large sum of money – for many, this wealth transfer is a process, so there is time for very important financial literacy conversations about money, saving and planning (before the wealth changes hands) that should ease the transition period. Families may even consider a ‘financial coach’ to help their children learn about financial planning and strategies.
- Lack of clarity among family members – families that are less open in their communication about finances may experience conflict as children come into money at different points in time and with different financial capabilities and knowledge. This is leading some families to consider therapy or roundtable discussions with financial advisors as a safe place where they can discuss money and the family values tied to it.
- Decision to transfer wealth before or after death – as boomer and baby boomer parents age, they often need less money to fund their daily activities, and with real estate prices through the roof in many large cities (pardon the pun), a number of families have decided to gift money to their adult children while they’re still around to help their adult kids earlier.
Ultimately it’s important for today’s wealthy generation to put some serious thought into their legacy planning to ensure they’re cared for in their old age (factoring in medical expenses, retirement residences and increased life expectancy) and also minimize confusion, foster communication and increase preparedness among their children and grandchildren.
What does “the great wealth transfer” really mean for us?
The great wealth transfer is another confirmation of the fact that the older generation makes up a significant portion of our population, and that it’s continuing to grow as all of our parents age. Baby boomers were once the largest generation and they’ve worked hard to accumulate as much wealth as they have over their lifetime. The fact that they’re starting to transfer this wealth to a younger generation is a blessing in that it empowers younger North Americans with greater spending power and the opportunity to make their lives easier, but at the same time it puts a lot of responsibility on these kids and grandkids as they take on the onus of making smart financial decisions with this new money.
The start of an effective financial plan is always knowing what you’re working with, so I’d suggest laying it all out on the table – have an open conversation with those in your household or family about what you have, what you owe, what you’re set to pass down or inherit. Once you have this really clear picture of your family’s finances, you’re ready to begin tackling the 3 challenges identified above.