It may be difficult to wrap your head around right now if you’re a Millennial working two jobs, struggling to pay rent and laughing at the idea of affording a family, but one day, your generation will be the wealthiest.
That’s according to UBS analyst Paul Donovan, who recently told Business Insider that the current 18-to-34-year-olds are going to be very well off in the not-too-distant future.
“It’s worth pointing out that the millennial generation, which we’re all wringing our hands about — these poor people not able to own houses! — this is going to be the wealthiest generation ever that we’ve experienced,” Donovan told Business Insider.
Donovan’s premise is that the wealth that currently exists in the world and primarily possessed by Baby Boomers will one day be passed down to and inherited by their Millennial children.
“When I die my nieces will inherit the assets that I have accumulated. And indeed the assets my parents have accumulated … There are fewer millennials than baby boomers. The concentration of wealth will increase, and fewer people will share the national wealth,” said Donovan.
While Donovan’s core premise is correct, the actual reality of the situation isn’t quite that simple.
“I think it’s true in nominal terms,” says Matthew Williams, Head of Institutional and Client Services at Franklin Templeton Investments, “inflation will ensure that in 30 years time.”
But Williams argues that only a small portion of Millennials will be destined to inherit from their parents, as debt, healthcare costs and longer lives all mean that Baby Boomers won’t be passing on inheritance to their children anytime soon, if ever.
James Laird, co-founder of RateHub.ca and a Millennial himself, agrees.
“We’re really only in line to get this money in the last 25 years of our lives,” says Laird. “We need to get financially sound for the first two-thirds of our lives, too.”
Planning for the future
Donovan’s proposal that Millennials will be the wealthiest generation one day is correct, but building future inheritance into a financial plan isn’t a good idea, since realistically, Millennials won’t see that money until they’re in their 50s or 60s. Currently, Millennials range in age from 18 to 34.
“Millennials should create a realistic budget, both short and long term, which should not include any potential inheritance unless they know they’re getting it in the short-term, say to help with a house,” says Laird.
Those early in their working careers are recommended to take care of their own financial needs by making sure they have a TFSA and/or an RRSP, depending on their situation.
“One of the other things Millennials can do is to make sure they are participating in any company pension plan or RRSP plan,” says Williams. “Gone are they days of joining the public sector for life. In the private sector, what we’re definitely seeing is sectors of the economy where employers are recognizing that a workplace savings plan is critical for attracting and retaining staff.”
But Millennials aren’t the only ones who should be budgeting for the long term.
“One thing the Baby Boomers underestimate is the cost of age care,” says Williams. “The cost of healthcare is rising, and these individuals are going to have the longest life expectancy.”
Williams says much of the money that may have been earmarked for inheritance may instead go towards rising health costs.
Making the most of assets now
If parents want to make sure their children can benefit from their financial gains while they’re still around, one suggestion made by every expert was to help with the down payment of a house.
“We’ve already seen a lot of trends where the parents of Millennials help them with down payments,” says Christopher Alexander, Executive Vice President for Re/Max Ontario and Atlantic Canada. “Encouraging that behaviour will only help to give them a leg up.
“There’s that whole ‘millennials are so entitled’ stereotype, but depending on where you live, real estate is expensive. Whether you call it a hand out or a gift, helping your children get into a real estate market when they otherwise can’t is a good thing.”
Williams and Laird agree that if Baby Boomers want to help out their Millennial children, real estate is a great way to help set them up for the future. According to a recent survey from Ratehub.ca, 43 per cent of Millennial homebuyers said they received help from family for a down payment on their home.
“What we typically see amongst first time home buyers is they’re educated and hold a post-graduate degree, so they haven’t been working for very long because they’ve been in school for seven years,” says Laird. “Their income is enough to qualify for their ongoing monthly payments but they don’t have enough to make a down payment.”
Alexander says real estate is an ideal vehicle for building wealth over the long-term. He says Millennials tend to be debt adverse and mortgage defaults across all demographics are at an all-time low, so it appears that giving financial support for a down payment is actually a worthwhile investment for Boomers in their adult children.