Passing The Buck

"Transfer of wealth” is a pretty impressive sounding term that makes me think of sumptuous homes with marble everywhere.  In reality,  though, transfer of wealth is a term that simply refers to the shift of assets from one generation to another.  In aggregate, it’s a large number; in actual experience, it’s what happens when your Great-Uncle Ralph passes away and you inherit his great dane and a $50 savings bond, while the rest of his estate is divided among other family members, taxes, estate settlement, etc.

Economic growth in the US following World War II resulted in widespread wealth in our country – specifically, expansion of the middle class and reduction of poverty rates.  While the majority of wealth remains concentrated among a select few, this means that across the board the older generations in our country have some assets to pass on.  According to some estimates, through the year 2052 up to $41 trillion in assets will be passed forward.*  Although only a fraction of that $41 trillion will take the form of inheritance, it still means that the younger generations stand to gain significant financial power.  As the Silent Generation (currently ages 65 to 85) and the Baby Boomers (current ages 45 to 65) age and pass away, they will transfer assets to members of Generation X and Generation Y.  Keep in mind: both the Silent Generation and Generation X are small, so most of the assets will transfer from the Baby Boomers to Generation Y.

Even though members of Generation Y currently range in age from about 5 to 25 years of age, they are starting to make themselves felt as a powerful force in the market.  Not only do they influence what their (mostly Boomer) parents purchase, they are also beginning to make purchasing decisions at an earlier age than previous generations.  And where there’s purchasing power, there’s a need for financial literacy and financial services.

Journal of Gift Planning, 1/2003, John J. Havens and Paul G. Schervish: “Why the $41 Trillion Wealth Transfer is Still Valid.”

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