The wealth of generations

Financial relations and wealth transfer between the generations are becoming longer-term and more intertwined than in the past.

The concept of different generations with common traits insults our modern individualism. Are we really part of some huge cohort, defined by year of birth? However much we resist the idea, we can’t deny that different age groups are influenced by historical events. Generations have different levels of wealth. And the demographic gap between generations is widening nowadays.

Eliza Filby, who will be on the What’s NEXT Show in April, points out that for the first time we are seeing four generations at the same time in the workplace. They have different ways of communicating, different demands from leadership, and different understandings of recruitment, promotion and even retirement.

These generations are, in order of appearance:

  • Baby Boomers
  • Gen X
  • Millennials
  • Gen Z.

The main difference, according to her research, lies in adulthood. There are five key traits in the transition to adulthood: education, leaving home, financial independence, marriage, and children. Baby Boomers hit these milestones around the age of 26. For a Millennial, this is more likely to be reached by 37. We can attribute the prolonged adolescence for Millennials to a legitimate focus on education and learning.

This also means that having a child is now a 30-year financial obligation, and possibly even longer. Parents invest twice as much in their children’s living expenses as they do in their own future retirement savings, conceivably hoping that it will all be paid back one way or another. Wealthy Millennials are financially dependent on their parents like no other generation before them – for an education, a house down payment, a wedding, childcare support and a place to sleep if everything goes wrong.

The new economic interdependence

The “Bank of Mum and Dad”, as Eliza calls it, is now the sixth-largest mortgage lender in Great Britain. But how much longer can parents give their children so much? The next generation doesn’t have anywhere near their parents’ fortune to do that with.

“The real divide within the under-40s demographic lies not between graduates and non-graduates but between those who can rely on the parental safety net and those who can’t. This is the new dependency culture: one where aspiration and opportunity is conditional on family support and there is little the market or the state can do to level the playing field.”

Reinvestment in the family unit, as Eliza sees it, is not due to the strengthening of moral or religious responsibilities, but to economic interdependence. Family values ​​mean more parental support than ever before, especially for young people. This comes with the expectation that they will take their responsibilities as children seriously as our society ages:

“Both now and in the future, relatives simply cannot afford to live apart. The family has become society’s guarantor, which even in a global pandemic, is both a curse and a source of relief.”

The Baby Boomer generation has dominated the family, business and politics for a long time – partially because there are so many of them. They are actually an exception in terms of wealth, time, and quality of life. Will future generations ever experience the luxury of their retirement years in the same way? Hardly likely. The pandemic has forced Baby Boomers to grapple with their frailty and mortality. One of the most interesting aspects is how this plays out within families.

The Great Wealth Transfer

Countless Millennials found themselves in the confusing situation of urging their 70-year-old Baby Boomer parents to take the virus seriously and cancel trips, avoid social clubs and give up their shopping or beloved coffee parties. As Eliza puts it:

“The coronavirus has therefore accelerated the care reversal process that’s inevitable within families. With Baby Boomers feeling vulnerable and their children feeling more assertive, the kinds of difficult conversations that have to take place about money and inheritance may now start happening.”

It remains to be seen whether this will also accelerate the “Great Wealth Transfer” that’s inevitably going to happen over the next decades. The numbers vary massively, from $15 trillion up to $68 trillion. This is the amount of wealth expected to be passed on from the Baby Boomers to the next generation – $15 trillion by 2030 alone. The Boomers will bequeath their fortunes to Gen X members in their 40s and 50s and, to a lesser extent, millennials now in their mid-20s and early 30s, according to a 2019 Wealth-X report. By 2030, Millennials will have five times as much wealth as they do today.

Wealth distribution among generations

While the inheritance component is difficult to quantify with the data currently available, there are still plenty of Millennials who are not wealthy today but who will be in the future. Millennials will be the richest generation ever. The Millennial generation is smaller than the generation of Boomers they inherit from. Thus, wealth will be more concentrated in transmission. From a big picture perspective, Millennials are likely to receive the largest wealth transfer in modern history – from the Baby Boomers. The reality, however, is that the Baby Boomers are healthier and are living longer than they planned. Consequently, this wealth transfer may not take place for 20 years or more.

In Germany, €3.1 trillion will be inherited within the ten-year period from 2015 to 2024. That is just under 3 out of 10 wealth euros. But the next generation will not always benefit. Married couples usually use each other as heirs. That’s why only two thirds of all inheritance cases are cross-generational. In an estimated 5.8 million deaths, assets of €2.1 trillion will be bequeathed across generations. That’s still around 2 out of 10 euros of fortune. Almost every second cross-generational inheritance (2.6 million deaths) will contain real estate. The value of this alone adds up to €0.9 trillion.

Wealth is unevenly distributed among different generations today. This inequality will likely remain, though the distribution pattern will change significantly over the coming decades. Wealth transfer from the older to the younger generations will become a longer-term process and span more generations than in the past.

Photo by Nathan Dumlao on Unsplash

Join our live show with Eliza Filby


From Baby Boomers to Coronnials: The pandemic has led to a variety of new behaviours among different generations. What impact do these changes have on families, societies and businesses? Generations expert Dr Eliza Filby will share her insights on April 15, 2021 at 5 pm (CEST).

Learn more