Seeing Wealth Differently Across Generations

Generational influences on financial decisions

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In general, we have found that generations do not invest all that differently, but perhaps they should.

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Generational Connections

In this report, we describe how the three largest generations in the U.S. — Baby Boomers, Generation X, and Millennials — participate in today’s financial markets and how their shared attitudes affect the way individuals spend, save, invest, and accumulate wealth.

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Investing Across Generations

Our video shows how members of each generation feel about investing and the challenges they face.

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The Generational Cycle

According to the U.S. Census Bureau, there are approximately 326 million people living in the U.S., spanning six generations. Baby Boomers have been one of history’s largest generations, but they have been surpassed by Millennials as the largest demographic in the U.S. workforce. Despite the differences between generations, many will follow the same progression of marriage, children, and home ownership.

Baby Boomers Gen X Millennials

Population (millions)

 74 70 85

Percent of U.S. labor force

 29% 34% 34%

Average median household income

 $64,665 $90,000 $48,039

Percent married

 64% 62% 26%

Percent with minor children

 10% 57% 24%

Percent who own a home

 84% 65% 20%

The Wealth Journey

Generational views on spending, investing, and building wealth have been affected by significant experiences. The Baby Boomers became comfortable consumers supported by dual-income households and access to credit. Generation Xers relied on borrowing as well, but also developed self-reliance after experiencing two major financial setbacks as adults. Millennials came of age amid the financial crisis, which likely made an indelible mark on their financial decision-making.

A timeline of significant events impacting Baby Boomers, Generation X, and Millennials. Baby Boomers were impacted by the post-WWII economic boom in the 1950s, the oil embargo of the 1970s, and the high inflation rates of the mid and late 1970s. Generation X was impacted by the market crash of 1987, the late 1980s recession, and the dot.com bubble of the late 1990s. Millennials have been impacted by the 9/11 attacks when they were children, the housing crisis and Great Recession, and the student loan crisis

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Baby Boomers

Born between 1946 and 1964, this generation expanded the workforce but is now primarily focused on retirement.

Current Needs and Challenges

  • Many Baby Boomers may not be on track for retirement and have a relatively short time available to close the gap.
  • Some are part of the “sandwich generation,” squeezed between caring for aging parents and supporting their children or grandchildren.
  • Wealthier Baby Boomers likely are considering how they will use charitable giving to affect society for decades to come, how they will transition wealth to heirs, and how to accomplish these goals in the most tax-efficient way possible.
  • Main concerns include the high cost of health care and making savings last for what could be an extended retirement.

Average Baby Boomer Asset Allocation vs. Target Date Fund*

Baby Boomers are generally on track with their equity holdings, but may be holding more assets in cash instead of fixed income.

*Definitions and notes for Client Asset Allocation vs. Target Date Fund Comparison

**Other includes real assets (commodities and public real estate).

Sources: Wells Fargo Investment Institute, Wells Fargo Wealth and Investment Management Analytics as of 6/14/2017; and Morningstar Direct as of 6/30/2017.

Next Steps

  • A balanced portfolio with additional exposure to fixed income and other income-generating investments, like real estate investment trusts (REITs) and dividend-paying stocks, can provide potential income for everyday expenses.
  • Maintaining an equity allocation may allow an investment portfolio to keep pace with inflation.
  • For qualified investors, alternative investments may help hedge assets that have accumulated over time and also provide exposure to growth opportunities.
  • Don’t overlook asset location and tax-efficient investing. For example, holding growth assets in a taxable account while holding dividend stocks and bonds in retirement accounts may help mitigate tax consequences.
  • Investing in bank loans and preferred stocks may potentially provide benefits in a rising-rate environment. Bank loans are often floating-rate loans, meaning their income can rise along with interest rates, while preferred stocks tend to offer higher dividend yields than common stock.
  • Those who have not started estate planning may want to consider beginning the process to ensure they meet legacy objectives. Long-term care insurance may be beneficial to some investors as a way to conserve assets for estate planning.
Wells Fargo and its affiliates do not provide legal or tax advice. Any estate plan should be reviewed by an attorney who specializes in estate planning and is licensed to practice law in your state.
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Generation X

Born between 1965 and 1981, this generation is smaller in size than the Baby Boomers and Millennials, but Gen Xers are reaching their peak earning years.

Current Needs and Challenges

  • Generation X lost nearly half its wealth between 2007 and 2010 in the Great Recession, a larger decline than any other demographic.
  • Its members are approaching their peak earning years.
  • 25 percent of Gen Xers with 401(k) accounts have a loan from those accounts, a higher percentage than other generations, which may reflect their financial stress.*
  • Many members are caring for aging parents while also saving for their children’s education costs and still repaying their own student loans.
  • This generation is likely to face long retirements due to increases in life expectancy. This creates challenges due to the high cost of health care and questions surrounding the sustainability of Social Security and Medicare.

* Source: “2017 Driving Plan Health,” Wells Fargo Institutional Retirement and Trust, December 31, 2016. Numbers based on analysis of more than 5,000 401(k) plans managed by Wells Fargo Institutional Retirement and Trust.

Average Gen X Asset Allocation vs. Target Date Fund*

Gen Xers may be overexposed to cash within their portfolios.

*Definitions and notes for Client Asset Allocation vs. Target Date Fund Comparison

**Other includes real assets (commodities and public real estate).

Sources: Wells Fargo Investment Institute, Wells Fargo Wealth and Investment Management Analytics as of 6/14/2017; and Morningstar Direct as of 6/30/2017.

Next Steps

  • We believe it’s imperative for Generation Xers to begin saving for retirement if they haven’t already done so. Retirement accounts offered by employers often provide matching contributions. An IRA might be appropriate for those who qualify.
  • As they reach age 50, members can take advantage of catch-up provisions, which allow individuals to contribute additional dollars to tax-advantaged accounts, such as retirement accounts.
  • Generally, investment allocations should favor equities for long-term growth, with a portion allocated to other asset groups for diversification and to align with risk tolerance.
  • Consider life insurance and long-term care insurance as a way to protect existing assets. Check with your financial professional for details.

 

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Millennials

Born between 1982 and 2000, this large, diverse demographic should eventually become the wealthiest.

Current Needs and Challenges

  • Nearly 60% of Millennials are already saving for retirement, but that means 40% are not. Of those who aren’t, 64% say they aren’t making enough money to save for retirement.
  • About 34% of Millennials carry student debt, with a median balance of about $20,000. Of those who carry debt, 75% say it is unmanageable.*
  • Millennials are expected to benefit financially from intergenerational wealth transfer from their parents and grandparents.
  • Millennials enjoy being interconnected globally. Making a positive social impact is a key aspiration for them.

* Source: Wells Fargo Millennial Survey, August 3, 2016.

Average Millennial Asset Allocation vs. Target Date Fund*

Millennial investors have significantly lower exposure to equities than the target date funds hold.

*Definitions and notes for Client Asset Allocation vs. Target Date Fund comparison

**Other includes real assets (commodities and public real estate).

Sources: Wells Fargo Investment Institute, Wells Fargo Wealth and Investment Management Analytics as of 6/14/2017; and Morningstar Direct as of 6/30/2017.

Next Steps

  • Putting aside funds for long-term financial goals is a crucial habit to establish while members are still young because of the power of compounding.
  • Investment allocations should heavily favor equities for long-term growth, with a portion allocated to other asset groups for diversification.
  • Social and environmental change is important to Millennials, which lends itself to social impact investing. This may offer Millennial investors the potential to achieve financial success while also influencing causes they’re passionate about.
  • Millennials are tech savvy and may consider digital advice platforms, which deliver investment advice and portfolios via automated tools.
  • Millennials should develop and stick to a budget and a long-term investment plan, recognizing they may need to adjust their plan as their circumstances change.

Investment Expertise and Advice to Help Clients Succeed Financially

Wells Fargo Investment Institute is home to more than 100 investment professionals focused on investment strategy, asset allocation, portfolio management, manager reviews, and alternative investments. For additional information on Wells Fargo Investment Institute, visit our website.

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