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The Largest Wealth Transfer in History Has Begun
Also: The meaning behind Elon Musk's secret "Project 42" glass house, a Q&A asking all the tough questions about the atomic bomb and the daring plight of a surfboard-pilfering sea otter.
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The Largest Wealth Transfer in History Has Begun
What will it mean when Gen Z and millennials rule the world?
As long as wealth has existed, there have been wealthy families and children – and their offspring, ad infinitum.
Yet for thousands of years, literally tracing back to ancient times, another truth has been known: An heir may inherit substantial wealth, but just as easily squander it.
This fact has swiftly come to the fore as the greatest wealth transfer in history has begun, representing as much as $100 trillion of assets to be passed down to Generation Z and millennials – so-called “Zennials,” born after 1980 – primarily from baby boomers born between 1946 and 1964.
Breaking it down, the wealth expected to be handed over to younger generations through 2045 is estimated to include more than $72 trillion in assets passed directly to heirs and around $12 trillion donated to charities.
This tectonic shift will have enormous implications for the future in all aspects of life, from markets to finance to housing, labor, health care, politics, culture and the environment. It will upend traditional, old-guard ways of thinking, but it also will amplify entrenched societal ills, such as wealth inequality, as riches become concentrated in ever-fewer hands.
“The overall total volume of transfers is expected to come from high-net-worth and ultra-high-net-worth households, which together make up 1.5 percent of all households,” according to Boston market researcher Cerulli Associates, which predicts the greatest shift will be taking place over the next decade.
This roughly $100 trillion wealth transfer will go to a very narrow slice of heirs. Just to put the above numbers into perspective, the U.S. Congressional Budget Office forecasts the U.S. gross domestic product for 2023 will come in at around $26.24 trillion — a far smaller sum than what Zennials will get.
Ken Costa, an investment banker and philanthropist who served as chairman of global banks such as UBS and Lazard International, contends there will be no escaping this extraordinary transfer of wealth, with “seismic” effects for the planet.
But he sees a silver lining in that future generations who stand to inherit these riches have been known to hold very different views from their boomer forebears.
In a book Costa wrote, out this autumn, “The 100 Trillion Dollar Wealth Transfer,” he explains how the handover of trillions to a much younger generation will not only revolutionize capitalism, but lead to the “youthening of the world.”
What this could bring, he says, is a more purposeful, inclusive and socially energized form of capitalism, with an emphasis on “collaboration, compassion and community” as Zennials receive the largest swath of real estate, stocks, cash, gold and other assets in modern history.
What it likely means, he argues, is a stark departure from capitalism’s one-dimensional and brutish way of thinking and the opportunity for a new class of well-heeled, well-informed youth to hit the reset button on some of the planet’s thorniest issues – climate change, anyone? — just possibly in time to save it from humanity’s most disastrous decisions of the last half century.
In some ways, his prognostication is ironic. Millennials and Gen Z, now aged anywhere from their twenties to early forties, mostly grew up between the 1990s dotcom bust and rise of Trump, with the majority (read: not wealthy) often struggling to get ahead.
Mainstream media lazily branded the millennial crowd – often lumping in Gen Zers – as being self-focused, entitled, and narcissistic (think of Time magazine’s infamous 2013 cover story, “The Me Me Me Generation”). This seemingly overlooked the uncomfortable reality that the world’s top brass made a dumpster fire of the global economy, with younger generations effectively asked to spend their best years rebuilding what was left of the planet from scratch with almost no resources if they wanted to survive.
For most of their lives, Zennials have lurched from one calamity to the next, from the Y2K mess and the September 11th attacks to the wars in the Middle East and the global financial crisis that dominated the aughts.
Most recently, they witnessed, along with the rest of the world, the unmitigated awfulness that was the pandemic.
If there was ever concrete proof it might be time for a changing-of-the-guard, it may well be after witnessing millions die amid the bungling of the pandemic and the interminably tone-deaf response of the world’s leaders to the rising threat of climate change.
While some of the events of the past few decades turned out to be so much empty hysteria (Y2K); many of them gutted the lives and fortunes of entire generations of youth and their families – something those about to inherit the world’s wealth are not likely to forget.
“As the wealth transfer takes place, Zennials will have the political and financial power, innovative technology and influence to throw out the past and implement the future they want,” according to Costa.
While inheriting a great deal of wealth is admittedly a high-class problem, it is not for the faint of heart. Even Warren Buffett warned his children of the real-life difficulties of managing one billion dollars — which can be genuinely unwieldy to allocate, invest and spend — let alone $100 trillion.
As far back as Ecclesiastes (the best book of the Old Testament for its fabulously dire warnings about material wealth), the rich man’s plaint has been that wealth can take a lifetime to amass, but then be lost again. To wit:
I have seen a grievous evil under the sun: Wealth hoarded to the harm of its owners, or wealth lost through some misfortune, so that when they have children there is nothing left for them to inherit. Everyone comes naked from their mother’s womb and, as everyone comes, so they depart.
They take nothing from their toil that they can carry in their hands. This too is a grievous evil: As everyone comes, so they depart. And what do they gain, since they toil for the wind?
The text, thought to date back to roughly 450 BCE, is purported to have come from King Solomon, the monarch of ancient Israel, speaking of his concerns for the fate of his wealth, how it might be squandered, and whether all of the hard work was worth it, or a waste of his time, in old age.
For those unwilling to clamber through Bible-speak, the “grievous evil” he speaks of is the fact that you can’t take it with you when you go (don’t you already feel better knowing even King Solomon fretted about this?). So whatever you gather in life, you will have to leave it to someone. But what will happen to it then?
Luckily, today’s private banking industry has an answer, offering wealthy families, would-be heirs and family offices a wide range of ‘How to Inherit Loads of Money 101’ luxury retreats, classes, seminars, trainings and educational opportunities fit for a king.
As JPMorgan’s private client bank has noted, “preparing young adults for wealth takes a runway” and that families should avoid what it calls “money silence,” or the tendency to avoid speaking openly of financial plans or inheritances. Interestingly, the bank also observes: “The majority of our clients cite family dynamics over investment and economic concerns as the biggest threat to the successful transfer of wealth across generations.”
Other groups offering these types of services include the Institute for Preparing Heirs, which holds workshops for wealth advisors and financial institutions on how to engage wealthy families in “inheritance conversations.”
Had it existed in ancient times, such a cottage industry would have been unlikely to have helped King Solomon with his more spiritual questions, but it might have allowed his present-day scion to at least shell out for a used car.
A selection of recent reads, for your weekend rumination.
This week’s White Elephant Award goes to Tesla CEO Elon Musk, who is apparently trying to build “an unusual-looking” glass house near Austin, Texas, according to this exclusive from Rebecca Elliott, Kirsten Grind and Emily Glazer in The Wall Street Journal. So, what’s wrong with a billionaire wanting to live in a special house? Nothing, except that the undertaking, done in secret, seems to have raised the hackles of Tesla’s board and sparked an internal investigation into whether company resources were misused by Musk, following, according to the Journal, “an order for millions of dollars in specialized glass, the type of large-format panels used on building facades.” The descriptions of the planned house are particularly delicious, with designs for a “twisted hexagon on waterfront land” and “a waterfall feature as part of the landscaping.” A great piece by the Journal, although it missed one of the most delicious details of all: Musk’s clandestine house was dubbed “Project 42” — a clear reference to one of Musk’s favorite authors, the late British science fiction writer Douglas Adams. In “The Hitchhiker’s Guide to the Galaxy,” which Musk calls his “philosophical foundation,” Adams muses that the answer to the “ultimate question of life, the universe, and everything” is 42.
How to reckon with a grandparent who helped create the atomic bomb dropped on Hiroshima, Japan? In this deeply incisive Q&A by Rachel Priest for The Bitter Southerner, an author speaks of her quest to understand and write a book about why her grandfather, who worked as a chemist in Oak Ridge, Tenn., devoted himself to making the bomb and the toll it took on him, his family, and his mental health — as well as how other family members grappled with the horrific legacy of the U.S. nuclear weapons program. A riveting interview filled with tough questions and thoughtful answers.
The summer news cycle has brought us plentiful stories about orcas viciously attacking boats (the verdict is still out, it seems, on why this is happening). But in the meantime, we have some lighter, less life-threatening fare from Annie Roth at The New York Times, about how a 5-year-old sea otter in California likes to take to the waves after pilfering surfboards. The piece, which is just the thing to send you off into the weekend, is titled, “She Steals Surfboards by the Seashore.”
Thanks all for reading, please don’t forget to peek at our survey — and have a great weekend!