Survive The Financial Super Wave, Without Getting Swept Away

£7 trillion is coming. That’s the sum experts predict Baby Boomers will pass on to Generation X and Millennials over the coming years. This is one of a pair of articles we’ve penned on the topic… here we’re looking at what happens if you’re fortunate enough to be in Camp £7 trillion.

A Super Wave

Inheritance can be a fraught business.

In 2010, Adelaide’s late Lady Mayoress, Valmai Roche, took spite to new levels. The devout Catholic left her daughters, “30 pieces of silver of the lowest denomination of currency.” She termed it, “blood money due to Judas.”

We do hope your family takes a kinder view. That’s because you’re likely to be part of a coming £7 trillion wealth transfer. Yes, you read that number correctly: it’s the aggregated sum of Baby Boomer money that will be passed on to your and other generations.

This super wave – twice as big as the UK economy – is building thanks to a perfect economic and demographic storm. Baby Boomers are the generation born between 1946 and 1964. At the time of writing, the oldest is 79 and the youngest 61.

They were the first ever generation to get cradle-to-grave welfare, they benefited from good medicine and nutrition, the absence of catastrophic war and, of course, rocketing house and share prices.

They’re richer than any generation in history. And now they’re passing it to you.

Quids In! Quids Out?

This is all great news.

But we wouldn’t be financial planners if we didn’t talk about the downsides. Money comes easily, but also goes easily: “70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third,” says a respected report.

It’s largely because we view ‘free’ money differently to ‘earned’ money. Experts call it mental accounting: we attach different emotions to different pots of money, depending on where it’s come from. Find some cash in the street and most people will blow it before they save it.

We all know stories of squandering: that kid from school, the lottery winner, the boxer… all once wealthy, all now bankrupt.

Inheritances are the same. They must be guarded carefully.

Sticky Fingers

If you’re lucky, you’ve already had meetings with your family. Maybe they included someone like us, who’s created a plan and given you a vision of what your money can accomplish.

We wish that happened all the time… but it doesn’t.

In fact, the wealth amassed by Baby Boomers looks so out of reach for Millennials (and the succeeding Generation Z) that hopes of home ownership and retirement seem impossible. Research says Generation Z is more willing to splurge than any other generation – and they and Millennials have saved less than Baby Boomers and Generation X did at the same age.

How do you make your share of this £7 trillion – no matter how big or small – stick?

Here’s our list of suggestions. I don’t think any of them are radical, overly complex or unachievable.

1. Get to know your money. Think about where it came from, how it built over time, where it’s invested and what it means to you. You don’t need to get all philosophical, nor should you attach emotion to it.
2. Think about the long term. Spend some of it in the short term if you must. But try and avoid making lots of large purchases up front.
3. Think about what you want to accomplish. Do you want a certain lifestyle? Do you want to leave a legacy? Do you have causes and interests you can support – and for whom your money might make a material difference?
4. Seek advice. Talk to the generations that came before you. How did they address similar situations? What did they do well – and poorly? In other words, have that family meeting and be frank.
5. Seek professional advice. Talk to someone who works with money all the time and who can provide you with objective and empirical advice. There are lots of types of people who can help, like financial advisers, financial planners and financial coaches – at First Wealth we do all of this. Try and steer clear of the bloke down the pub, that cousin who loves crypto… or anyone else who confuses personal experience with objective analysis.
6. Build a wealth team around you. Don’t stop with your financial adviser. If you need accountancy support, get it. If you need legal advice, get it. If you don’t know who to appoint, ask us, because we know great people in all these fields. Above all, paying for professional advice will help you avoid expensive mistakes and irrecoverable loss of wealth.

We likened the coming mass inheritance to a super wave. The U.S. Tsunami Weather Warning System describes a tsunami as, “a series of waves, not just one. These waves are often referred to as the tsunami wave train.”

This sounds like a good analogy to us. Unless you’re prepared, this financial super wave can knock you off your feet and leave you bruised. We can help you prepare and do well out of it. We’re on 020 7467 2700 and hello@firstwealth.co.uk.

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.