Lots of money to lots of boomers Inheritance: $10 trillion is in the process of changing hands from America's senior citizens to their 76 million baby boomer children. What will they do with it all?

Sun Journal

September 25, 1998|By Judith Forman | Judith Forman,SUN STAFF

Ten trillion dollars is a lot of money.

It's about equal to the combined gross national products of the United States, France and the United Kingdom.

It's 15 times the total assets ($648 billion) of the world's largest bank (Bank of Tokyo-Mitsubishi Ltd.). It's 60 times the 1996 total revenue of General Motors Corp. ($168 billion).

And it's in the process of changing hands through inheritance -- from America's senior citizens to their baby boomer children -- in the largest intergenerational transfer of wealth in history. (Baby boomers are those Americans born between 1946 and 1964.)

This transfer could bring vast and varied change, as spending patterns, charitable giving and lifestyles may all be affected. Or perhaps, as skeptics insist, the $10 trillion will hardly dent American society.

"Hundreds of billions are already flowing to our children," says Carter Henderson, 72, a Florida-based financial consultant and author of "Funny, I Don't Feel Old: How to Flourish After 50."

A rising stock market, paid-off homes and cheaper health care, he says, make today's older Americans the most financially secure group of seniors who have ever lived. Others also cite lifetime habits of thrift and saving, influenced by the Great Depression, as contributors to the accumulated wealth of senior citizens.

The $10 trillion figure comes from a 1993 Cornell University study by economists Robert Avery and Michael Rendell. It predicted that the number of millionaires in the country would triple in the next 20 years from 1.5 million to between 4.5 million and 5 million.

The wealth transferred will be narrowly distributed -- one-third to the wealthiest 1 percent of the population, one-third to the next 9 percent and the last one-third to 90 percent of the population. Still, do the math: A third of 10 trillion, divided by 90 percent of the population (about 270 million), averages out to about a $13,000 legacy for every man, woman and child among even the least-favored Americans.

In fact, says John De Marco, a consultant to PSI Global, a financial-services market research and consulting firm in Tampa, Fla., the overall average inheritance will be $96,000 and the median $26,000 -- figures consistent with the past 20 years.

He thinks the effect may be small. The trillions of dollars will change hands over a 50-year period to about 70 million boomers. "Not a lot of millionaires are going to be made by this inheritance," De Marco says.

Still, lots of money will be going to lots of boomers. What will they do with it?

"Everyone you talk to has a different crystal ball," says Paul Clolery, editor in chief of the Non Profit Times, a 34,000-circulation business publication for nonprofit managers. He's not expecting charities to bathe in a shower of gold.

Nonprofit "organizations waiting for a windfall will be waiting a very long time," he says. Nonprofits, Clolery says, are trying to tap into the money before the boomers get it by aggressively encouraging planned giving and tax planning by senior Americans to reduce the amount of taxable money in their estates.

As for baby boomers, Clolery says many still have to budget for children, bills, retirement and later-in-life luxuries, so they are not giving large amounts to nonprofits. Some nonprofit agencies are anticipating the money, he says, but the good organizations "don't just expect it to drop in their laps."

David Schaeffer, director of gifts planning for the American Cancer Society, says nonprofits are well aware of the coming transfer of wealth -- "and we're all trying to educate our own donor bases on the importance of estate planning."

His organization has seen an increase in legacies and planned gifts -- at $132 million for fiscal 1997, up from $115 million and $103 million the previous two years. He attributes the increase partly to the intergenerational wealth transfer.

Clolery agrees that most nonprofits are seeing an increase in planned gifts and legacies -- but not necessarily as a result of newly inherited wealth. Rather, he thinks nonprofits have been getting more savvy about soliciting those who have money to give.

But most of the boomers' inheritance is not going to be flushed back for investment or donations, De Marco says.

It will go to everyday expenses -- "to buy a piece of bedroom furniture, pay off a credit card. It's a regular part of the flow of wealth through the economy," he says. "Consumer spending is much more affected by the general economy, unemployment, recession, the stock market and increases in real wages," than by occasional windfall spending.

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