Different generations have always lived different financial lives. However, a variety of socio-economic factors have coalesced in recent years, deepening the financial differences between generations, an FCA paper on Intergenerational Differences stated back in July.
The combination of an ageing population, a prolonged period of low interest rates, a long-term rise in house prices over the last 30 years, a shift in the labour market towards self-employment, changes to student funding, technology and government policy changes have reshaped the financial lives of UK consumers.
Baby boomers (born between 1946 and 1965), generation X (born between 1966 and 1980) and millennials (born between 1981 and 2000) face different challenges when compared to their predecessors, not only due to their current stages in life, but also because of the cumulative effects of strikingly different economic circumstances.
This has created competing saving needs, such as saving for a housing deposit for longer, while also making pension contributions.
Conflicting interests
So when it comes to passing on wealth, advisers may find they need to manage conflicting interests.
John Porteous, group head of distribution at Charles Stanley, says there can be differences in attitudes to risk, with younger clients often prepared to take higher levels of risk and worries about beneficiaries wasting money they have not earned yet.
“There are also worries that if they make it too easy for their children, they may no longer try to achieve success on their own. On the other hand, many younger people feel hard done by, with the actual and perceived intergenerational unfairness in the distribution of wealth,” Mr Porteus adds.
"Longevity also contributes to this potential conflict, as advisers have to ensure their clients have robust financial foundations for their old age, but it also means that inheritances for the next generation are coming later in life."
People’s attitudes towards their personal finances have also been shaken by Covid-19 and their priorities may have changed.
When it comes to asset distribution discussions, Tim Morris, financial adviser at Russell and Co Financial Advisers, has encountered conflict.
“For example, many clients will gift small amounts - in relation to overall wealth - initially. Many are reluctant to make outright gifts for larger amounts, often because of concerns about later life planning and care costs, not to mention tax implications,” Mr Morris adds.
Jessica List, pension technical manager at Curtis Banks, says she has seen tension arise in pension death benefit queries.
“While the current rules normally allow beneficiaries to inherit funds as a lump sum or keep them in a pension, this puts the beneficiary in complete control over how they use the funds,” Ms List adds.
“It’s not unusual for clients to request that their death benefits are paid to a trust instead: one of the key reasons we hear for clients considering this option is that they want to maintain greater control - via the trustees - over how those funds are used.”
Lucy Birtwistle, director, family office at Stonehage Fleming, says the level of conflict depends on how the asset distribution is conducted: “We encourage the families we work with to share their expectations and perspectives so that they have a collective understanding regarding the intergenerational transitions.
