The Growing Generational Wealth Gap
As young generations usher into adulthood, they inevitably begin to accumulate and inherit wealth, a trend that has broadly remained consistent.
But what has changed recently is the rate of accumulation.
In the U.S., household wealth has traditionally seen a relatively even distribution across different age groups. However, over the last 30 years, the U.S. Federal Reserve shows that older generations have been amassing wealth at a far greater rate than their younger cohorts.
As the visual above shows, the older have been getting richer, and the younger have been starting further back than ever before.
By Generation: Baby Boomers Benefit & Millennials Lag
To examine the proportion of wealth each generation holds, it’s important to clearly define each age group. Though personal definitions might differ, the U.S. Federal Reserve uses a clear metric:
|Generation||Birth Years||Age (2020)|
|Silent Generation & Earlier||1945 and earlier||75+|
Relative to younger generations growing up, the Silent Generation and Greatest Generation before them have seen a decreasing share of household wealth over the last 30 years.
However, the numerical levels have been relatively stable. For these combined generations, total wealth has gone from $16 trillion in 1989 to $19 trillion in 2019, with a peak of $27 trillion in 2007. Considering this cohort has understandably shrunk over time—from an estimated 47 million to 23 million in 2019—their individual shares of wealth have actually increased.
Immediately following are the Baby Boomers, who held more than half of U.S. household wealth towards the end of 2020. At $59 trillion, the generation holds more than ten times the amount held by a comparative number of Millennials.
|Generation||Wealth (2019)||Population (2019)||Wealth/Person|
|Silent Generation & Older||$18.8 Trillion||23.0 Million||$817,391|
|Baby Boomers||$59.4 Trillion||71.2 Million||$834,270|
|Generation X||$28.6 Trillion||65.0 Million||$440,000|
|Millennials||$5.0 Trillion||72.6 Million||$68,871|
With $29 trillion held in 2019, Generation X has also been gaining in wealth over the last 30 years. It’s good enough for five times the wealth of Millennials, though at just $440k/person, they’ve fallen far behind Baby Boomers in rate of growth.
Finally, trying to catch up to their older cohorts are Millennials, who held the least amount of household wealth ($5 trillion) for the greatest population (73 million) in 2019, an average of just under $69k/person.
For a direct comparison, it took Generation X nine years to climb from their start of 0.4% of household wealth in 1989 to above 5%, while Millennials still haven’t crossed that threshold. But it’s not all doom and gloom for Millennials. Their rate of growth is starting to rise, with the generation’s level of wealth climbing from $3 trillion in 2016 to $5 trillion in 2019.
By Age: A Growing Share for 55+
Though the generational picture is stark, the difference in U.S. household wealth by age makes the picture of shifting wealth even clearer.
Until 2001, the shares of household wealth held by different age groups were relatively stable. People aged 40-54 and 55-69 held around 35% each of household wealth, retirees aged 70+ hovered around 20%, and younger people aged under 40 held around 10%.
Since that time, however, the shift in wealth to older generations is clear. The 70+ age group has seen their share of wealth increase to 26%, while the share held by ages 55-69 has grown from 35% to almost half.
But not all ages are seeing an increasing slice of wealth. The 40-54 age group saw its share drop sharply from 36% to 22% between 2001 and 2016 before starting to recover towards the end of the decade, while the youngest cohort now hover around just 5%.
Breaking down that wealth by components is even more eye-opening. The 39 and under age group holds 37.9% of their assets in real estate, the largest share amongst any age group (and concentrated in the hands of fewer people) while older age groups have their wealth spread out across real estate, equities, and pensions.
|Assets Held by Age (Percent of Total, 2020)||70+||55–69||40–54||≤39|
|Corporate equities and mutual fund shares||24.6%||23.1%||18.6%||8.1%|
But the difference is as much in assets as it is in opportunity. In 1989, Baby Boomers and Generation X under 40 accounted for 13% of household wealth, compared to just 5.9% for Millennials and Generation Z under 40 in 2020.
Will the Tide Turn for Generation Z?
As new and accumulated wealth has been built up in older generations, it’s a matter of time before the pendulum starts to swing the other way.
The Millennials age group are expected to inherit $68 trillion by 2030 from Baby Boomer parents. Of course, that payout isn’t going to be even across the board, with wealthier families retaining the bulk of wealth and the majority of Millennials laden with debt.
And with Generation Z (born 1997-2012) starting to come of age, the uneven playing field is making it hard to begin accumulating wealth in the first place.
Since it is in the best interest of societies to have wealthy generations that can drive economic growth, potential solutions are being examined all over the political sphere. They include different taxation schemes, changing estate laws, and potentially cancelling student debt.
Whatever ends up happening, it’s important to track how the distribution of wealth changes over the coming decade, and begin accumulating your personal wealth as best as you can.
Mapped: The World’s Biggest Private Tax Havens
What countries or territories do the ultra-wealthy use as tax havens?
The World’s Biggest Private Tax Havens
When the world’s ultra-wealthy look for tax havens to shield income and wealth from their domestic governments, where do they turn?
If you’re putting money in offshore bank accounts in order to save on taxes, there are two main criteria you’re looking for: secrecy and accessibility. Based on pop culture and media reports, you might imagine a secretive bank in Switzerland or a tiny island nation in the Caribbean.
And though there is some truth to that logic, the reality is that the world’s biggest tax havens are spread all over the world. Some of them are small nations as expected, but others are major economic powers that might be surprising.
Here are the world’s top 20 tax havens, as ranked by the 2020 Financial Secrecy Index (FSI) by the English NGO Tax Justice Network.
Which Countries are the Biggest Tax Havens?
The FSI ranks countries and territories from all over the world on two criteria: secrecy and scale.
- Secrecy Score: How well the jurisdiction’s banking system can hide money. This includes analysis of ownership registration, legal entity transparency, tax and financial regulations, and cooperation with international standards.
- Global Scale Weight: What is the jurisdiction’s share of the world’s total cross-border financial services? This metric is based primarily on the IMF’s Balance of Payments statistics.
By weighing a country’s ability to hide money by its relative share of offshore financial services, we see the tax havens with the biggest impact on the global economy.
|1||🇰🇾 Cayman Islands||Caribbean|
|2||🇺🇸 United States||North America|
|4||🇭🇰 Hong Kong||East Asia|
|5||🇸🇬 Singapore||Southeast Asia|
|7||🇯🇵 Japan||East Asia|
|9||🇻🇬 British Virgin Islands||Caribbean|
|10||🇦🇪 United Arab Emirates||Middle East|
|12||🇬🇧 United Kingdom||Europe|
|13||🇹🇼 Taiwan||East Asia|
|17||🇹🇭 Thailand||Southeast Asia|
|19||🇨🇦 Canada||North America|
|20||🇶🇦 Qatar||Middle East|
At a glance, the top 20 tax havens are spread out across regions. Just under half of the list is located in Europe, but the rest are spread out across the Americas and Asia.
And the jurisdictions are opposites in many ways. They include financial powerhouses like the U.S., Japan, and the UK as well as smaller nations and territories like the Cayman Islands, Hong Kong, and Luxembourg.
But one surprising thing many of them have in common is a link to England. In addition to the UK, four of the top 20 tax havens—Cayman Islands, British Virgin Islands, Guernsey, and Jersey—are British Overseas Territories or Crown Dependencies.
Also worth noting is the importance of scale in the rankings. The highest ranking jurisdictions by secrecy score were actually the Maldives, Angola and Algeria, but they represent less than 0.1% of total offshore financial services.
Best Place To Hide Private Vs. Corporate Tax
Some of the listed tax havens might be confusing to nationals of those countries, but that’s where relativity is important. The U.S. and Canada might not be tax havens for American or Canadian nationals, but the ultra-wealthy from East Asia and the Middle East are reported to utilize them due to holes in foreign tax laws. Likewise, the UAE has reportedly become a tax haven for Africa’s ultra-wealthy.
In addition, many of the countries used as tax havens for individual wealth are also utilized by corporations.
The Tax Justice Network’s 2021 assessment of corporate tax havens listed the British Virgin Islands, Cayman Islands, and Bermuda as the top three tax corporate tax havens.
While individuals might create shell companies in tax havens to hide their wealth, corporations are usually directly incorporated in the tax haven in order to defer taxes.
But the tax haven landscape might soon shift. The G7 struck a deal in June 2021 to start taxing multinational corporations based on the revenue generated in each country (instead of where the company is based), as well as setting a global minimum tax of 15%. In total, a group of 130 countries have agreed to the deal, including India, China, the UK, and the Cayman Islands.
As the campaign to bring back deferred taxes ramps up, the question becomes one of response. Will the ultra-wealthy individuals and corporations start to work in tandem with the new rules, or discover new workarounds and tax havens?
Ranking Asset Classes by Historical Returns (1985-2020)
What are the best-performing investments in 2020, and how do previous years compare? This graphic shows historical returns by asset class.
Historical Returns by Asset Class (1985-2020)
Mirror, mirror, on the wall, is there one asset class to rule them all?
From stocks to bonds to alternatives, investors can choose from a wide variety of investment types. The choices can be overwhelming—leaving people to wonder if there’s one investment that consistently outperforms, or if there’s a predictable pattern of performance.
This graphic, which is inspired by and uses data from The Measure of a Plan, shows historical returns by asset class for the last 36 years.
Asset Class Returns by Year
This analysis includes assets of various types, geographies, and risk levels. It uses real total returns, meaning that they account for inflation and the reinvestment of dividends.
Here’s how the data breaks down, this time organized by asset class rather than year:
|U.S. Large Cap Stocks||U.S. Small Cap Stocks||Int'l Dev Stocks||Emerging Stocks||All U.S. Bonds||High-Yield U.S. Bonds||Int'l Bonds||Cash (T-Bill)||REIT||Gold|
*Data for 2020 is as of October 31
The top-performing asset class so far in 2020 is gold, with a return more than four times that of second-place U.S. bonds. On the other hand, real estate investment trusts (REITs) have been the worst-performing investments. Needless to say, economic shutdowns due to COVID-19 have had a devastating effect on commercial real estate.
Over time, the order is fairly random with asset classes moving up and down the ranks. For example, emerging market stocks plummeted to last place amid the global financial crisis in 2008, only to rise to the top the following year. International bonds were near the bottom of the barrel in 2017, but rose to the top during the 2018 market selloff.
There are also large swings in the returns investors can expect in any given year. While the best-performing asset class returned just 1% in 2018, it returned a whopping 71.5% in 2009.
Variation Within Asset Classes
Within individual asset classes, the range in returns can also be quite large. Here’s the minimum, maximum, and average returns for each asset class. We’ve also shown each investment’s standard deviation, which is a measure of volatility or risk.
Although emerging market stocks have seen the highest average return, they have also seen the highest standard deviation. On the flip side, T-bills have seen returns lower than inflation since 2009, but have come with the lowest risk.
Investors should factor in risk when they are looking at the return potential of an asset class.
Variety is the Spice of Portfolios
Upon reviewing the historical returns by asset class, there’s no particular investment that has consistently outperformed. Rankings have changed over time depending on a number of economic variables.
However, having a variety of asset classes can ensure you are best positioned to take advantage of tailwinds in any particular year. For instance, bonds have a low correlation with stocks and can cushion against losses during market downturns.
If your mirror could talk, it would tell you there’s no one asset class to rule them all—but a mix of asset classes may be your best chance at success.
Misc4 weeks ago
Mapped: Global Happiness Levels in 2021
Maps2 weeks ago
1 Billion Years of Tectonic Plate Movement in 40 Seconds
Misc2 weeks ago
Coffee vs Tea vs Soft Drinks: What Caffeine Drinks Do Countries Prefer?
Technology4 weeks ago
Long Waves: The History of Innovation Cycles
Misc1 week ago
The Best-Selling Car in America, Every Year Since 1978
Markets4 weeks ago
Who are the Dividend Aristocrats in 2021?
Demographics2 weeks ago
Interactive: How the U.S. Population Has Changed in 10 Years, by State
Technology3 weeks ago
The World’s Tech Giants, Compared to the Size of Economies