Kyla Scanlon: The Great Wealth Transfer: What Will It Actually Cost To Build Trust With a New Generation of Investors?
Exclusively for ThinQ, the internet's favourite economics nerd, Kyla Scanlon, looks at the wealth transfer from Boomers to Millennials and Gen Z. How will banks, wealth managers and investors win their attention and build trust in the ‘attention economy’.
The world is always changing – but now, it’s changing in a way that feels bigger than ever. The younger generations are starting to age into their inheritances, and with a world powered by AI, the future feels anything but certain. Will they invest differently than their parents, with increased reliance on personalization and customization? Their trust is also expensive – so how can financial institutions keep up?
The Boomers were a fortunate generation – born post-war, experiencing falling tax rates, a booming stock market as they retire, and falling interest rates after the Great Stagflation of the 1970s. To be clear, it has not been easy for all Boomers. According to the Federal Reserve Board, 43 percent of all Boomers have no retirement to speak of, and with the rising cost of eldercare in the U.S., that number might grow even more.
There are 73 million Baby Boomers between the ages of 60 and 80 in the US. The average Baby Boomer has a net worth of $1.2m – which seems phenomenal!
The American Dream seems alive and well. But then you look at the median – a pale $206k. That means there are a select few very, very rich Boomers who are skewing the average – and getting ready to pass their riches off to their heirs.
But while the monied generations are preparing to pass it on – that handover won’t be even.
As expected, much of the wealth transfer is happening at the top. Households in the top 1.5 percent are over 40 percent of the entire wealth transfer. This will have the typical results of a lot for some, and not much for many. According to a survey from Hearts and Wallets, However, nearly 60 percent of households plan to receive or leave some inheritance (a nearly 15 percent jump from 2015), including over half of households with less than $100k in investable assets (a 14 percent increase from 2015).
“A ‘one size fits all’ approach won’t work anymore. There is a reason that younger people like the new fintech apps, and it’s because of personalization, tooling, and accessibility.”
The asset-owning Boomers have done well. Home prices have increased over 500 percent since 1983. The stock market has grown 2,800 percent over the same time. For comparison, consumer prices have risen about 200 percent in that period.
The heirs are ready, and they need this money. Unlike their Boomer parents…
So the expected inheritance is extremely important to the financial security of the younger generations – over half of Gen Zs and Millennials (54 percent and 59 percent) consider it highly critical to their financial security and ability to retire comfortably, according to Northwestern Mutual’s 2024 Planning & Progress Study. Almost 70 percent of the Zs and Millennials expect (or have received!) an inheritance.
Most of the heirs expect to save their inheritance or pay off their debt. Financial institutions could offer online courses about debt management such as best practices about minimizing debt when inheriting property.
For those passing the money on, it’s a way to preserve wealth without taxation – some might call it tax escapism. Individuals can pass on almost $13m and married can pass on $26m without a federal estate tax. $30tn in expected inheritance will carry a tax weight of about $4.2tn, according to the New York Times.
This could potentially change under President Biden’s proposed minimum 25 percent annual wealth tax on households with a net worth of $100m or more (of which Presidential Candidate Harris supports) but in the meantime, the money will continue to be concentrated in the hands of few at the expense of many.
And then there’s a compounding problem among those with money… no one is talking about it. This is a trust problem. About 25 percent of families have actually discussed this massive wealth transfer, and 35 percent don’t plan to talk about it at all.
This offers an extraordinary opportunity for financial services: offer trust, and the ability for both heirs and Boomers to engage with their money.
This is the dilemma of the wealth transfer. It’s about winning over the attention of not only the younger heirs, but also those that are passing the money along. Trust is extremely hard to build, especially when it comes to money. For financial advisors, transparency is always the solution, with clear communication about product offerings, fee disclosure, and actual updates on investment performance.
They need to speak to both generations.
- Family financial planning packages: Personalized interfaces for all generations that allow everyone to interact with what they most care about – offering investment options, basic wills, tax planning services, and budgeting tools.
- Digital and physical services: Most financial institutions have a digital presence, but their tools need to be built out in a more intuitive way for the younger generation. A lot of software is still stuck in the early 2000s. Even updating UI/UX to feel fresher would go a long way in changing the image.
A ‘one size fits all’ approach won’t work anymore. There is a reason that younger people like the new fintech apps, and it’s because of personalization, tooling, and accessibility. The 60/40 portfolio is dead, and so is the generic advice that goes along with it.
Community is also an important part of engagement. Online forums are always popular, but need moderation. Both BogleHeads and Reddit show that both generations like to find community in discussing ideas. Another part of it could be building an online community around the product. Autopilot, a new investing app, has built their entire product through feedback from their social media followers – and it’s working really well.
There also needs to be a meshing of values. For example, the younger generations are passionate about ESG and impact investing, and the older generations are worried about wealth preservation. Communication that sits at the intersection of what the two generations are concerned about would go a long way in building trust with both cohorts.
The next generation will use their money differently, shaping how funds flow throughout the world. They are more focused on using their money ‘for good’ and are more likely to be mindful about who they are allocating capital to. This will shift the investment landscape in meaningful ways – and it will take work from the financial institutions to keep up with the changes.
In summary, some people are about to become even richer. They plan to use their inheritance in unique ways, which is shaping the future of finance. This is not just the greatest generational wealth transfer, it’s also a passdown of wealth inequality. Money is more than wealth, it’s power, and the next generation has the incredible opportunity to redefine the economic landscape, along with the financial institutions that serve them. The question is – will they?
"The views expressed in this publication are the personal views of Kyla Scanlon and do not necessarily reflect the views of the EQT AB group ("EQT") itself or any investment professional at EQT."
Kyla Scanlon is an American financial content creator, educator, and bestselling author. Her first book, In This Economy?: How Money and Markets Really Work, was published in May 2024 by Penguin Random House.
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