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Over the next two decades, as much as $68 trillion dollars will pass from the baby boomer generation (born between 1946-1964) to their now adult children in Generation X (born between 1965-1980) and the millennial generation (born between 1981-80). 1996). In other words, we are officially the largest wealth transfer period in history. But before we get into the implications this Great Transfer will have on the global economy as we know it, we need to understand how this phenomenon came to be in the first place.
In a world after the Second World War, the work and living experiences of the baby boomers were those of great prosperity. Their parents had already made sacrifices during the war years to give them a better life and paid all the taxes necessary to keep the tuition fee low. . At the same time, housing was plentiful after the war, and strong labor protections meant that even high school graduates could afford to buy their first home at minimum hourly wages. These homes continued to appreciate in value over time, and decades of economic growth followed for the boomers. So much so that by 2020, data shows that the baby boom generation is about 57% of all wealth and assets in the US economy. By comparison, millennials owned only 3% of the country’s total wealth.
This clearly shows how drastically the Great Wealth Transfer will affect millennials in the next 10-20 years as this younger generation suddenly goes from just 3% to about 60% of the world’s total wealth in the near future. So, as the $68 trillion starts to change hands, what does this mean for everyone else?
Read on to learn three important ways to prepare for the Great Wealth Transfer, and ultimately, how to improve your financial position, whether or not you gain a legacy in this historic wealth transfer.
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1. Financial family conversations are now more crucial than ever
Research shows that when it comes to the wealth of generations, the vast majority of it is often lost by the time wealth reaches the third generation. Couple this with a .’s alarming statistic 2018 study conducted by the TIAA Institute – which only 11% of millennials showed a “relatively high” level of financial literacy – and you can see how the transfer of trillions of dollars to this younger generation can quickly become problematic if the majority of beneficiaries do not clear financial plan. As a solution, the Australian bank NAB encourages a “talk early and talk often” approach between families when it comes to generational wealth, and emphasizes that clarity and agreement among all intergenerational family members are essential to ensure long-term growth of inherited wealth.
But when dealing with multiple assets across generations, an open communication approach is sometimes easier said than done. For most families, the topic of death and the future distribution of wealth is an unpleasant and inconvenient topic of discussion, which is why the family’s financial planning is usually postponed or completely ignored. But despite the sensitive nature of the conversation, the size of the enterprises often makes it all the more important to achieve it.
In particularly delicate family circumstances, seeking structured third-party brokerage or a trusted financial advisor who can provide unbiased expert advice prior to the transfer may be the solution your family needs to ensure a sound financial plan that supports the best interests of the family. of all concerned. After all, a clear wealth transfer plan within your extended family will have a ripple effect that will also play an important role in protecting the wealth for future generations of your family.
In other words, the financial planning of inheritance prior that it is passed on should not be taken lightly – leading us to our second important way of preparing for the Great Wealth Transfer.
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2. Financial awareness and an understanding of the investment opportunities available to you are paramount now, not later
For many of us, moving through the daily movements of our lives is enough to leave us exhausted. With hefty student loans to pay off, coupled with the rising cost of living and interest rates, coming up with ways to grow our personal wealth isn’t always at the top of our to-do list (or even on the list at all). But as it turns out, it should be.
Being aware of your current financial situation and having a well-founded long-term plan to improve your equity, regardless of your family’s situation, is essential to prepare for the transfer. Whether you get an inheritance or not, the transfer will bring about some changes in the global economy, and keeping abreast of current investment trends during the transition period will certainly benefit your wealth in the long run.
While experts say there’s little way of knowing for sure where large sums of money could end up if it’s in the hands of Gen-Xers and millennials, one thing they’re sure of is significant change in the economy.
A 2018 study by bankrate.com shows that millennials are already less willing to invest their money in the stock market compared to previous generations. Financial Technology Company Broadridge suggests that this is largely due to the fact that millennials are more risk averse as they have come of age watching their parents struggle financially during the global financial crisis of 2008. They have a lasting impact on their psyche and are less likely to take risks compared to their parents. Combine this with the record levels of millennials’ student loans and high home prices, and it’s clear that their circumstances have made them fewer mistakes when it comes to their investment habits and increasing their wealth. This has resulted in many millennials not entering the investment space at all or looking to alternative investment solutions that better suit their lifestyles.
As Broadridge further reports, millennials are more socially aware and are often willing to sacrifice returns for social benefits. They are also more open to a wider range of investment options, with millennials more likely than their parents to consider alternative investment funds, fintech companies, and unconventional providers like Alibaba and Google. As a result, such insights could indicate a greater long-term wealth shift from traditional markets to other new-age investment areas.
While the specific effects remain relatively unknown at this stage, it is ultimately important to recognize that the Great Wealth Transfer is not just about passing money on to adult children. It is clear that the transfer will redefine many aspects of the economy. So, what can you do today to stay ahead of the coming economic changes?
By regularly monitoring the different sectors of the financial market and making it a priority to educate yourself about all the major investment options available to you – whether that be within real estate, stock options or more non-traditional tech ventures – you will get you the benefits needed to ensure that your wealth grows during this transfer period. This leads us to our third and final way to prepare for this historic economic event.
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3. It’s time to think about ways you can incorporate the Great Wealth Transfer into your business plans today
Finally, for entrepreneurs seeking investment for their startup ventures, opportunities may soon arise to raise capital with millennials who do receive an inheritance and are open to alternative investment opportunities for their newly inherited wealth. In fact, most studies suggest as many as 80% or more of heirs are looking for a new financial advisor after inheriting their parents’ property.
This means that even if you don’t inherit directly, there’s a good chance that if you’re smart enough with your business planning, you’ll still be on the receiving end of the assets transferred during this historic period. Therefore, now is the perfect time to think about new career options, investment approaches or entrepreneurial ideas that align with the interests of millennials. The first step is to make sure that the new brand or business idea you’ve been dreaming of is hyper-relevant when it comes to marketing to a more socially conscious and digitally dependent generation than ever before.
If you’re not sure how to kickstart your brainstorming session of millennial-worthy business ideas, it’s definitely a great place to learn from entrepreneurs who are already changing the game. The main conclusion here is that a lot of money will go into hands in the coming years. While not everyone will immediately receive an inheritance, there is no denying that the impact of the Great Wealth Transfer will be felt far and wide. The only question left to ask yourself is: how do you plan to grow your wealth?