Warren Buffett famously said “a very rich person should leave his kids enough to do anything but not enough to do nothing." As advancements in health care continually impact life expectancies, relying on an inheritance is becoming an increasingly poor financial strategy.
Yet, a fundamental disconnect is emerging in the UK between a younger generation that sees inheritance as a rite of passage and a generation that puts wealth transfer low on the list of priorities.
According to New wealth rising, a survey by The Economist Intelligence Unit (EIU), commissioned by RBC Wealth Management, only 25 percent of high-net-worth individuals (HNWIs) surveyed in the UK consider “leaving an inheritance for my children" as their most important financial goal.
Younger* HNWIs in the UK, however, have different expectations. The survey data reveals 64 percent of this group believe parents have an obligation to leave an inheritance. This is the highest amongst the global regions surveyed, including the U.S. (39 percent), Canada (50 percent) and Asia (48 percent).
The New wealth rising survey, which targets HNWIs, adult children of HNWIs and high-earning professionals across the UK, U.S., Canada, China, Hong Kong, Singapore and Taiwan, explores the future of wealth, what it will be invested in and how it will be invested. With the largest wealth transfer in history underway, major attitudinal shifts are emerging. Interests are swinging from local to global, smart philanthropy is taking hold, and impact- and alternative investing are going mainstream. As wealth shifts—globally and from one generation to the next—the influence of affluence will change.
Dean Moore, managing director & head of Wealth Planning at RBC Wealth Management in the UK, says reluctance held by older generations* often stems from a fear that the volume of wealth could have a detrimental effect on the next generation.
“(The parents are trying to) protect the children from the worst examples of getting too much money too soon," says Moore. But anxiety surrounding entitlement and its effect on the younger generation is only one element in a wider conversation surrounding the nature of wealth and inheritance. And for two-thirds of young HNWIs expecting an inheritance, this means ensuring there's a wealth plan in place that doesn't rely solely on gifts from previous generations.
New wealth ushers in new financial strategies
“People are living longer and healthier for longer so they're continuing to spend a significant amount of money on things like travelling than perhaps their parents' generation would have," says Moore.
Philanthropy is also re-routing the family legacy.
In the UK, 60 percent of HNWIs are confident their wealth will “make more of an impact on the world" than previous generations did, according to The new face of wealth and legacy survey (2018) by The EIU. And for 55 percent of UK respondents, societal causes hold more bearing than wealth accumulation with regards to defining the family legacy.
The challenge, says Moore, is many HNW families observe the tradition of not talking about money with the younger generations. “Generally, people aren't very good at it," he says. “But I think it's really important for the older generation to be pretty clear in terms of what the next generation can expect and when it can expect it."