The New American Dependents

Chronologically they’re adults. But in terms of personal finance, many of them are still children. Indeed, maybe historians will someday end up calling millions of Americas in their 20s and 30s today “the dependent generation.”

That’s because many Americans, from their 20s to their 50s, are hoping that their parents’ assets will provide their financial salvation, according to a new Merrill Edge survey.

Indeed, one in three Americans in the survey say their financial stability is now dependent on receiving an inheritance, the survey said.

“We’ve never seen such a strong reliance on receiving an inheritance,” said Aron Levine, head of Merrill Edge, a multi-channel money manager.

Across the Board Financial Problems

The biannual survey Merrill Edge report, which examines the concerns of affluent Americans, also found that the inheritance need was strongest across a range of adults from their 20s to their 60s, people who are not building their own assets and are still expecting parents to bail them out.

For instance, 20 percent of baby boomers, 36 percent of Generation Xers and 32 percent of millennials said they were depending on their parents’ inheritance. The wait for the inheritance to save us philosophy has even spread to the youngest generation, according to the survey.

It found that Generation Zers, those in their late adolescence and early 20s, were “the most likely” to depend on financial assistance from their parents.

“While it’s great to see investors thinking ahead, the key to financial freedom is outlining and following an action plan for short and long-term goals beyond an inheritance—which may or may not ever come,” according to Levine.

An Incredible Wealth Transfer Coming

Certainly, as the older generation dies, some help will come.

Over the next 30 to 40 years, some $30 trillion in financial and non-financial assets are expected to pass from the baby boomers to their heirs, according to the National Bureau for Economic Research.

However, Levine emphasized that most young people aren’t “naively” depending on inheritances to solve all their money problems. They are looking at them, he says, as one possible way to help with huge student loans at the same time they are trying to establish households.

“These people saying they’ve got some pretty tough challenges to face and that is one place that I am hoping that I might get some help along the way,” Levine says.

I hope he is right.

But as a member of the Baby Boomer generation I personally know of many people who make good money, have been successful in their professions and, incredibly, have saved almost nothing.

What Do Advisors Think?

A veteran advisor agrees with this maybe it will happen, maybe it won’t, philosophy of potential inheritance.

Ray Mignone, an advisor in New York City, says he constructs retirement plans with two options: One in which he projects an inheritance and the second in which he doesn’t.

But another advisor doesn’t agree with counting a potential inheritance.

“Unless it is in writing that someone will get money, I will not include it in a retirement plan,” says Charles Hughes, an advisor in Bay Shore, New York.

Mignone notes “the elderly often have tremendous assets and they tend to manage their assets conservatively, but often they live a lot longer than most people expect.”

And that, Hughes adds in a sentiment seconded by Mignone, “is just another reason why young people should work on developing their own assets.”

Prepare for the Worst

That is the point that should be emphasized in the Merrill Edge survey. How can any of us know what relatives may or may not leave us?

We can’t.

And possibly relatives might intend to leave us something but it will turn out that their fortunes will be greatly reduced. How? A crash might occur before they die.

Also, there is another factor: This generation, one adviser told me, is setting up more and more charitable trusts than ever before. Many young people today, on their parents’ death, may find out that they get a lot less than they expected or maybe nothing. Other parents have taken a different tack with their adult children expecting to inherit millions.

Some adults have been clear about this. They taught their children not to depend on getting a cent. However, they gave them something better than money.

The Tafts

William Howard Taft, president of the United States after Teddy Roosevelt at the beginning of the 20th century, was a wealthy man. Still, he told his son, Robert, not to expect anything. Robert Taft, who went on to become one of the great senators in U.S. history, built his own assets and never had to call on his parents for financial help.

Taft came from a rich family in Ohio. But he got something from his parents more important than money: the values of self-improvement along with a great education. Taft worked in a law firm and had considerable investments before devoting himself to service in the Senate and several unsuccessful presidential runs (This was a great tragedy. Taft was an opponent of the U.S. empire and, on his deathbed, was warning that the United States should not send troops to Vietnam. President Eisenhower listened. Presidents Johnson and Nixon did not. I’m not sure what President Kennedy would have done had he served his full term).

Robert Taft did very well because he had enlightened parents. It’s time for another generation to learn that lesson.