Parents Shouldn’t Wait to Pass Down Their Wealth: Erin Lowry

In the coming decades, a Great Wealth Transfer will be upon us. Gen Xers and Millennials are expected to inherit trillions of dollars. Some estimates say as much as $68 trillion will be passed down from Baby Boomers.

For parents (or other family members) who indeed plan on leaving behind a financial legacy, it can be far more effective to gift early instead of waiting for the triggering event of your death to transfer wealth. This idea tends to elicit a negative reaction. Afterall, the risk of passing on money too early, or at all, is it will lead to spoiled kids and little motivation for them to be successful. It’s a valid concern, but gifting early could also help someone flourish and build their own legacy, as access to capital creates more opportunities.

A common refrain when discussing generational wealth is, “The first generation makes it, the second generation builds it and the third generation blows it.” Such idioms come into existence because they have a kernel of truth. Family fortunes have been built and lost in just a few generations, which may be why some parents are reluctant to pass down their wealth too early.

There’s a strain of the “bootstrap” narrative that pervades in this thinking: The concept is that if you withhold an inheritance, your child will be forced to pull themselves up by their bootstraps and make something of themselves on their own merit. They’ll be less likely to overindulge and loaf around.

Or perhaps parents think, “No one handed me seed money or paid for my college education or bought my first home, and look what I did.” Is that true, though? Can everyone replicate your level of success? Is it not perhaps a confluence of timing, talent and a dash of luck (or a strong labor market, affordable housing, etc.) that propelled you forward?

Millennials are already predicted to be the first generation to be worse off than their parents. This isn’t for lack of participating in the system that promised success. According to a report from Pew Research Center, 39% of millennials aged 25 to 37 have a bachelor’s degree or higher compared to approximately 35% of Baby Boomers. According to New America’s The Emerging Millennial Wealth Gap report, “Millennials now have 41% less wealth than a similarly aged adult in 1989.”

Tough love can be a motivating tactic for some, but it doesn’t guarantee successful children. Instead of withholding an inheritance from a child until your death, when the child may be in their 40s, 50s or even 60s, why not gift early to encourage your children to start building their own financial freedom?