Largest and most educated generation, yet the poorest

Largest and most educated generation, yet the poorest

by Alex Cook
GCI CEO

Largest and most educated, yet the poorest

One of our clients recently shared this research with me as an encouragement to continue with our purpose of changing the face of retirement.

This is the distribution of assets by generation and how that distribution has changed over time as published by the US Federal Reserve bank.

 

Although this is information for the USA, it is probably a fair representation of the world and South Africa with several pertinent observations worth noting:

 

  1. The Silent Generation has reduced over the past 20 years from controlling 50% of wealth to the 14% it is now
  2. The Baby Boomers control half of all wealth and have remained fairly steady at this level for close to 20 years
  3. Gen X are steadily increasing their control of wealth and have increased it from 8% to 28% over 20 years
  4. The Millennials, currently between the ages of 25 and 39, control 7.3% of the wealth. To put this share of control into context, at a similar age the baby boomers controlled 21% of the wealth
  5. Life expectancy in the US over the past 50 years has increased by around 10 years

 

The most worrying statistic is that the largest, most educated and highest earning workforce that the world has ever seen is accumulating wealth at a frighteningly slow pace. There are several reasons for this, though the two that are probably the largest detractors to wealth accumulation can be easily addressed through education and hopefully the action that follows:

 

  1. The first is the rise of debt-fuelled consumerism leading to extremely low savings rates. The solution to this problem statement would be best done in a phased approach:
  2. Which starts with understanding spending and ensuring that your earnings exceed the regular budget. A regular (preferably monthly) review of the budget by looking at actual bank statements really helps in finding ways to reduce the budget without necessarily reducing lifestyle
  3. When earning exceeds the budget, use any spare money to pay off debt as quickly as possible, starting with the highest interest debt. It isn’t useful saving if your cost of borrowing could exceed your return on your savings
  4. Once debt is settled, start saving the surplus
  5. And if earnings happen to increase through promotions, do what it takes to increase your standard of living at a slower pace than the increase in earnings
  6. The second is the increasing frequency of job hops where pension savings are encashed. The solution to this problem statement is to understand the future consequences of a seemingly small encashment:
  7. If at the age of 30 a person encashes a small pension fund of R200 000, by age 65 that encashment would have cost them around R6m in value
  8. Compounding can be your best friend if you’re investing, or your worst enemy if you have debt

 

The other area for serious concern is that intergenerational wealth breaks down when a generation not skilled in wealth accumulation inherit substantial wealth from previous generations. It’s worth pondering this famous quote:

The compounding effect of successive generations making wise decisions on their family’s wealth is significant. There are many mechanisms that we employ within successful intergenerational wealth families, however, the one that stands out as the most important is to establish a set of values surrounding wealth to embed in the culture of the family.

 

A practical way to get the whole family engaged in their planning is to get them engaged on the effect of financial decisions, good and bad, and guide them towards a better financial outcome. We recommend using Wealthbit as your personal financial planning tool. As a GCI client, your investment information is updated on a monthly basis and can be accessed on this link.

 

With the third wave upon us, we wish you a safe month ahead.

 

For those interested in delving into the full detail of the research, you can read more here.