Wealth transfer is a process that significantly affects the economy. It helps move capital as assets are transferred from the owner into the hands of their inheritors. Estates such as lands, investments, and cars can be transferred to heirs.
Some studies show that transferring fortunes can play a role in reducing wealth inequality. It is also seen as a way to increase the distribution of riches among heirs. But what if the said transfer is considered the biggest in history?
Experts are expecting an upcoming significant handing over of generational fortunes, also known as the Great Wealth Transfer. Read on to know what it is and its effects.
Defining the Great Wealth Transfer
This great transfer refers to the transmission of wealth owned by the so-called baby boomers to their inheritors. It is expected to be the most substantial one in history with a whopping $68 trillion expected to be transferred.
Now, how did baby boomers collectively acquire such tremendous fortunes? The first thing you need to know is that the baby boom occurred after millions died in the Second World War.
You can imagine how, after the war, parents of baby boomers sacrificed and worked hard to help their children prosper. The generation before boomers fought to protect labor, provide housing opportunities, and overall secure their children’s future.
Sure enough, boomers thrived in their adulthood. When it’s their turn to maintain the institutions established by their parents, they became in charge of protecting and expanding the security provided by their parents.
However, it is essential to keep in mind that doing so will reduce their profits, decrease the value of their properties, and trim down their income. As a result, they did not protect and expand such securities and rights acquired by their parents for them.
Today, the effect of this collective mindset can be seen in what many consider as “hoarded wealth”. Moreover, low minimum wage, high tuition fees, exorbitant housing, and tax cuts for the rich exist to protect their wealth further.
Impact on the Economy
Given this brief background on how baby boomers accumulated obscene amounts of wealth and how much is expected to be inherited by their heirs, you might be wondering how the Great Wealth Transfer will affect the economy.
One thing you should know is that even experts are unsure of how all these assets will be spent after heirs acquire them. Gen-Xers and Millennials will be the recipients of this wealth, and studies show that their overall financial literacy is “very low.”
Millennials are also less willing to invest in the stock market, something that boomers have been comfortable doing. For financial professionals such as advisors, this comes as bad news as younger generations are expected to find new ones to handle their newly acquired fortune.
This is because Millennials have a different set of expectations regarding the service they receive from advisors. Additionally, because Millennials, in particular, have less wealth and are wary about investing, this can hurt advisors.
Moreover, remember boomers will spend much of the trillion-dollar asset during retirement. Some expenses include medical bills, healthcare, daily spending, leisure, and vacations. Plus, 19% of boomers do not plan to leave an inheritance to their children.
On a positive note, such spending will go into the concerned industries, which will then be distributed to workers through paychecks. It will also be dispersed through various transactions made by companies that benefit from such spending.
The wealth that reaches the hands of inheritors will be fluid in the long run. This offers opportunities for many individuals who want and can afford to acquire some of these assets, thus has the potential to stimulate the economy.
The Bottom Line
The Great Wealth Transfer is an unprecedented event. With many boomers passing down their wealth, experts can only predict where the assets would end up and how it can affect the overall economy in the short and long run.