Issue #232: Just how 'great' are we talking?

Hi y’all —

In journalism school, I was always taught to eliminate adjectives and adverbs from my copy. The idea was that, as a writer, I should know how to make the most of every word I use; I should strive to show, not tell.

My professors drilled this rule into me, often using famous quotes attributed to Mark Twain — “When you catch an adjective, kill it” — and Stephen King — “The road to hell is paved with adverbs” — to justify their stance.

Imagine my skepticism, then, when I saw financial experts talking about the quote-unquote “great wealth transfer.” How great, I wondered, could it possibly be? Do they mean “great” as in “big” or “great” as in “good”? Is it even something I need to care about?

Let’s find out whether that adjective is warranted. What is the great wealth transfer, and what does it mean for me?

Chayce Horton, a senior analyst at Cerulli Associates, says the “great wealth transfer” refers to the ongoing transfer of money from baby boomers to Gen X, millennial and Gen Z households.

“Coming out of the financial crisis, we've seen an immense amount of wealth be created, and U.S. households are wealthier than ever,” he says. “There's tens of trillions, almost hundreds of trillions, of dollars floating around, and a majority of that is controlled by households that are over 65 years old.”

But that’s about to change. According to a report from Cerulli, over $84 trillion — with a T — will switch hands through 2045. Nearly $12 trillion of that will go to charity, while the rest will be transferred directly to heirs.

“It's the most significant transfer of wealth intergenerationally that we've ever seen in the world,” Horton adds.

The great wealth transfer comes with a host of societal implications. First, of course, is the fact that a whole bunch of young people are on track to come into a whole bunch of money — “a seismic change,” as one expert put it in a recent Knight Frank report.

Those young people have very different ideals than their ancestors did; notably, they’re incredibly focused on sustainability and social responsibility. As a result, they are “likely to direct significant amounts of capital to causes beyond solely maximizing economic growth,” per the report. That's yet another major reversal from what we’re used to.

The great wealth transfer isn’t only going to affect the uber-rich, either. People who own their houses or even just have significant savings in their 401(k)s will likely pass them down, changing the financial equation for their descendents.

“Almost 50% of Americans say that they anticipate some sort of inheritance over the next 10 years,” Lena Haas, head of wealth management advice and solutions at Edward Jones, tells me. “So, clearly, the impact is very, very broad.”

Estimates of the individual amounts vary. One analysis says most millennials expect to inherit at least $350,000 from their relatives, though another says the majority of assets will be eaten up by health care expenses.

But the consensus is that the recipients of these inheritances, gifts, real estate, businesses and family heirlooms will have their financial strategies totally rocked. While young people traditionally have built up their wealth through investing, Horton says there’s going to be a huge section of the population that will now have their financial wellness “staked in how much they get from their parents or grandparents.”

This may have a ripple effect that will impact people who aren’t benefiting from intergenerational wealth, as well.

Say I’ve carefully saved up money for years to buy a home. I could end up in a bidding war against a person who received an immense inheritance, which — combined with their own savings — could allow them to easily outbid me.

Alas, Haas says, research shows neither the givers nor the receivers seem to be ready to deal with the consequences of these wealth transfers. (For instance, 19% of people getting an inheritance say they feel anxious about it.) It’s an inherently emotional, awkward topic, so they avoid talking about it… and that can leave everybody at a disadvantage.

She recommends families make it a priority to sit down, maybe with a financial advisor, and talk transparently about their plans. What are their values as a family? How do they approach charitable contributions? Does one child need more support than others?

“It's so important, regardless where the dollars and cents go, to have the conversations on the values on the legacy and on the fundamental reasons why decisions are made,” Haas adds.