The Great Wealth Transfer: How Digital Assets Will Be Impacted by Gen Z and Millennials

According to Bankrate, the most significant transfer of wealth in history is underway, a move that is so significant that it has been labeled “The Great Wealth Transfer.” Baby boomers are set to transfer $84 trillion by 2045, and the money will then move to Gen X and millennials. Given that millennials and Gen Z are ~14x (Fortune Crypto) more likely to own a digital asset and have different technology preferences than previous generations, digital asset managers and TradFi institutions should consider how younger generations participate in finance to remain competitive.

Where is the wealth going and who is it coming from?

The generation age groups are broken down by birth years, with baby boomers (1946-1964), Gen X (1965-1980), Millennials (1981-1996) and Gen Z (1997-2012).

According to a survey by Alliant Credit Union, over half of Millennials expect an inheritance from their parents (or other people in their family) of about $350,000.

A Taste for Variety

Investors aged between 21 and 42 prefer to control their investments as opposed to giving autonomy to wealth managers. As their wealth increases, this group is forecasted to demand a greater variety of investment choices through various vehicles built for customization.

Characteristics of Millennials and Gen-Z

Gen Z and millennials set a historical precedent by moving away from traditional markets. About one-third of their portfolios are dedicated to alternative investments and digital assets, while older generations contribute nearly 6 times less.

Millennials Have Different Needs

According to Goldman Sachs, millennials account for the largest share of the wealth transfer (91M millennials vs. Gen Z at 61.1M). Considering the priorities and preferences of millennials, traditional financial systems may see a need to adapt to this new market as the wealth transfer takes place. This could manifest in digital asset managers hosting financial events at local craft breweries instead of fancy restaurants. The wealth transfer could also prompt a change in technology as it becomes more focused on the preferences and behaviors associated with millennials.

These transitions are coming quickly. Goldman Sachs outlined several changes to expect with the Great Wealth Transfer:

• Substantial influence of technology
• Advances in portfolio construction
• Compliance and regulatory changes
• Changes in investor preferences

Changing Investment Strategies

Younger generations have a preference for easy-to-use investment apps. Robinhood and Acorns are primary examples of this proclivity. For example, Robinhood saw a user increase of over 3 million new accounts in 2020. Many of these new customers are young adults who are just beginning their investment journey. Consequently, Gen Z’s propensity for convenience and automation is captured in Acorn’s design, which rounds up the spare change from everyday purchases and invests it.

According to Fortune Crypto, younger generations are allocating 14% of their portfolios to crypto. Additionally, half of the generation owns at least one digital asset. On the other hand, older groups have 1% of their portfolios in crypto. Therefore, the younger generations have a stronger propensity for digital assets than their older counterparts.

Education and Financial Literacy

There is still a high demand for education, which is required for this generation to embrace new wealth with fiscal responsibility and diligence. We live in an era where anyone with a camera and the internet can give financial advice (fin-fluencers), but not all are unbiased. It is often accompanied by ulterior motives (e.g., an altcoin pays an influencer to shill their product).

r/WallStreetBets is another example. Roaring Kitty, while a seemingly innocent champion of the people with a transparent track record of success, holds a heavy weight and thus has amassed a responsibility to remain ethically guided to conscious thought leadership. However, at the end of the day, he is just a person in his home sharing his trading moves and has a heavy appetite for risk. Yet, the weight he carries has the potential to influence entire generations who will become increasingly wealthy.

Ethically-guided media, which is almost oxymoronic, must take a balanced approach to guidance and education. Parallel to that, investors must understand that media comes laden with bias and that many factors guide the market.

Impact on Traditional Financial Institutions

The Great Wealth Transfer will impact how TradFi institutions and Web3 platforms operate. From the types of available investments to the overall platform operations, we will see the Wall Street Institutions that made New York City the financial giant it is today kowtow to younger cohorts of investors.

The immediacy and convenience created by social media and online shopping will continue to grow alongside these younger investor portfolios. Robinhood is a prime example, with its ease of use and navigability being popular features that draw in millennial and Gen Z investors.

The types of investments available will also change. Given that millennials and Gen Z are ~14x (Fortune Crypto) more likely to participate in alternative assets than baby boomers, this trend may pave the way for sectors like RWA and DePIN.

Institutional Finance Bracing for Change Led by Younger Demographics

Additionally, tokenized funds and tokenized assets are becoming more in demand by younger generations, as Kadena’s Chief Business Officer, Annelise Osborne, stated in a recent interview with Tabb Forum. In the interview, Osborne mentioned that blockchain technology is making traditional institutions more operationally efficient in meeting the needs of the increasingly wealthier younger generations.

“This technology allows that. It’s much more efficient. That’s why these different companies are going into tokenized funds and tokenized assets, to open up the playing field for the next generations with millennials and Gen Z being natively digital. To actually expand and offer investment opportunities, they will have the majority of the wealth in this extreme wealth transfer that’s happening from the baby boomers.”

Not only are younger generations demanding digital assets for investment preferences, but their online behavior is conducive to requiring more of blockchain’s value proposition to be built into traditional financial tech stacks. That’s part of why large asset managers like BlackRock, State Street, and PayPal are now moving into blockchain.