Millennials are poised to be the wealthiest generation in history, but are they ready to handle the large inflow of money?
A vast $90 trillion wealth transfer over the next 20 years will likely make millennials “the richest generation in history,” according to estimates from global real estate consultancy Knight Frank.
It found that the so-called silent generation — those typically born between 1928 to 1945 — and baby boomers — born from 1946 and 1964 — will “hand over the reins” to millennials — those born between 1981 and 1996 — when they pass on their assets.
Millennials have been portrayed as lazy and frivolous spenders, more keen to open their purse strings for avocado toasts instead of saving for a house — so just how equipped are they in managing the seismic flow of income?
“The millennials are very ill prepared … they’re not as well prepared as the wealth creating generation,” Salvatore Buscemi, co-founder and managing partner of multi-family office Brahmin Partners told CNBC.
By the time the millennials inherit this wealth, they will be in their 40s and may not have the aptitude for starting their own business or for investing, he elaborated.
“They don’t have the skill sets earlier on to be able to do that because they never had to – they were never pushed,” he said. “And the problem is – are they going to be motivated later in life to push themselves to acquire these skill sets?” asked Buscemi, adding that human nature suggests that people are less inclined to pick up new skills as they age.
The millennial generation is likely to be focused on near-term goals while those that precede them are more focused on saving for milestones like family building and retirement, experts suggest.
Although millennials lived through the global financial crisis in 2008, they are “more distant” from the tribulations of World War II and its aftermath, which helped shape their parents’ mindset about money, a report by RBC Wealth Management noted.
Additionally, according to research by financial services company LendingClub, millennials are the most likely generation to live paycheck to paycheck, as this “sandwich generation,” needs to support both aging parents and their own children.
There is also a difference between the people who earn wealth, and those who inherit it, putting the latter at a disadvantage when it come’s to managing wealth or coping with its loss.
“People who’ve earned their wealth have a strong internal locus of control,” said clinical psychotherapist Paul Hokemeyer, adding that individuals who built their affluence are confident in their abilities and capacity to earn it again should they lose it.
Those who inherit their wealth will be more insecure. “They know they can survive in the zoo, but are unsure of their ability to survive in the jungle,” said Hokemeyer.
The psychotherapist, however, observed that millennials tend to be wiser about the power inherent in wealth, and approach money more as stewards who “use it to improve the world they feel privileged to be in.”
—CNBC’s Sam Meredith and Jessica Dickler contributed to this report.