A new study reveals that the wealthiest generation, Baby Boomers, is reluctant to share financial resources with their children, impacting future inheritances. Born between 1946 and 1964, Baby Boomers are renowned as the wealthiest generation ever, yet recent research reveals surprising insights about their financial decisions as they approach retirement. According to a study conducted by the financial firm Charles Schwab, Baby Boomers are least inclined to share their wealth with their children, opting instead to focus on personal enjoyment and expenditures during their lifetimes.
The Schwab study uncovers the preferences of affluent Boomers, indicating a significant divergence from their successors. When asked about their intentions for wealth transfer, nearly 45% of Baby Boomers responded, “I want to enjoy my money for myself while I am still alive.” This sentiment starkly contrasts with the outlook of Generation X, where just 11% echoed this sentiment, and only 15% of Millennials felt the same way. The disparity not only highlights generational differences but also raises questions about the financial future of subsequent generations.
The Schwab study, released last December, surveyed 1,005 high-net-worth Americans with at least $1 million in investable assets. The investigation sheds light on the broader trends surrounding wealth distribution between generations, with previous research establishing the reality of both wealth accumulators and their expected heirs. The data indicates Boomers plan to leave behind averages of $3.1 million, which is considerably less than the $4.8 million intended by Gen Xers and $4.7 million anticipated by Millennials.
Understanding the broader economic backdrop reveals why Baby Boomers hold onto their wealth. Statistically, they own approximately $85 trillion, representing roughly 50% of all household wealth in the U.S., according to the Federal Reserve. Generation X controls nearly $47 trillion, with Millennials holding about $23 trillion.
Despite their financial clout, the Baby Boomer generation’s focus seems directed more toward personal enjoyment rather than leaving behind rich legacies. The skepticism surrounding the projected ‘Great Wealth Transfer’ is palpable. This term, often used to describe the anticipated movement of $124 trillion by 2048 from aging Americans to the younger populace, is now questioned.
Boomers’ focus on personal enjoyment
Economists and analysts have speculated on this being the most significant intergenerational wealth transfer globally. Yet, as highlighted by Chayce Horton, senior analyst at Cerulli, this transfer is dependent on the wealth actually passing to younger generations, which now appears uncertain.
Research by Schwab suggests older Americans might be spending their resources more rapidly than previously thought, influenced by health care costs and elder care expenses. The dramatic expenses associated with long-term care services are significant. A report from the U.S. Department of Health and Human Services points out alarming statistics: about 70% of Americans who reach 65 will develop substantial long-term care needs.
Ignoring these impending expenses, the financial outlook for many is grim, especially since many have not adequately prepared. Northwestern Mutual data indicates high-net-worth Americans could find their potential inheritances eroding due to high monthly costs of care. Costs for care, such as part-time assistance from home health aides, can exceed $4,000 monthly, with nursing home facilities often charging nearly $10,000 for private rooms.
Such financial strains threaten legacy planning, leading Boomers to opt for enjoyment over inheritance, cultivating increasing generational tension surrounding expectations for wealth transfer. The uncertainty surrounding the distribution of wealth manifests not just as financial apprehension but also as socio-economic concern, emphasizing the complexity of planning for the future. Given this backdrop, the financial decisions of Baby Boomers represent not just personal choices but broader cultural shifts.
With younger generations observing closely, the attitudes and behaviors of their predecessors may shape their financial perspectives and expectations about wealth gathering. Millennials and Gen Xers, apprehensive about what they will or will not inherit, increasingly question their financial futures. Overall, the study reveals stark differences between how wealth is viewed and intended to be used across generations.
The patterns suggest Baby Boomers are not merely preserving wealth for later generations but are focused on how to enjoy their resources during their lifetimes, which could have lasting impacts on generational wealth structures. Looking forward, this generational shift could redefine wealth transfer conventions and expectations, placing more onus on individuals to plan for their financial future, look critically at long-term care needs, and reassess what wealth means for their legacies.