Millennial Inheritance Expectations: A Property Market Game Changer?

Young Australians may be vastly overestimating the amount of inheritance they expect to receive, potentially impacting their property purchasing decisions. A recent survey by Colonial First State (CFS) reveals a significant disparity between the inheritance expectations of younger Australians and the realities of intergenerational wealth transfer.

Inheritance Expectations vs. Reality

The CFS survey, which polled 2250 Australians over the age of 18, found that Australians aged between 18 and 29 anticipate an inheritance of approximately $525,000. This expectation aligns with those aged 40 to 49, who expect to inherit around $547,667, according to the SBS News report on the survey. However, this figure is nearly double the $167,624 expected by those aged 65 to 74, highlighting a potential disconnect between younger generations’ expectations and the actual wealth they are likely to inherit.

This overestimation could have implications for the property market. If younger Australians are factoring a substantial inheritance into their financial planning, it may influence their decisions regarding homeownership, investment properties, and overall debt levels. The survey suggests that more younger people are expecting an inheritance, as housing affordability means many struggle to get onto the property market, according to SBS News.

The ‘Great Wealth Transfer’ and its Distribution

Economists often refer to the anticipated transfer of wealth from older generations to younger ones as the ‘great wealth transfer’. However, data suggests that this transfer may not benefit younger generations as much as they anticipate. According to the Melbourne University’s HILDA survey of household, income and labour dynamics, the majority of inherited wealth goes to individuals over 55, with an average inheritance of $275,619. This suggests that inheritances are more likely to supplement existing wealth rather than provide a pathway to homeownership for younger Australians.

Analysis by CoreData indicates that baby boomers hold $4.9 trillion in assets, according to SBS News. While a significant portion of this wealth will eventually be transferred, it is unlikely to be evenly distributed. As noted in the SBS News report, some economists believe that wealth is increasingly concentrated in smaller groups, meaning that the benefits of inheritance may be limited to a select few.

Implications for Property Professionals

The discrepancy between inheritance expectations and reality presents several challenges and opportunities for property professionals:

Buyer Expectations: Agents and mortgage brokers need to be aware that some first-time buyers may be factoring in potential inheritances when assessing their borrowing capacity. It is crucial to manage expectations and ensure that buyers have a realistic understanding of their financial situation.
Market Appraisals: Valuers should consider the potential impact of inheritance expectations on property prices, particularly in areas popular with younger buyers. However, it is important to base valuations on current market conditions and comparable sales data, rather than speculative future wealth transfers.
Financial Planning: Financial advisors play a crucial role in helping individuals develop realistic financial plans that account for the uncertainties of inheritance. Encouraging open conversations about inheritance expectations within families, as suggested by CFS head of technical services Craig Day, is essential for informed decision-making.

Adjusting Inheritance Expectations

While there is no definitive data on the total amount of wealth being passed down, the Productivity Commission estimates the average inheritance to be around $125,000, according to SBS News. The HILDA survey also indicates that inheritances tend to be smaller for younger generations, with only 1.5 per cent of Australians aged 25 to 34 receiving an inheritance, averaging $50,508, according to SBS News.

These figures suggest that relying on a large inheritance to enter the property market may be unrealistic for many young Australians. As such, property professionals should encourage potential buyers to focus on factors within their control, such as saving a larger deposit, improving their credit score, and exploring government assistance programs.

The CFS survey also revealed that while 82 per cent of respondents intended to leave an inheritance, only 38 per cent had a will, according to SBS News. This highlights the importance of estate planning and ensuring that wealth is distributed according to one’s wishes. As Craig Day from CFS noted, open communication within families is crucial to ensure everyone is on the same page and can make informed decisions.

This article is based on a report from www.sbs.com.au titled “New survey finds millennials expect an inheritance”. You can find the original article here: https://www.sbs.com.au/news/article/many-millennials-are-expecting-to-receive-a-hefty-inheritance-will-they-get-one/0ocd3bnxo

Suggested Research for The Masterful Fellow™:
Given the discrepancy between younger generations’ inheritance expectations and the likely reality, how can property professionals better advise young Australians on realistic pathways to homeownership that are less reliant on uncertain inheritances?

Disclaimer

The information contained in this article is for general informational purposes only and does not constitute financial, investment, or legal advice. The Australian Property Network (APN) is not a licensed financial advisor. The content is based on data from third-party sources and is provided without any warranty as to its accuracy, currency, or completeness. Property values can go down as well as up. Before making any property or investment decisions, you should conduct your own research and consider seeking independent professional advice tailored to your specific circumstances.