Preparing for the Great Wealth Transfer
The new decade is here! I was touring the NASA base in Colorado Springs in 2010 when our guide told us about the Orion Project, which was expecting to put a man on Mars by 2020. Of course 2020 didn’t seem like a real year back then, but now it not only seems real, it seems promising! Whether it’s space travel, artificial intelligence, or the economy, lots of things are looking up in the new roaring 20’s. But unlike AI and traveling to Mars, there is one huge event that might go unnoticed until it’s already in full swing.
Baby boomers are the richest generation in history, with an estimated value of $30 trillion, and they’re reaching the age where they are planning their inheritance or passing money down to their descendants. Economists are expecting money to start shifting from baby boomers to Gen X and Millenials, and they’re calling it the “Great Wealth Transfer”.
So…. why do we care? Because it may shift the paradigm of the entire economy.
Jumping the Generational Rift
The cultural beliefs, preferences, priorities, and money habits of the newer generations are radically different from those of baby boomers, as we’ve seen in the explosion of the “OK, boomer” tagline. Baby boomers are known to be risk-taking spenders with a “you only live once” attitude, who were raised during a period of unprecedented economic and political growth in the United States. Baby boomers watched the S&P 500 increase 100 times over during their lifetime. In 1955, the S&P price was only $35! Baby boomers also value hard work and investing, which is at least partly responsible for their massive wealth.
On the other hand, Gen X and especially Millenials are products of a harsher socioeconomic environment. Many are still paying off student loans, despite having been out of college for more than 20 years, and most of them lacked the padding baby boomers had when the 2008 recession struck. The result is that younger generations are more wary, tend to save more (but invest less), and spend less on consumer discretionary goods.
So the Great Wealth Transfer is going to move money between the disparate groups, and several very important things are going to change.
A Shift in Priorities
Money is energy. Those who hold the money can direct that energy as they see fit. Baby boomers have historically funded big business, supported the corporate lifestyle, kept taxes as low as possible, minimized social initiatives, and kept many industries privatized rather than turning them over to government control. The result was an environment where people were making a ridiculous amount of money, but the cracks started to show in the 2010’s more than ever before. Pollution has gone majorly unchecked, inadvisable business practices have been brushed under the rug or outright applauded, and the wealth gap has continued to widen. These are problems that Gen X and Millenials are pushing to fix. With the influx of capital from the GWT, expect to see increased funding for companies pursuing clean energy, clean air, or restoration efforts. Outreach and assistance companies may also see increased investment. Of course technologies like AI will continue to be lauded for their ability to help in all of these efforts. Finally, we may see further reduction in demand for consumer discretionary goods, which has already bankrupted mall icons like Sears. Food and dining preferences may also shift away from staples like cereal and into the health-focused segment of the food service sector.
New Breathing Room!
I’ve talked about all of these divisions, but they might not matter at all.
– Boomers will be on their way out, passing wealth to the millennial generation
– Baby boomer households command 54% of the total US household wealth
– Wealth gap has doubled in the past 20 years
– Millennials earn 20% less than their boomer counterparts at the same age
“Great American Affordability Crisis”
– four main drivers: college tuition, housing, healthcare, child care
– Average Millennial Student loans = $29,800
– College tuition has doubled since the 1980s
– First time homebuyers pay 39% more than buyers 40 years ago
– For millennials born in the 1980s, their wealth is 34% lower than it would have been without the Great Recession
– Millennials were also scared out of investing, further crippling their wealth accumulation
What this means for the GWT:
A group of people that have benefited from extremely positive circumstances will be passing their wealth to a generation that has not had the disposable income of previous generations. The result will be that the generation that has the largest population (dominant population) will also command the largest percentage of the country’s wealth.