Understanding the Great Wealth Transfer.
In the next few decades, more than $59 trillion of wealth will be passed down from the Baby Boomer generation to their Millennial children. This has never happened in HISTORY, and is going to seriously affect how people do business, invest, and live their lives.
Who are the players?
Player One: Baby Boomers
Baby boomers are currently the predominant “wealth holding class”. In short, Baby Boomers have done pretty well for themselves! Boomers currently hold a whopping 57% of all of the wealth in the US economy, while their children (Millennials) own only 3%.
This is not normal. When the Baby Boomers were the same age their children are now, in 1990, they had amassed 21% of the economy’s money.
Baby Boomers experienced the optimal conditions for building wealth. As young adults, the minimum wage was enough for them to pay for college without taking out debt. They entered a workforce and an economy that had been built on the backside of World War II and experienced one of the most prosperous periods in US history! As they reached middle age and began investing their newfound wealth, the stock market skyrocketed. The S&P 500 has returned over 2,500% since 1980.
Player Two: Millennials
The children of the Baby Boomers live a very different life. For Millennials, a college education became a nightmare of student loan debt. Shortly after, the job market cratered in 2001 and again in 2008. The minimum wage also fell out of step with inflation. If someone was earning the dollar equivalent of the 1980 minimum wage, they would be making $21.16 per hour. Instead they are making $7.25. At the same time, construction in major cities slowed dramatically, causing real estate prices to soar more than 300%. The domino effect meant Millennials weren’t able to stack nearly as much cash as their parents.
Wealth disparity creates other disparities
The wealth disparity also created massive divisions in politics, economic policy, and familial expectations. Baby boomers are notably more conservative than their children, and it has become really obvious during Donald Trump’s administration. Political tensions reached a fever pitch during the George Floyd and BLM protests.
Boomers and Millennials also tend to disagree over monetary and fiscal policy. Millennials are leaning left in greater numbers than any generation before them (but not more than Gen Z). Cries for affordable housing, a reasonable minimum wage, and cheaper college are being rebuffed by the older generation.
Finally, Millennials are having fewer kids and smaller families. In many cases, they are opting out kids all together. Why? Because many can’t afford it. Dual income couples who could afford it often don’t have the time or resources to raise kids. Some people are adopting dogs instead!
All in all, there is a big gap between Baby Boomers and their children. The Millennials are loud and stubborn, but they haven’t had the financial backing to make serious change.
The GWT is going to shift wealth and power to a new generation
“He (or she) who holds the wallet, holds the power”. This is especially true in the United States, and Baby Boomers definitely hold the wallet. But not for long! That’s why the GWT is so important. Millennials are going to become the wealth holding class and they will have the financial power to create lasting change.
The transfer of wealth won’t just be cash either. The wealth passed down will also be properties, meaning Millennials will also have greater control over rent and home prices. Baby Boomers will also pass on jobs! A retiring executives will replace themselves with someone new, and that new person will have the ability to change how that company does business. New owners and managers will become the directors of old companies and, hopefully, make them better.
Things are going to change around here
We’re not sure what the future will hold because Millennials might change their outlook. The more liberal views of today might shift to the conservative side as they accumulate more wealth, own more land, and pay higher taxes. We hope that even if their fiscal views change, they will continue to treat all humans with greater respect and contribute to prosperity of our planet.
We do know that the Great Wealth Transfer will put a new generation in the driver’s seat. At Hoskin Capital, we hope that this generation will remember the damage done by previous generations and use their newfound wealth to make a positive impact. We are at a turning point for our climate, our oceans, and our society.