A significant wealth transfer amounting to approximately $90 trillion is expected from the baby boomer parents to Generation Z and millennials. This wealth shift is set to cause a seismic shift in economic dynamics with the potential to redefine socio-economics, yielding both opportunities and challenges.
However, a report by Northwestern Mutual reveals just a fifth of baby boomers planning to pass on wealth, indicating an inheritence gap. The study warns this could leave many heirs empty-handed causing strain on social security and worsening socio-economic disparities. Factors prompting these challenges are multifaceted and necessitate broad responses from improved financial planning to wealth redistribution policy.
Anxiety among the younger generations arises from the expectation gap, fuelled by real or perceived differences in economic advantage. Known economic pressures like the current housing crisis are stark examples of this disparity.
Wealth transfer tension and its implications
This insight underlies the inquiry into the efficacy and fairness of our present economic system and points to the necessity of creating frameworks to bridge generational divides on wealth.
Among elders, fears range from outliving resources, escalating healthcare charges, and becoming dependent burdens, to politics, climate change, and even loneliness. Technology, too, is a concern for older individuals who often feel excluded. Such anxieties frequently dissuade wealthy elders from setting resources aside for inheritance, instead opting for their own financial security via savings and retirement accounts.
On top of this, the study highlights a deficiency in retirement planning among baby boomers, with 40% lacking a will, 30% believing they have enough savings for retirement when in actuality they do not, and a quarter admitting to not having a savings plan at all. These evidences of preparation-lacking underscore the urgent need for better financial education for the baby boomer category.
The need for dialogue on wealth transfer between generations is paramount to bridge this ‘inheritance gap’ and create realistic expectations. Even though it could be uncomfortable, such open, honest discussions can trigger substantial changes by fostering financial literacy and mutual understanding. Ultimately, these conversations could reduce future disputes, cultivate collective responsibility, and create a responsive, well-prepared family unit.
