Millennials are on deck to inherit a staggering $90 trillion over the next two decades. However, some experts deem the generation “ill-prepared” to manage this windfall. The lack of confidence comes amid a backdrop of economic uncertainty, a generational shift in financial attitudes, and communication gaps between parents and children. It is becoming increasingly important for this age group to develop expanded financial skills.
A Unique Demographic
Millennials, born between 1981 and 1996, represent a unique demographic. They have grown up amid global and financial turmoil, from the Great Recession to the pandemic. This has shaped their financial attitudes and behaviors. It could even explain the age group’s inclination to prioritize experiences over more tangible investments. As a result, they’re viewed as lacking in financial literacy and falling short of the investment experience needed to manage a large inheritance.
The Great Wealth Transfer
The Great Wealth Transfer, totaling in the trillions, is set to occur over the next 20 years as inheritances move assets from the older generation to the younger. This massive transfer of wealth from the Baby Boomers to Millennials is unprecedented and has the potential to reshape the economy and the financial landscape. Meanwhile, financial forecasters are concerned that Millennials will not be adept enough to handle this responsibility for the following reasons.
The Financial Literacy Gap
One of the key reasons for this concern is the financial literacy gap between generations. Studies have shown that Millennials have lower levels of financial literacy compared to those who came before them. This is compounded by the fact that many Millennials are still recovering from the economic impacts of the Great Recession and the pandemic. As a result, they may not have lived through the incremental build-up of financial experience, leaving them short of the knowledge and experience needed to manage a large inheritance effectively.
Salvatore Buscemi, managing partner of multi-family office Brahmin Partners told CNBC, “they’re not as well prepared as the wealth-creating generation.” Buscemi explained they could not develop the skill sets needed, because they “never had to — they were never pushed.” He explained that he believes it is human nature to be less motivated to pick up new skills once you’re older.
Clinical psychotherapist Paul Hokemeyer said, “People who’ve earned their wealth have a strong internal locus of control.” He sees that individuals who built their affluence are confident in their abilities and capacity to earn it again should they lose it. Conversely, Hokemeyer explains that those who inherit their wealth will be more insecure. “They know they can survive in the zoo, but are unsure of their ability to survive in the jungle,” said Hokemeyer.
The Impact on the Economy
The ramifications of Millennials being ill-prepared for this wealth transfer could be significant. If Millennials are unable to manage their inheritance effectively, it could lead to a misallocation of resources and a slowdown in economic growth. It could also exacerbate wealth inequality, as those who are financially literate and experienced are more likely to benefit from the transfer.
However, to the younger age group’s credit, the psychotherapist observed that millennials tend to be wiser about the power inherent in wealth and approach money more as stewards who “use it to improve the world they feel privileged to be in.”
Key Takeaway – It’s Crucial for Millennials to Gain Financial Knowledge
As the Great Wealth Transfer approaches, financial forecasters are raising concerns about Millennials’ preparedness. The lack of financial literacy and experience, combined with the unprecedented scale of the transfer, could have significant ramifications for the economy and society. As a result, it is crucial for Millennials to gain the knowledge and skills needed to manage their inheritance effectively.
