Millennials are set to become the wealthiest generation ever. The generations before them, the silent generation and baby boomers, are going to transfer massive wealth to them. But there’s a lingering question. Are millennials prepared to manage all that money?
Who Are Millennials?
A millennial is someone born between 1981 and 1996. William Strauss and Neil Howe first introduced the term “millennial” in the 1991 book Generations. They chose this name because millennials were the first generation to become adults in the new millennium.
Millennials come after Generation X (those born between 1965 and 1980), also known as baby boomers, and before Generation Z (those born around 1997 to the early 2010s). There are about 72 million millennials in the United States alone. This makes them the largest generation of adults since they surpassed the baby boomers (born 1946-1964) in 2019.
Young and Old Millennials
Millennials grew up during a time of significant technological changes, especially with the rise of the Internet. In the U.S., they are the first generation to have early access to computers, cell phones, and smartphones. As young adults, they were the main audience for social media and streaming entertainment. However, the fast pace of technological advancements created differences within the millennial generation.
Younger millennials are generally more tech-savvy than older ones. Experiences with the Internet differ globally; some countries still have less reliable networks than the West, despite the rapid growth in these countries.
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Where is the Wealth Coming From?
Global real estate consultancy Knight Frank recently made an assessment. He estimates that millennials will become “the richest generation in history.” This is because about $90 trillion will be transferred over the next 20 years.
This wealth will come from the silent generation (born between 1928 and 1945) and baby boomers (born between 1946 and 1964). They are the ones passing on their assets to millennials. But are millennials prepared for this wealth transfer?
Are Millennials Prepared For This?
Millennials are often seen as lazy and wasteful. They are perceived to spend money on things like avocado toast instead of saving for a house. So, how ready are they to handle a large amount of money?
“Millennials are very ill-prepared; they’re not as prepared as the generation that created the wealth.”Salvatore Buscemi, the co-founder and managing partner of Brahmin Partners, made this observation in an interview with CNBC.
The Aftermath of the Wealth Transfer
When millennials receive this wealth, they will likely be in their 40s. They might struggle with starting businesses or investing because they haven’t developed these skills earlier in life.
According to Buscemi, they haven’t been pushed to learn these skills, and acquiring them later can become challenging for them. He also questions whether they will be motivated enough as they get older to develop these abilities. Salvatore Buscemi noted human nature implies that people tend to be less inclined to learn new skills as they age.
The Different Views of Millennials
Experts suggest that millennials prioritize short-term goals. They refuse to take after older generations who prioritize saving for major life events like starting a family and retirement.
Millennials, having experienced the 2008 financial crisis, have a different perspective on money than their parents. A report from RBC Wealth Management stated that the older generations were influenced by the financial challenges following World War II.
Earning Vs. Inheriting
According to research from LendingClub, millennials are more likely to live paycheck to paycheck than any other generation. They are often caught in a financial squeeze because they have to support both their aging parents and their children. This situation makes them part of what is known as the “sandwich generation.”
There’s a notable distinction between those who earn their wealth and those who inherit it. The latter group often faces challenges in managing wealth or dealing with its potential loss.
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Millennials: Earning Wealth
Clinical psychotherapist Paul Hokemeyer noted something important. He points out that people who earn their wealth normally have a strong sense of control over their financial situation. They are confident in their abilities and believe they can rebuild their wealth if they were to lose it.
Those who inherit wealth may feel less secure. Hokemeye says they feel confident in familiar environments but uncertain in more challenging situations. On the other hand, millennials tend to understand the responsibilities of wealth better. They see money as a tool to improve the world, and they feel fortunate to have it.
How Millennials Feel About the Wealth Transfer
Even though younger generations expect to receive money, some are starting to have mixed feelings about it. Citizens Bank surveyed 1,500 American adults. 72 percent of the respondents said they don’t feel confident enough to handle a large amount of money on their own.
Brendan Coughlin, vice chair and head of consumer banking for Citizens, stated his observation. He said many families, especially millennials, are unprepared to handle large sums of money. He said millennials need to consider long-term financial goals and learn basic financial skills. They need to know things like investing and budgeting to make smart decisions about any money they might inherit.
A Story of Inequality
It should be known that this is a story of inequality, as not all baby boomers are rich. Many of them have trouble affording retirement and worry about outliving their savings.
A big part of the wealth transfer, about 42 percent, is expected to come from very wealthy people. According to Cerulli Associates, these wealthy people make up only 1.5 percent of households. Even at that, those who will receive an inheritance are not sure of how they will manage their newfound wealth.
The Future Impact of the Wealth Transfer
Even though young adults have mixed feelings about this situation, there are still other things the transfer can affect.
The transfer of wealth from the baby boomer generation could have a big impact nationwide. When this stored-up wealth starts to move around, it won’t just be a big financial event for families. It also has the potential to boost the economy by investing in things like real estate, new businesses, and education,” says Coughlin.
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