Australia's Looming Intergenerational Wealth Transfer
Over the next two decades, approximately $5.4 trillion is projected to be transferred in Australia, moving from the baby boomer generation to their beneficiaries. This substantial wealth transfer, primarily from housing, superannuation, bank accounts, and investments, is identified by economists as one of the country's most significant challenges in the coming decades.
Concerns include potential threats to social mobility, economic equality, and faith in the "fair go" principle.
Unequal Distribution and Rising Concentration
Guy Debelle, a former deputy governor of the Reserve Bank of Australia, emphasized the importance of parental property ownership in this transfer, noting that those whose parents rent are less likely to benefit. Australia holds the second-highest median wealth globally, with nearly 2 million millionaires, and over half of personal wealth is tied to property.
Intergenerational wealth transfers occur through inheritances and "inter vivo gifts" (support from living parents or grandparents). Dr. Melek Cigdem-Bayram, an applied economist at the University of Melbourne, reported that the percentage of Australians receiving inter vivo gifts increased from 5% in 2002 (average $6,500) to 7% in 2022 (average $10,300). These gifts are becoming more unequal, with the top quarter averaging over $40,000.
Inheritances are expected to drive a significant shift. While some use them to pay off existing homes, others leverage them for investments and further wealth accumulation, potentially exacerbating wealth inequality. Inheritances often increase the likelihood of home ownership, even if received later in life (ages 50-60).
Impact on Younger Generations and Social Mobility
Dr. Ken Henry, a former head of the federal Treasury, noted that wealth has become increasingly concentrated, with those at the top accumulating most of the national wealth increase in the 21st century. This unevenness is particularly evident among younger people. A 2024 study by UNSW and the Australian Council of Social Service found that the top 10% of under-35-year-old households possess almost half the wealth of that age group, a higher concentration than any other bracket. Bruce Bradbury, an associate professor at UNSW, highlighted this growing disparity within younger generations.
The Productivity Commission, in September 2024, found Australia to be highly mobile in terms of income but observed strong wealth persistence across generations, particularly among the wealthiest 10%. Direct wealth transfers, including "bank of mum and dad" support for property, contribute significantly to this persistence.
Commission chair Danielle Wood indicated that future wealth persistence is likely to become more pronounced.
Dr. Cigdem-Bayram's research suggests a "hollowing out" of the middle class, which is becoming increasingly reliant on parental support for home ownership. This trend challenges the long-held Australian belief that hard work alone ensures home ownership and a good life, limiting social mobility for those starting with lower wealth.
Societal and Democratic Implications
Prof. Peter Siminski, an applied microeconomist at the University of Technology Sydney, stated that growing inequality is linked to declining social cohesion, reduced trust, and increased concentration of political influence among the wealthy. While Australia remains relatively equal compared to many nations, the current trajectory is concerning. Siminski warned that larger inheritances compromise equality of opportunity.
Ken Henry commented that the intergenerational wealth transfer would test Australia's "social compact" and belief in a "fair go." He suggested that individuals not benefiting from these transfers might become disaffected, losing faith in government and democratic systems. Henry referred to historical examples in other parts of the world where such disaffection has led to leaders with autocratic tendencies.
An example illustrates the challenge: a house that sold for $190,000 in 1997 was valued at nearly $1.5 million in 2016. Today, it would likely be unaffordable for highly educated, professional first-home buyers without external financial assistance.