“Millennials are going to be very rich when they retire.” The conclusion is from the Afi researcher, Daniel Manzanoand his team, who this Wednesday published the report ‘Demography, housing and wealth gaps’. Manzano himself admits that, without further context and in the midst of the housing access crisis, it is a “provocative” statement. But these economists have made a projection of the transmission of wealth (mainly through inheritances of apartments and houses) that ‘boomer’ parents are going to make to their ‘millennial’ children that demonstrates it.
Of course, the same Afi study warns that the ‘great succession’ that is to come in the coming decades will concentrate wealth even more than it already does in the highest incomes. That is, inequality is going to increase.
The data from the study (which is based on the main statistics of the Bank of Spain and the INE) say the following. First of all, we must take into account that they present two scenarios, as can be seen in the first graph of this information. One in which wealth (almost 80% is housing in Spain) is not revalued. Another in which it does so by 20% every two decades. “Focusing on the first assumption, the demographic factor is clearly favorable to the next two generations [entre 45 y 65 años, según el ejercicio]whose much smaller relative size compared to the ‘boomer’ generation [más de 65 años] It will make them beneficiaries of a greater average transmission per person,” Afi experts calculate.
“Specifically, and under this assumption of no future revaluation, the millennial generation would aspire to an average transmission of 250,000 euros per person between 2042 and 2062, 41% higher than the case in the boomer generation. This increase is fundamentally due to the spectacular reduction in the number of donees compared to donors, from 1.51 in 2022 to 1.07 in 2042. The demographic equalization of the cohorts in 2062 stabilizes the growth of this hypothetical average inheritance in around 9% (272,000 euros) for the next generation,” explains the study.
Bearing in mind that these are aggregate figures, which do not show inequality, the ‘great succession’ will make people even richer if we work with the second assumption of revaluation of wealth.
Rising inequality
Now, beyond the aggregate calculations, there is a starting point in which wealth is concentrated in the highest layers of society. According to the latest Household Financial Survey (EFF) from the Bank of Spain, the true gap continues to be the same as always: the one that was accentuated after the burst of the real estate bubble and with austerity policies. The richest 10% of families hold just over half of the total wealth in Spain. A proportion that has only fallen slightly in the 2022 wave (the last one carried out), from the previous one in 2020.
In fact, the richest 1% of families in our country held 19.4% of the total wealth in 2022, just 2.5 points less than the maximum in 2020, when they had 22.9%.
From this initial gap, Afi’s study shows that the ‘great succession’ or inheritances will be much “quantitatively more important in the sections of high wealth, which could amplify the inequality in the distribution of intragenerational wealth [dentro de la misma generación]”.
Afi economists use evidence. In 2008, between 35% and 63% of households over 65 years of age in the richest quintile in our country had received inheritances. In 2022, this range will rise to between 70% and 77%. “A trend that will continue to advance,” they estimate.
“Another factor that could influence the future distribution of wealth, and undoubtedly in the sense of greater inequality, is the growing weight of the foreign population (especially those from countries with lower income than ours, which is the majority) in virtually all age cohorts,” the report continues.
“There are two ways in which the growing presence of the foreign population will skew the distribution of wealth towards greater inequality: on the one hand, because their relative position in the distribution of income and wealth is usually at the bottom and , on the other hand, due to the low percentage of them who receive significant inheritances or intergenerational transfers,” Afi concludes.
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