The inter-generational wealth transfer that is looming in the United States is also being anticipated by our friends in Canada. “We are a nation of ‘waiters'” writes Garry Marr in the Financial Post, “as in, we are waiting for parents and grandparents to expire to get our windfall.” For a variety of reasons, that statement seemed quite sad.
Economists believe that individuals are already spending in anticipation of the windfall. The dangers of this type of consumer behavior are clear and present:
- Are these adult children going into debt while waiting for the windfall? What if the windfall never comes?
- How much is the windfall anyway? Will it be enough for one generation? What happens after that?
- What impact will anticipation of a windfall have on the economic productivity of a household? Of a nation?
The Economic Outpatient Care (“EOC”) chapter in The Millionaire Next Door provides insights into the behavioral impact on adult children who receive periodic gifts of cash from their parents. One theory is that these inter vivos or “during life” gifts to children serve to create the mindset of living above your means on the basis of someone else’s money. A child that is not currently tempted by periodic gifts from parents during life seems less likely to be focused on the enhanced lifestyle that presumably will come upon a full inheritance. Some of the potential impacts of EOC include:
- Cash gifts to adult children typically leads to more consumption by the recipients as opposed to additional saving and investing;
- Gift recipients are more dependent on credit to support their lifestyle than those that do not receive gifts; and
- Gift recipients typically save and invest less money than do non-receivers.
In light of the focus on consumption for next-generation gift recipients, our nations of “waiters” could do with a bit of advice and counsel on the virtues and long-term impacts of budgeting, saving, and investing. For financial professionals, a different mindset might help those that they serve. From The Millionaire Next Door (p. 158):
Why don’t the financial advisors of under accumulating gift receivers emphasize thrift in their messages? All too often financial advisors have a narrow focus. They sell investments and investment advice. They don’t teach thrift and budgeting. Many find it embarrassing, even degrading, to suggest to clients that their lifestyle is too high.
The financial planning industry appears to be slowly internalizing this truism: in order to help their clients build and maintain long-term wealth, they will have to be more than an investment advisor–they will have to counsel and coach their clients to holistically shape their financial behaviors.