When asked, “How did you create your wealth?”, most wealthy investors identify "hard work" (95%), with "education" and "smart investing" following closely behind. Spectrem has been doing this research for more than 20 years and those continue to be the top answers. Our clients were always surprised that “inheritance” was not one of the primary factors in creating wealth. But it wasn’t. In the early 2000’s that number was around 8% and it didn’t get much higher until maybe the last five years. Today 28% of investors identify “inheritance” as one of the factors in creating their wealth. This is primarily because many Baby Boomers have actually inherited some amounts (generally not a fortune) from their parents who may have recently passed.
But do those same Baby Boomers believe they are responsible for leaving an inheritance to the next generation? And do younger households anticipate they will be receiving an inheritance?
I grew up in one of those households in which my parents basically told me that they intended on spending their last dollar and jokingly indicated that I shouldn’t expect an inheritance. Since they are still alive I can say that I don’t expect an inheritance, and I am glad that it seems they will be able to continue to support themselves. As for my children? I once had a dream that I would be able to leave my children a fortune and both my children and grandchildren would never have to worry about money. Who hasn’t had that wish? But reality has set in. I am currently convincing them that leaving college without the burden of student loans is really the same as receiving an inheritance. Maybe they will understand someday.
In recent research Spectrem completed with households with $100,000 to $25 Million of net worth, Spectrem found that only 29% of investors felt that parents had an obligation to leave their children an inheritance. What is most interesting is the difference in opinion regarding this topic based upon age. Twenty-nine percent of WWII parents and 24% of Baby Boomer parents agree that leaving an inheritance is not an obligation. They have come to understand reality. Thirty-six percent of Gen X parents feel similarly. They are still optimistic but are beginning to understand the financial challenges of parenting and life in general. But more than half of Millennials believe that parents need to leave an inheritance for their children. It’s easy to assume that most of these Millennials are optimistic that they will be receiving an inheritance and they probably will change their attitudes as they age.
It would, however, be unfair to paint Millennials as greedy little snowflakes. When asked if children have an obligation to financially support their parents as they become older, 38% of Millennials agreed. This compares to only 14% of Baby Boomers.
While we are beginning to experience the great wealth transfer between generations, there are still many households that aren’t really sure they are going to have much to transfer. Learn more about the financial impact of parenting in our new report, Parenting and Financial Issues.