Generational Wealth Distribution in the US

Money doesn't just matter now, it can shape your family's future.

This is the idea of generational wealth - the savings and assets we pass to our children and beyond.

Understanding the patterns and numbers in generational wealth can help us make better financial decisions and plan for a secure future.

26% of total wealth can be traced back to intergenerational transfers (financial gifts from older to younger generations), assuming an inflation-adjusted return on generational wealth transfers of 3%. If the return rate increases to 5%, this share jumps to 51%.

In this article, we'll explore the distribution of generational wealth across different groups.

This information can guide your journey towards building a strong financial legacy.

We'll highlight the factors contributing most to wealth, how different generations are preserving their assets, and the role of racial wealth gaps.

Let's dive in.

Up Ahead:

Wealth Distribution Across Generations

The Generational Wealth Gap

Racial Wealth Gap

Intergenerational Wealth Transfer

Building and Preserving Family Wealth

Wealth Distribution Across Generations

The American economy is marked by significant wealth disparities among different generations.

Millennials, despite being the largest generation, possess only 8.4% of the assets in the country, indicating a stark generational wealth gap.

There are big differences in how much money and assets different age groups have in the United States.

Let's take a look at the breakdown of wealth by generations:

Millennials (born 1981 or later) own only 8.4% of the assets in the US, despite being the largest generation.
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In 2022, Generation X (born 1965-1980) held around 29.5% of total assets in the US.
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Baby Boomers (born 1946-1964) hold the majority of the assets at around 49.5%.
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Baby Boomers hold a striking value of corporate equities and mutual fund shares, with a total value of US$20.07 trillion.

The Generational Wealth Gap

When we look at who has the most assets, the Baby Boomers (people born between 1946 and 1964) are at the top.

They own the most in terms of houses, company stocks, investment funds, and their own businesses.

Let's look at some of the main differences between the generations.

Millennials have been slower in wealth accumulation compared to previous generations at the same age.
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In each wealth component, the Baby Boomer generation holds the most wealth, with Millennials holding the least. Generation X falls in between.
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Real Estate: The Baby Boomer generation holds the highest value of real estate wealth at US$18.05 trillion, which is more than three times the real estate wealth held by Millennials (US$5.04 trillion).
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Baby Boomers hold over 24 times the value of corporate equities and mutual fund shares held by Millennials.
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The Baby Boomer generation has the highest value in private businesses at US$7.91 trillion, which is more than five times the amount held by Millennials (US$1.47 trillion).

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Building wealth takes time. The earlier you start, the better.

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Racial Wealth Gap

The wealth differences are also evident when analyzing wealth across racial lines.

White families hold significantly more wealth compared to families of color, suggesting deeply entrenched racial wealth gaps.

The typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.
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White families have the highest level of both median and mean family wealth: $188,200 and $983,400, respectively.
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Black families' median and mean wealth is less than 15 percent that of White families, at $24,100 and $142,500, respectively.
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Hispanic families' median and mean wealth is $36,100 and $165,500, respectively.
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The median young (under 35) Black family has almost no wealth ($600). In contrast, the median young White family has a wealth of $25,400. Young Hispanic and other families fall in between, with $11,200 and $13,500 in median wealth, respectively.
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Nearly 30 percent of White families report having received an inheritance or gift, compared to about 10 percent of Black families, 7 percent of Hispanic families, and 18 percent of other families.
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Among young families, about 46 percent of White families own their home, compared to just 17 percent of Black families.
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Among middle-aged families, 65 percent of White families have at least one retirement account, compared to 44 percent of Black families, and just 28 percent of Hispanic families.
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Black and Hispanic families are less equipped to face financial emergencies. The typical Black or Hispanic family has $2,000 or less in liquid savings, the typical White family has more than four times that amount, and other families hold $5,000 in liquid savings.
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Only 10 percent of Hispanic families and 14 percent of Black families have enough savings to cover six months of expenses, compared to 36 percent of White families and 27 percent of other families.
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Participation in the stock market is higher among white families. More than half of White and other families have equities, just over 24 percent of Hispanic families and just under 34 percent of Black families have any equities.
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Of the people who own equities, the typical White family has $50,600 in equities, compared to just $14,400 for the typical Black family and $14,900 for the typical Hispanic family.

Intergenerational Wealth Transfer

Intergenerational wealth transfers can significantly contribute to the widening wealth gap.

The wealthy receive larger inheritances and financial gifts in life, which they often invest to further expand their wealth.

Up to half of total wealth is attributable to intergenerational transfers.
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The average family can expect to receive some kind of inheritance, but most won’t see more than $100,000. However, the top 10% of wealthiest families can expect to receive more than four times that amount in inheritance.
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The bottom 50% of the population will receive under $40,000 in inheritance.
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The middle-class population, representing the next 40 percent, can expect to receive close to $100,000 in wealth from inheritance.
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In the 2019 SCF, the wealthiest families received the largest inheritances - $719,000 on average, at the time of inheritance, and can expect an additional $941,100 in the future.
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For the bottom 50 percent of the population, receiving an average inheritance of $39 thousand can lead to a substantial change in their net worth. Considering their average net worth was $22.5 thousand in 2019, these inheritances could potentially more than double their net worth.
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The top 10 percent can expect a sizable $562 thousand on average in inheritances. However, considering their significantly larger average net worth of $5,710,000, the addition of these inheritances does not change their wealth status as drastically as it does for the other groups. This also implies that much of the top 10 percentile’s wealth is transferred in life through gifts, and not through inheritances.

Almost three-fourths of the families in the wealthiest 1 percent own privately held businesses, a higher proportion than any other group.‍

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Transfers of $1,000,000 or more account for only about 2% of the number of transfers at death, but 40% of total dollars transferred.
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Inheritances and financial gifts have averaged at $350 billion in the past 20 years, representing roughly 3% of household incomes.
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On average, grandparents spend $2,562 annually on their grandchildren, totaling approximately $179 billion per year. Over four-fifths (86%) of grandparents buy their grandchildren gifts, spending an annual average of $805 on gifts alone.
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More than 70% intergenerational transfers in life (financial gifts) are relatively small - under $50,000. However, they only account for a minor portion of the total monetary value of all such transfers. On the other end, the much less common but significantly larger gifts - those over $1,000,000, make up almost half of the total value. This implies that most of the wealth is being transferred in large chunks by a small number of families. However, small financial gifts still play a role in building wealth across all families.

Building and Preserving Family Wealth

Building and keeping wealth is not just about saving money.

You have to make smart decisions on what to do with that money over a long period of time.

Real estate, private businesses, and stocks are major parts of what we call 'generational wealth.' They're significant sources of money that families often pass down from one generation to the next.

Let's see how strategic investments in these areas can lead to significant wealth accumulation over generations.

Real estate, private businesses, and corporate equities form substantial parts of the generational wealth. Real estate for Baby Boomers totals $18.05 trillion, private businesses total $7.91 trillion, and corporate equities amount to $20.07 trillion. These figures underscore the importance of diverse asset allocation in building family wealth.
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Building wealth takes time. The earlier you start, the better. The Baby Boomer generation currently holds the largest portion of wealth, with $79.77 trillion in assets, while Millennials hold the smallest portion, with $13.51 trillion. This showcases the role of time in wealth accumulation.
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Private businesses contribute to a large part of the wealth for Baby Boomers and Gen X, accounting for $7.91 trillion and $6.03 trillion respectively. In addition, owning a private business is a significant wealth component for the top 0.1%, constituting 29.1% of their wealth. This suggests that entrepreneurship and business ownership can be a significant path to wealth.
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Almost three-fourths of the families in the wealthiest 1 percent own privately held businesses, a higher proportion than any other group.
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Equity ownership in the top one percent - considering that corporate equities and mutual fund shares make up 43.7% and 42.1% of the wealth for the top 0.1% and the 99-99.9% groups respectively, investing in these can be a strong strategy for wealth creation.
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Despite being less lucrative than other investment opportunities, the top 10% still have a significant amount of wealth in savings bonds, with an average of $24,450. This underlines the importance of savings bonds in providing a stable, government-backed investment in any balanced wealth portfolio.
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The 'Less than 25' percentile holds some savings bonds, with an average of $440, potentially indicating their use as financial gifts for children, which helps to plant the seeds of wealth building at an early age.
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Approximately 21% of grandparents contribute financially to their grandchildren's school or college tuition, with the annual spending average amounting to $4,075. Investing in additional education is a known strategy for increasing earning potential.
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26% of total wealth can be traced back to intergenerational transfers (financial gifts from older to younger generations), assuming an inflation-adjusted return on generational wealth transfers of 3%. If the return rate increases to 5%, this share jumps to 51%.