The Biggest Wealth Transfer In History is Happening Right Now!

Summary

In the context of a massive intergenerational wealth transfer, millennials are set to inherit nearly $124 trillion over the next 20 years. However, history shows that inherited wealth is often squandered, as demonstrated by the Vanderbilt family. While business success remains the most reliable path to wealth, inheritance has become increasingly important due to the aging baby boomer generation and rising real estate values. Millennials, who are skeptical of traditional investments, may invest inherited wealth differently. This wealth transfer is also contributing to increased inequality, as the top 1% of heirs will inherit half of the wealth, exacerbating the divide between the rich and poor.

Takeaways

• 😀 Millennials are expected to become the wealthiest generation, inheriting nearly $124 trillion over the next 20 years from their baby boomer parents and grandparents.
• 😀 Despite the significant inheritance, the story of Cornelius Vanderbilt highlights how massive fortunes can be squandered by heirs through poor spending and investment decisions.
• 😀 Business success remains the most reliable path to wealth, with most of the wealthiest Americans today having earned their fortunes through business ventures rather than inheritance.
• 😀 Inheritance as a source of wealth has become more important in recent years, but it is still significantly less important than it was in 1900.
• 😀 Economic stagnation in some countries, like Italy, has led to a higher percentage of wealth being inherited, as opposed to earned, due to slower wage and business growth.
• 😀 Young investors are more likely to invest in new financial products like crypto, private equity, and ESG (environmental, social, and governance) companies compared to older generations.
• 😀 There are concerns that inherited wealth could slow economic growth, as heirs might not be as entrepreneurial or risk-taking as those who earned their wealth.
• 😀 The decline in birth rates has contributed to larger inheritances for the fewer children in families, as the wealth is divided among fewer heirs.
• 😀 Millennials are benefiting from intergenerational wealth transfers, especially in the form of real estate and equities, as baby boomers transfer wealth to the next generation.
• 😀 Housing prices have skyrocketed in recent years, contributing to much larger inheritances, especially in cities like New York and London, which are now worth far more than they were decades ago.

Q & A

What is the expected wealth transfer over the next 20 years, and how is it significant for millennials?

Millennials are expected to inherit nearly $124 trillion in assets over the next 20 years, making them the richest generation in history. This wealth transfer is significant because it compensates for millennials' slower start in wealth accumulation, largely due to economic challenges during their formative years.

Why did the Vanderbilt family lose their fortune despite inheriting a vast amount of wealth?

The Vanderbilt family's wealth was squandered due to excessive spending and poor investment decisions made by the heirs. Within 70 years of Cornelius Vanderbilt's death, the fortune was entirely gone, highlighting how mismanagement can erode inherited wealth.

What role does business success play in the accumulation of wealth compared to inheritance?

Business success is still the most reliable way to accumulate wealth. Most of the wealthiest Americans made their fortunes through business, not inheritance. In fact, the top 10 wealthiest individuals in the U.S. made their fortunes through business ventures, with the Walton family being the only exception in the top 10.

How has inheritance as a source of wealth changed over the past century?

Inheritance has become a more important source of wealth in recent years than it was 50 years ago, although it still contributes less to overall wealth than it did in 1900. In advanced economies, inheritances relative to GDP have roughly doubled since the mid-20th century.

What are the main factors driving the increase in inheritances in recent decades?

The increase in inheritances can be attributed to factors like the large baby boomer generation, their economic success, and the rise in real estate prices, which have grown faster than inflation since the 1960s.

How do inheritance flows differ between high-growth and slow-growth economies?

In slow-growth economies, inheritances relative to national income tend to grow faster. For example, in Italy, where economic growth stagnated in the 1990s, inheritance flows grew significantly. In contrast, in high-growth economies like the U.S., inheritances as a share of national income have grown less.

What does the research suggest about the potential future spending behavior of young heirs?

Young heirs may invest their inherited wealth differently than older generations. Studies suggest that millennials and younger investors are more likely to invest in emerging financial products like crypto, private equity, and direct investments, reflecting a shift in priorities compared to older generations.

How might inheritance transfers impact economic growth?

Inheritance transfers could slow economic growth if wealth is passed down without being earned. This could reduce overall economic vibrancy, as inherited wealth may not be reinvested in risk-taking or innovation, unlike wealth generated through entrepreneurship or business success.

What effect have declining birth rates had on inheritances?

Declining birth rates have led to larger inheritances for heirs, as wealth is divided among fewer children. This has increased the amount passed on to each heir, with the average inheritance rising by around $75,000 in the UK.

What concerns are there about inheritance taxes, and why do people oppose them?

Inheritance taxes are widely disliked because people believe parents should be able to pass wealth to their children without being taxed on it. Many also fear that such taxes might encourage the wealthy to move abroad or reduce investments in favor of consumption. Surveys show that opposition to inheritance taxes is even stronger among lower-income groups than among the rich.