John Ulrich is the President & CEO of Ulrich Investment Consultants.
Younger generations continue to face rising living costs, high interest rates and unstable employment access, making it increasingly difficult for them to accumulate wealth. This disparity in economic opportunity fuels the generational wealth gap and limits economic mobility, only reinforcing existing social inequalities over time.
As the generational wealth gap grows wider, and the largest generational wealth transfer in history is set to reinforce economic inequality in the next decade, it is critical to address the issue and develop solutions to bridge it. Empowering younger generations to make informed decisions can help break the cycle of financial inequality and move toward a more equitable financial future.
Why We Need To Address The Generational Wealth Gap
The Federal Reserve found that in Q2 of 2023, baby boomers held $77.11 trillion, or 52.8%, of America’s wealth. In stark contrast, millennials held only 5.7%, totaling a much more modest $8.34 trillion. This staggering gap becomes a real concern when you consider retirement and the future financial health of millennials. Income inequality, inflation and housing market trends have all impacted their financial health.
The generational wealth gap, or wealth inequality, can lead to a wide range of consequences. Unequal economic opportunity can limit economic mobility, reduce access to education, create disparities in healthcare access, lead to unequal retirement preparedness and even reduce economic resilience and growth.
Addressing the generational wealth gap doesn’t just promote equity and social justice but is also essential for building stronger and more sustainable economies and societies. Strategies that focus on improving access to education, healthcare, homeownership and wealth-building opportunities can help mitigate the consequences of wealth inequality and promote greater economic fairness and mobility.
The Importance Of Financial Literacy
In my opinion, the most effective weapon we can wield against the ever-widening wealth gap is financial literacy. Understanding personal finances early has a compounding effect on a person’s future financial health, and understanding the impact of financial decisions allows people to make better choices along the way. From my perspective, financial literacy is so much more important than blanket policies, such as instituting a living wage, as it empowers individuals to plan for their unique circ*mstances.
According to Investopedia, “Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” The FINRA Foundation found in its Financial Capability study that participants who had strong financial and math literacy reported more positive financial behaviors than participants who had lower literacy levels in those subjects.
Simple understanding of financial concepts can have significant and meaningful results. For instance, something we surprisingly run into a lot with clients is the improper titling of accounts. Missing or incorrect beneficiaries on retirement accounts is also a problem and can lead to some awkward conversations. As an example, we once had a husband who mistakenly listed his assistant as his beneficiary, simply because they did not understand what the paperwork was asking for.
Financial literacy is a lifelong learning process that allows you to make better financial decisions, prepare for emergencies and achieve your financial goals. Financial literacy training is possible through a variety of resources, including free ones such as podcasts, blogs, online budgeting tools and even credit monitoring applications, as well as more expensive ones including financial management classes, workshops and hiring a financial advisor.
It’s never too early to start teaching your kids about financial security measures such as budgeting, retirement savings, credit scores and borrowing and debt management. They will be best prepared for success if they build a solid foundation in financial literacy in addition to the arithmetic skills they will acquire during their academic careers.
We work a lot with multigenerational families, and instill lessons early. One strategy for young children is to give them a monthly allowance, but let them know that 50% is for spending, 25% is for saving and 25% is for charity. We also have clients with older children who allow them to make proposals for gifts from the family’s donor-advised fund.
Beyond teaching your child these concepts, it is important to create an open, honest and judgment-free environment where they feel comfortable approaching financial topics and asking for help when they need it.
Technology Plays A Role, Too
Another effective weapon that can help close the wealth gap is technology. For young tech-savvy people, things like stock trading that were once inaccessible are now available at the touch of a fingertip. Anyone willing to put in the time and effort to learn the ways of the stock market has the doors of economic opportunity open to them. Financial apps, such as Greenlight, give parents the opportunity to reward their kids for doing chores and allow them the ability to learn, earn and invest all in one single environment.
Advancements in technology have also made education so much more accessible and affordable, further bridging the gap of inequality. Online degree programs and certification courses that cost a fraction of traditional university tuition have leveled the playing field for many—not to mention the countless free and accessible resources that are available to anyone hoping to learn more about how to manage their money.
Empowering Younger Generations
The bottom line, the generational wealth gap is a complex issue with far-reaching consequences for individuals, families and society at large. By recognizing contributing factors and understanding the implications of this issue, we can take proactive steps to bridge it.
Passing down financial knowledge is a powerful tool for empowering younger generations and breaking the cycle of inequality. Open communication, early education, technology and real-life experiences (such as running a lemonade stand) all play a crucial role in this endeavor.
Working together to promote financial literacy and equal possibilities for wealth building is not only morally required but also economically necessary. By doing this, we can open the door to a more equitable financial future in which people from all backgrounds have the resources and information necessary to fulfill their financial objectives and create a better tomorrow for themselves and future generations.
Advisory service offered through Ulrich Investment Consultants, an SEC registered investment adviser. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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