There is a significant shift in wealth happening as baby boomers prepare to pass on over $68 trillion to their children. However, recent reports suggest that some millennials and Gen Zers may not be inheriting as much as they expect. Despite 68% of younger generations anticipating an inheritance of around $320,000 on average, many baby boomers plan to leave behind less than $250,000. Additionally, disparities in inheritance exist between white and Black families, with a large portion of inheritances being less than $50,000, according to a study by the Federal Reserve Bank of Boston.
Part of the discrepancy in expected inheritances is due to a lack of communication between parents and their adult children regarding financial matters. This is further compounded by concerns over inflation, rising healthcare costs, and longer life expectancies, which may make boomers less willing to give away large sums of money. A recent report by Edelman Financial Engines found that fewer Americans are feeling financially confident, with just 14% considering themselves wealthy. Despite these challenges, over the next decade, millennials may become the richest generation in history due to the intergenerational transfer of wealth.
Millennials and Gen Zers are facing financial challenges that their parents did not encounter at the same age, such as higher housing costs, lower wages, and larger student loan debts. As such, it is crucial for parents to have open and transparent conversations with their adult children about their financial plans. A lack of financial planning around inheritance is a significant issue, with 90% of parents intending to leave an inheritance but almost half not having a specific plan in place. Mapping out a strategy for how wealth will be passed down and discussing family values and expectations around philanthropy is essential, according to experts.
According to Liz Koehler of BlackRock, parents want to ensure that the next generation will uphold similar values around wealth-building. Firms and advisors are finding ways to facilitate conversations that are clear and transparent, setting common family values and expectations around philanthropy. It is vital for families to discuss not only what will be inherited but also how it will be received, as part of a comprehensive financial plan. By having these discussions and creating a clear strategy for inheritance, families can ensure a smooth intergenerational transfer of wealth.
In conclusion, the great wealth transfer currently underway presents both opportunities and challenges for families. While millennials and Gen Zers stand to inherit a significant amount of wealth, potential disparities in inheritances and changing financial landscapes necessitate open communication and careful planning. By addressing issues surrounding inheritance and ensuring that families are on the same page about financial matters, individuals can navigate the wealth transfer process more effectively. Ultimately, having a clear financial plan in place can help families preserve and grow their wealth for future generations.
