Great wealth transfer is underway in US — to women

There is an enormous undercurrent affecting the world of wealth management in the U.S. that continues to swell, driven by shifts in demographics, culture, families and career trends. It is the greatest transfer of wealth the nation has ever seen, and financial advisers say they are bearing witness to it already.

A McKinsey & Company study released in 2020 found women are set to control much of the unprecedented $30 trillion in assets held by baby boomers by the end of the decade, calling it “a potential wealth transfer of such magnitude that it approaches the annual GDP of the United States.”

At the time of the study, men were the primary financial decision-makers in two-thirds of affluent households in America, but that is rapidly changing. Now, more than three years later, data shows it is not just the women of the boomer generation – or the affluent – who are increasingly taking control of managing their household’s wealth.

Tracy Bell, director of equity investment strategies at First Horizon Advisors, told FOX Business the growth in assets managed by women is occurring across generations, but data shows different reasons for the shifts depending on age – with a notable divide around the age of 45.

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With the baby boomer generation, typically (although there are many exceptions) women take over control of the household’s investments upon the death of their husband. Women tend to live several years longer than men, and the McKinsey study noted 70% of those widows will switch financial advisers within a year of their spouse’s death.

In a study of its own, First Horizon found that women over 45 are much less likely to rate themselves as having “excellent” financial knowledge compared to their younger counterparts. The older a woman is, the more likely she is to be in a more traditional situation where her spouse is the key manager of the household’s wealth.

Data indicates women of younger generations are more likely to be educated on financial investing decisions than their older counterparts. (iStock / iStock)

Not so among those of younger generations. With women younger than 45, Bell says, “it’s very different – these women are much more career-oriented, and they’re [managing wealth] for themselves for longer.”

She cited U.S. Census data showing women on average now enter their first marriage at 28, compared to 22 in 1980. There is also a greater focus on educating women now than in previous generations, Bell said, with women now earning 44.1% of bachelor’s degrees compared to 21% forty-some years ago.

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“What we find is that younger women tend to do more self-education … and they’re just financially independent,” Bell said. “They know to ask the right questions, and they also tend to seek professional advice more so than men do, which is a good thing. So, they know what they know, but they also know what they don’t know, and that’s one of the strengths that we see, and it’s particularly pronounced for younger women.”

Women as a demographic have shown themselves to be excellent at making financial investing decisions, Bell said, because they tend to look at their decisions holistically and stick with them for the long haul. She pointed to a University of California, Berkeley, study that found women investors outperformed men over time, and the results were attributed directly to men being overconfident and making more trades.

An oft-cited study by UC-Berkeley found female investors tend to outperform males over time because the women were more likely to stick with their investment decisions. (iStock / iStock)

Bell is an evangelist for women getting involved in the financial planning for their household, if they aren’t already, and for those who are already handling things to educate themselves further.

She warns women that they have the deck stacked against them compared to their male counterparts in multiple areas when it comes to building adequate retirement savings: women’s earnings tend to be lower, they tend to live longer, and they are more likely to have greater job gaps over their lifetime due to caregiving of either children or parents.

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“Start with the financial planning process as early as possible,” Bell said. “It’s critical so that when you get to the end of your lifetime, you’ve got the assets that you need to take care of yourself.”