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Millennials and the Looming Wealth Transfer: A Double-Edged Sword

-Editorial

As Millennials grapple with the long-held American dreams of homeownership, steady employment, and affordable living, a transformative financial shift is on the horizon. Over the next two decades, this generation stands to inherit approximately $90 trillion in assets, potentially becoming the wealthiest in history. However, this windfall will largely favor those already from affluent families, potentially exacerbating wealth inequality.

The Wealth Report, a periodic analysis by global property consultant Knight Frank, highlights that between now and 2044, the Silent Generation and Baby Boomers are expected to transfer their substantial wealth to Millennials. This shift, while poised to enrich some, underscores a stark reality: the benefits of this inheritance depend heavily on the lottery of birth.

This monumental wealth transfer occurs amid significant changes in how wealth is utilized. The differing perspectives between younger and older generations necessitate a reevaluation of marketing strategies for businesses targeting this newly affluent demographic. One example is climate change, which heavily influences Millennial investment strategies. According to Knight Frank’s Attitudes Survey, 80% of male and 79% of female Millennials are actively trying to reduce their carbon footprints, compared to 59% of male Boomers and 67% of female Boomers.

The report also notes a rise in ultra-high-net-worth individuals (UHNWIs) — those with a net worth of $30 million or more. In 2023, the global UHNWI population increased by 4.3%, totaling 626,619 individuals. North America saw the most significant growth, with a 7.2% increase, followed by the Middle East (6.2%) and Africa (3.8%). In contrast, Latin America experienced a 3.6% decline in its ultra-wealthy population.

Property remains a favored investment for these UHNWIs. The report reveals that 19% plan to invest in commercial real estate, while 22% intend to buy residential properties this year. The UHNWI population is expected to grow by 28% over the next five years, although this is a slower pace compared to the 44% increase seen in the previous five-year period ending in 2023. The most significant growth is projected in Asia, particularly in India, China, Malaysia, and Indonesia.

As Millennials prepare to inherit unprecedented wealth, the challenge lies in whether this transfer will bridge or further widen the existing wealth gap, shaping the socio-economic landscape for future generations.

This year marks a pivotal moment for interest rates as they begin their long-anticipated downward trend. Although cuts are on the horizon, rates will remain above their recent ultra-low levels. This, combined with increasingly complex geopolitics and disruptions from technology and climate change, means real estate investors must adapt to new rules.

Despite the challenges, the robust performance of the US economy and a sharp uptick in equity markets have spurred global wealth creation. By the end of 2023, the number of ultra-high-net-worth individuals (UHNWIs) — those with a net worth of $30 million or more — had increased by 4.2%, with nearly 70 wealthy investors emerging daily. This growth was most pronounced in North America, which saw a 7.2% rise, and the Middle East, with a 6.2% increase. In contrast, Latin America experienced a decline in its number of wealthy individuals. While Europe lagged in generating new wealth, it remains home to some of the world’s richest individuals.

Knight Frank projects a 28.1% increase in the number of wealthy individuals globally by 2028, with significant growth expected in Asia, particularly in India (50%) and China (47%). The report also highlights shifting investment priorities across generations, with younger investors placing a greater emphasis on sustainability and impact investing. This generational shift is expected to influence investment behaviors significantly, as evidenced by a 38% rise in female UHNWIs over the past decade. As wealthy individuals become more mobile and connected, emerging wealth hubs are offering incentives to attract them, challenging the dominance of established global financial centers.

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