The Great Wealth Transfer: Why Inherited Trillions Won't Solve Economic Inequality
, by Unboxify, 4 min reading time
The Great Wealth Transfer: Why It Might Not Fix Anything
In the coming decades, the wealthiest generation in history—the Baby Boomers—will inevitably pass away. As they do, they will pass down an estimated over $90 trillion to the Next Generation within America alone. This monumental amount of money seems capable of addressing many pressing issues like student debt, unaffordable housing, inadequate retirement savings, and mounting credit card debt. But hold on, this anticipated wealth transfer may actually be a financial illusion that worsens our existing problems. Here’s why.The Setup for the Greatest Wealth Transfer in History ☠️
As Baby Boomers start transferring their wealth, an estimated $70 trillion will go to Millennials and Gen X heirs. Despite slight discrepancies in exact figures, the consensus is clear: Baby Boomers control a significant portion of the nation's wealth. But this substantial control of wealth has come at the expense of younger generations who are now poorer than their parents were at their age.Why You Can't Count on an Inheritance 💰
Counting on an inheritance to fix personal finances is problematic. According to a survey by an investment intelligence firm, 70% of young people expect to receive an inheritance, but only 40% of their parents plan on leaving one. This discrepancy means that around 30% of young adults will have their financial plans derailed late in their careers. Moreover, globally counting on the Great Wealth Transfer to solve economic issues is downright irresponsible for several reasons.Not All Wealth is Created Equal 💼
A significant portion of the wealth to be inherited—around $7.4 trillion—is held in private businesses. Assigning value to these small businesses is complex, and they are often worth only as much as someone is willing to pay for them. As these Boomer-owned businesses are passed down, many will close, further straining a market already in short supply of apprenticeships and skilled labor.The Private Business Dilemma 📉
Investment firms benefit from scooping up these small businesses at a discount, a process known as "rolling up." These firms buy dozens of small businesses and merge them into more efficient operations. However, this approach consolidates the market, potentially benefits only the wealthy, and limits new job opportunities.Durable Goods and Pensions: Wealth or Burden? 🏠
Baby Boomers also have $16.9 trillion in durables and other assets including real estate. Yet much of this "paper wealth" may become a burden to maintain rather than a financial boon. Moreover, pensions calculated based on Boomers' needs won’t necessarily provide the same value to beneficiaries.The Housing Paradox 🏘️
Boomers' second largest asset class is their real estate holdings, accounting for a significant part of the housing market. Despite appearing like a solution to housing affordability issues, most homes won’t be inherited seamlessly. Healthcare costs in the latter stages of life often lead to homes being sold or used for reverse mortgages, draining wealth before it can be passed down.The Final Asset Class: Equities and Fixed Income 📊
Baby Boomers hold more in equities and fixed income securities like stocks and bonds than Millennials have in all their assets combined. However, stock market participation is uneven. The richest 10% of Americans own 93% of stocks, while the bottom 50% hold just 1%. A few ultra-wealthy individuals, mainly within the Boomer generation, control a disproportionate share of this wealth.Giving While Living 🌟
A growing trend of "giving while living" means wealth is already being passed to those next in line for inheritance. This mainly benefits already financially secure families, further entrenching wealth inequality. For those depending on the Great Wealth Transfer, the reality is disappointing.Conclusion: Why the Great Wealth Transfer Might Not Change Anything 🔄
The anticipated Great Wealth Transfer is riddled with complexities and inequalities. From private businesses getting consolidated to homes being liquidated for healthcare, the wealth may not effectively pass down to those who need it most. The consolidation and financialization of these assets are likely to exacerbate existing societal divides. In short, while the Great Wealth Transfer promises a windfall, it is unlikely to resolve systemic economic issues or significantly alter wealth distribution. The expectation versus reality gap of this transfer serves as a poignant reminder that relying on inherited wealth may not be the solution to economic disparities.Blog posts
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