By Johnathon Lennox | Estate Planning Author
The “great wealth transfer” refers to the WHOPPING trillion-dollar fortune shifting from Baby Boomers to Millennials and Gen Z. This massive economic shift is poised to bring relief to cash-strapped younger generations. This may impact Canadians and Americans differently, and we’ll delve into how. Let’s take a look as to how this unprecented wealth transfer may impact younger generations:
Understanding the Wealth Transfer Landscape:
What Is the Great Wealth Transfer?
The Baby Boomer generation (born between 1946 to 1964) holds the lion’s share of wealth in North America. While the Boomers enjoyed an unprecentated time of economic prosperity, their children (Millennials and Gen Z) aren’t so lucky; many are struggling to reach the same milestones they did. It’s not simply a matter of reaching the same milestones in life as their parents did at the same age (e.g. buying a home, marriage, children, etc), but a question of even if the younger generation can reach the same goals their parents. The Millennials (born 1981-1996) and Gen Z (born 1997-2013) – are grapping to hold onto any financial success in their adult years.
For the younger generations, their economic success has been choppy – as it’s been one economic calamity after another. Many are relying on assistance from their parents, and as the Baby Boomers age, their accumulated assets — including real estate, investments, and savings—will (hopefully) pass on to the younger generations.
Several important aspects about this transfer include the following:
- In the United States, a study predicts a massive $84 trillion will be transferred to the younger generations, by 2045.
Baby Boomers have the most wealth – how much will go to their children?
- In Canada, a $1 trillion wealth transfer is underway, according to data from The CPA.
It’s no secret that the younger generations, many of whom who are part of the imploding middle class, are dealing with several financial hurdles – the great wealth transfer may be the financial boone to fix all of that.
Let’s go over the difficulties Millennials and Gen Z are facing:
The Canadian Perspective:
Rising Costs and Limited Opportunities:
Millennials and Gen Z are grappling with soaring housing costs, an astronomically high rental market, a labour market saturated with ghost jobs, and stagnant wage growth. According to The Globe and Mail, the national average home price in Canada has risen to over $730,000. This makes homeownership increasingly untenable for the younger generations. Since most job opportunities are in major urban hubs, like Toronto, Vancouver and Quebec, it doesn’t make sense to simply pack up and “move to somewhere cheaper” – as younger people are often told to do.
There’s a tradeoff: moving from an expensive place (Toronto) to a cheaper place (Sault Ste., Ontario) can mean a move away from their families, friends, major entertainment hotspots, and contribute to the loss of job opportunities. People go where jobs go, and unless the job is remote, the same rings true for younger generations: packing up and moving to a cheaper place may not be so cheap. Many of the jobs (and housing) will often stay in cities, which tends to make living quite expensive.
Canadian and U.S. Millennials/Gen Z are struggling with the cost of living – in different ways
Generational Inequity in Public Policy:
While Canada boasts universal healthcare and has a supposed strong social safety net, these systems are straining under an ageing population. This is a global problem: younger generations, under the strain of their own personal financial problems, are saddled with debt and stagnant wages. Many Millennials are largely unable to afford children, and many are putting off marriage and children altogether. GenZ is following suit: many Gen Z are having trouble (for various reasons) even getting their first job out of college.
The focus for many governments in the West has primarily been on the Baby Boomer cohort, which diverts a large amount of spending on healthcare and pensions for the older generations. They are, after all, a much larger voting bloc than the younger generations combined, so it’s no surprise that governments are more in tuned with catering to the other generations, rather than the younger ones, who are struggling. With all of the money spent on the Boomers, that money could be otherwise earmarked for education, affordable housing, and employment programs for younger generations.
Gen Z/Millennials are facing a bleak economic future: it will never be as good for them as it was for their parents, the Baby Boomers. At least, that is how many of them often feel, as a decade of rough economic waters has caused nothing but headaches for Millennials/Gen Z. This has been an ongoing issue since the ’08 recession.
Tax Implications:
Canada’s tax policies don’t help Millennials: the average 35-year-old pays around 20%-40% more in the way of taxes than the average boomer did at the same age.
The American Perspective:
Student Loan Debt Crisis:
In contrast to Canada, American Millennials and Gen Z carry an overwhelming burden of student loan debt, with research reporting that 34% of young adults aged 18-29, owe the most in student loans. This is one of the biggest reasons as to why Millennials and Gen Z in the States are struggling financially; the astronomical pile of debt they’re under adds to their financial stress.That may be slowly changing, with many Gen Z in recent years simply shunning college in favour of the trades or other professions right out of school.
Canadian and U.S. students both wrestle with student loan debt – in different ways
Wealth gap among Millennials:
In the United States, there may be more systemic inequities that keep younger non-White Millennial/Gen Z from earning the same amount of wealth as their White counterparts. White households in the U.S. generate more wealth than their non-White counterparts. This can further skew the gap among Millennials.
Real Estate Challenges:
Just like their counterpart to the north, most of the high-paying jobs are in major hubs: San Franciso, New York, etc.) Increasing interest rates, a limited supplyof house (not to mention the absurd cost of ever-increasing rent), stagnant wages, etc., are all the same factors affecting their northern peers. Renting itself is fraught with its own challenges – in the same way it affects Canadian Millennials.
Comparative Challenges for Canadian and American Millennials and Gen Z:
Housing Affordability:
- Canada: High property values in cities like Toronto and Vancouver (and to a lesser extent, Quebec -where rental rates are also increasing) are driven by limited supply and foreign investment.
- United States: The cost of housing is booting the younger generations out of the housing market altogether, and this is further compounded by the complexity of zoning laws. That may be changing: homeownership for younger buyers may have eased since COVID.
Higher Education Costs:
- Canada: Students in Canada struggle to pay off their loans, but Canadian schools have lower fees than the U.S. Public subsidies from the government ease financial pressure on university/college students (for what it’s worth).
- United States: The average student graduates with $28,400 in debt, which significantly impacts their financial independence. However, there is research to show that they may receive more assistance when it comes to paying off their loans.
Economic Policies:
- Canada: Universal healthcare (which is fraught with its own problems) and fewer systemic inequities as compared to the U.S., provides a slight financial edge for Canadian Millennials/Gen Z.
- United States: A lack of universal healthcare and greater economic disparities than in Canada all cumilate to create additional hurdles when it comes to financial independence. Then there’s the added racial gap.
Canadian Millennials appear to be coming out on top over their counterparts in the south. But perhaps, not by that much. The cost of living can be relatively cheaper than in Canada, depending upon where you live.
How Millennials and Gen Z Are Preparing for the Wealth Transfer:
Diversifying Income Streams:
Canadian and American Millennials both have one thing in common: many are getting by with more than just one full-time, 9-5 job. Freelancing and side gigs are becoming more and more popular to stay afloat.
Millennials/Gen Z are more likely to have side hustles than their older counterparts
Side gigs through Uber, Lyft, or Task Rabbit are becoming common. Additionally, because many Millennials and Gen Z are coming out of university/college, degree in hand, they are saturating a market already flooded with young people, all with degrees. The job market is not only weak, but it’s flooded with young people looking for jobs, and many jobs have hyperinflated requirements. That is not even going into the problem of ghost jobs. Just getting a job for many Millennials and Gen Z is becoming an ordeal, in of itself.
That’s not even getting into the fear of automation.
Investing in Education and Upskills:
To add additional credentials to their portfolio, many often go back to school to complete their masters, or complete certifications or other courses to further upskill their abilities.
Financial Literacy:
A growing awareness of the importance of financial literacy is encouraging younger people to learn about investing, budgeting, and estate planning. Tools like robo-advisors and budgeting apps are helping them take control of their finances.
Many younger people are widely believed to be tek-savvy: many rely on YouTube, Facebook, Instagram, or TikTok for their news and advice: the world of finance is saturated with “Crypto-bros” and “financial advisors” dragging younger (naive) people into the world of quick get-rich schemes, pump-and-dump frauds, and luring young people (mostly young males) into purchasing their “financial courses.” Social media influencers, of course, are no different, with many peddling their products to (mostly) young women, to buy their items.
With the plethora of financial advice out there, it’s important to take it all in with a grain of salt: both “crypto-bros” and financial advisors like Dave Ramsey and Kevin O’Leary do not always give the best advice; online influencers are not always the best people to look up to for financial information. Dave Ramsey, for instance, has been cited as giving outdated advice, while Kevin O’Leary lectures younger people on “getting back to work.” Both millionaires offer “advice” that is largely considered either self-serving or outdated. It’s always best to consult with a financial advisor on your own (after doing through research).
Amid the landscape of junk-filled social media posts, there are some diamonds in the rough when it comes to financial planning: budgeting apps can help keep track of spending, and there are always gems of advice from people on how to pay off debt, from people who have already done so. Perhaps focusing on free financial advice on how to managing debt and savings (without going into debt yourself) may help.
The Role of Baby Boomers: Preparing for the Wealth Transfer:
“Living Inheritances:”
Many Boomers are opting to give “living inheritances” – gifts – to their kids while they’re still alive. Inheritances include helping with down payments on homes, funding higher education, or helping their children pay off their student loans. It’s essentially a way to gift their children, to help them reach their goals. 31% of first-time homebuyers in Canada are receiving assistance from their parents to purchase their homes.
Millennials and Gen Z are getting “living inheritances” from their parents
Transparent Estate Planning:
It goes without saying that open and honest communication (across all generations) about estate planning is important. Boomers are increasingly engaging in being transparent with their families and their children about setting up trusts, drafting wills, and seeking professional advice to minimize their taxes. Tax liabilities might have some issues that you may not have considered.
If you’re a Baby Boomer, just rip the bandaid off and have the tough discussion with your family about why your stuff is going where it’s going when you’re gone. That way, hurt feelings will be eliminated by the time it comes to read to the Will when you pass away. Best to have the discussion as soon as possible.
Looking Ahead: The Future of Wealth in North America:
The great wealth transfer sounds nice in theory, in practice, a study showed that 61% of Millennials in Canada were banking on the great wealth transfer from their parents when they passed away, but only 31% of parents felt able to leave their kids anything. Baby Boomers, like everyone else, are being squeezed by the cost of everything.
The great wealth transfer offers both opportunities and challenges for Millennials and Gen Z, but what about those who don’t have parents to help out, finanically? The idea of a meritocracy in Canada and beyond is already fading; the generational wealth transfer could put a nail in the coffin altogether. People no longer believe that “hard work pays off.” In the future, policymakers, financial institutions, and families must all work together to ensure this wealth transfer promotes equity and stability for future generations.
Easier said than done, eh?
Key Takeaways
- Baby Boomers are transferring $84 trillion in wealth in the U.S. and $1 trillion in Canada
- Housing affordability and student loan debt are primary barriers for Millennials and Gen Z
- Systemic inequities in the U.S. have already exacerbated the wealth gap among Millennials/Gen Z
- Canadian Millennials benefit from universal healthcare, but continue to face high property costs
- Financial literacy, estate planning, and economic policy reforms are crucial for the upcoming transfer