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Is the new generation of rich Americans any different from the old one? That is a question which has sparked fierce debate recently, particularly in the wake of the French economist Thomas Piketty’s best-selling book arguing that inequality and inherited wealth are rising.
Indeed, the issue is so emotive that when the Aspen Institute staged its annual Aspen Ideas Festival in Colorado, which concluded this week, the word “inequality” cropped up in almost every economics debate. And when Robert Reich, the leftwing economist, gave a lecture on the subject – in which he deplored how the wealthy elite is passing privileges on to their children – the auditorium was completely packed even though the attendees at the festival epitomised that wealthy elite.
But if you want to get a different slant on the issue, it is worth looking at an intriguing little survey conducted by US Trust private bank, which was released at the festival. In recent months, the bank polled 680 of the 1.8 million people in America who are defined by the bank as “wealthy” (apparently people who have more than $3m of investable assets).
This reveals a curious shift between generations. Most so-called “baby boomers” – or people who were born in the middle of the last century – made, rather than inherited, their wealth. “Nearly three-quarters of those over 69, and 61 per cent of baby boomers, were the first generation to accumulate significant wealth,” the survey observes. But among the “millennial” generation – people under the age of 35 – “inherited wealth is more common”, since “about two-thirds are from families in which they are the second, third or fourth generation to be wealthy”.
Now, there are some youthful, self-made wealthy Americans, too; young technology entrepreneurs or financiers are making fortunes. And presumably the proportion of self-made wealth in this cohort will rise as the millennials advance in their careers or businesses. And even the millennials who have inherited wealth are often keen to be entrepreneurial. “Millennials are highly motivated to create their own wealth and make a positive impact on the world,” the survey says.
But what is fascinating is that this demographic change seems to be occurring alongside a redefinition of finance. Baby boomers are quite mainstream and conservative when they invest their millions: they typically use financial advisers and invest in traditional assets, such as the equity markets. But millennials do not like relying on financial advisers; nor do they trust bond and stock markets – no surprise, perhaps, given how these have all performed.
Instead, the young rich are increasingly putting funds into alternative investment areas, such as private equity or hedge funds, and investing directly themselves. “They are entrepreneurial,” says Keith Banks, president of US Trust, by way of explanation. Or as a private equity guru observes: “They like to have control.” And the young rich do not define “investing” as something that simply sits in a financial silo. Some 75 per cent of millennials “consider the social and environmental impact of the companies they invest in to be an important part of investment decision-making” and two-thirds “view their investment decisions as a way to express their social, political, or environmental values”, the survey says. Barely a third of baby boomers say this.
Quite why this shift has occurred is unclear. A cynic might attribute it to a sense of guilt; the young rich may be looking for ways to justify inherited wealth (or, at least, make it seem more palatable). Many Americans, particularly wealthy ones, would argue instead that this trend displays America’s laudable and longstanding culture of philanthropy. Meanwhile, Banks himself suggests that there is another issue at work here. Young people who inherited their wealth have more energy to be innovative with finance; the self-made baby boomers, who already poured so much effort into simply getting rich, just don’t want to think about money any more.
Either way, if this shift is sustained, it has some fascinating implications. For one thing, it explains why the financial industry is scrambling to develop more so-called alternative investments. It also reflects and reinforces the way that philanthropy is being redefined, as the boundaries between “finance” and “social projects” are broken down.
But there is another twist too. According to US Trust, nine out of 10 wealthy Americans apparently now want to foster “greater income and opportunity” through philanthropic and policy measures; many of the rich, it seems, are worrying about rising inequality. That will not placate leftwing critics. Nobody has yet proffered any real solutions. But it does help explain why even the Aspen attendees want to listen to lectures on inequality – or at least to read about it.
Illustration by Shonagh Rae