As younger generations anticipate the $90 trillion “Great Wealth Transfer” predicted by financial experts, a minority of Americans may actually receive a financial gift from their family members. Just 26% of Americans expect to leave behind an inheritance, according to the latest findings released this week from Northwestern Mutual’s 2024 Planning & Progress Study.
The study finds a considerable gap exists between what Gen Z and Millennials expect in the way of an inheritance and what their parents are actually planning to do.
One-third (32%) of Millennials expect to receive an inheritance (not counting the 3% who say they already have). But only 22% each of Gen X and Boomers+ say they plan to leave a financial gift behind.
For Gen Z, the gap is even wider – nearly four in 10 (38%) expect to receive an inheritance (not counting the 6% who say they already have). But only 22% of Gen X and 28% of Millennials say they plan to leave a financial gift behind.
Among those expecting to receive an inheritance, half (50%) consider it “highly critical” or “critical“ to their long-term financial security. For Millennials it’s even more – 59%.
However, Gen Z has the greatest expectations for the impact of an inheritance on their retirement strategy. This generation expects the gift would cover 10% of their retirement funds.
“In the coming years, we will see a staggering $90 trillion generational transfer of wealth, but who will see it depends a great deal on people’s financial planning,” said Kamilah Williams-Kemp, chief product officer at Northwestern Mutual. “Long-term financial planning includes many goals and milestones, but the one that could have the most meaningful and lasting impact on families over generations is leaving a legacy through estate planning. Our research shows that people who expect an inheritance say it can be the deciding factor in whether or not they can achieve financial security. That’s very powerful.”
Aiming to help their kids
Among those expecting to leave an inheritance, two-thirds (68%) say it is either their “single most important financial goal” or is “very important.” Interestingly, it is more of a priority for younger adults than older with 75% and 81% of Gen Z and Millennials respectively saying it is either their single most important financial goal or very important, vs. 65% of Gen X and 46% of Boomers+ who say the same.
“Leaving an inheritance is an important goal that extends far beyond dollars and cents,” said Williams-Kemp. “It’s about providing stability, opportunities, and a foundation for future generations to build upon. That’s why it’s essential to plan and communicate with family and loved ones to ensure your legacy is protected.”
However, the research finds nearly half (47%) of Boomers+ who expect to leave an inheritance or gift have not talked to family about their financial plans. More than a third of Gen X (38%) say the same.
Transfer troubles and solutions
Six in 10 American parents say their children do not value financial responsibility at the same levels that they do. And among them, more than half (52%) are concerned that their variance in values could negatively impact the family’s assets from one generation to the next.
Additionally, the research finds that four in 10 Boomers+ (40%) and two-thirds of Gen X (65%) do not have a will. Among the primary reasons: people think they don’t have enough assets, they’re too young, it’s complicated and awkward to think about, and they’re uncertain about where to leave their assets.
One thing most Americans do feel comfortable passing along: financial insights. Three in four parents (76%) say they would feel comfortable formally including their teenage or young adult children in their annual meeting with their financial advisor. When asked to select the primary reasons why, most saw the value in “teaching / instilling in children good financial habits” (71%) and “introducing them to financial planning concepts” (58%).
“The primary way wealth is passed from one generation to the next is through a will, life insurance and an estate plan,” said Williams-Kemp. “It’s critical for many to develop these financial documents as a good step towards creating generational wealth.”
However, it’s clear that inherited wealth is not indefinite wealth, Williams-Kemp added. Financial knowledge can be even more important to pass along to the next generation. “Beyond a financial gift, more parents want to pass on proven financial tips to their kids to be successful in the future. These conversations about money are also excellent opportunities for parents to learn about their kids’ goals and values, and vice versa.”
• See the full findings here: Northwestern Mutual’s 2024 Planning & Progress Study
