Inheritances v Cost of capital v #Children/woman

cells

I dont see or understand what the counterviews are can those who hold them give it another go

The UK has ~£8.8 trillion in wealth and ~£200 billion of this is pass down annually. The arguments of this wealth being imaginary is BS sure the value can change but its not imaginary and instead of assuming the value is going to fall away towards nothing you can also assume its value is going to go up (as it has been for a number of years now)

People have incomes but they also receive a share of this £200 billion annually. Property is purchased using this £200 billion so looking at a silly 'the average income should be able to buy the average home' wont work as someone who earns less than you but lands a £1m inheritance is going to outbid you


overall this thread was more about the demographic change the country and world is going through. With women having ~1.5 children we are entering an age where each generation will be left with more than the previous rather than the old days when a woman had 6 children and each got not much at all. therefore the need to save goes down and rates fall towards zero and in time negative. There is some evidence to this idea, japan got below 2 kids / woman before the USA/EU and it went to zero rates before the USA/EU. 20 years later it happened in the USA/EU and 20 years later we look more like Japan bond markets and inflation rates

System

I do agree with half of your post relating to births and bonds. You cannot always assume wealth will always go up forever - being realistic. A certain percentage of the wealth will be imaginary based on current valuations of assets and demographics tho.

cells

mrlegend123 wrote: »

I do agree with half of your post relating to births and bonds. You cannot always assume wealth will always go up forever - being realistic. A certain percentage of the wealth will be imaginary based on current valuations of assets and demographics tho.

it is not imaginary that is stupid
its value can go up or down, that does not make it imaginary. and as I say it can go UP


If people moved on and accepted the dam simple concept of <2 children per women = concentration. >2 children per woman = dilution (come on how/why dont people get that?) we could move onto the next step of the debate which is more interesting.

With 1.5 children per women and with concentration of this huge amount of wealth what happens to asset prices eg homes? well they will go down, like in germany (or stoke on trent) homes will become 'worthless'. SO even those who do not expect or will not get inheritances or gifts they and their children and childrens-children will get a lot of the benefit in very low cost capital(housing). As I keep saying already germany is at this point, their very low birthrate means concentration is happening very quickly and asset prices are becoming 'worthless'. A german can buy an apartment for 40,000 euro (About 1 years full time male wages) or rent it for very cheap. If the birth rate continues at 1.3 children per women most of germany is heading for worthless. they have of course imported a million or two 'virtual children' via the mass migration so maybe things will pause for a handful of years but the direction is clear.

Once people accept that point of view there is yet another interesting link. If capital prices are/will crash due to this low birth rate and if you have savings it needs to be in something. If its in property going down in value, you run out of property, if its in germany companies trying to service a falling population you will start fleeing them too, what is left? if capital values are falling you flee to bonds and drive the price to zero. Once/if this demographic decline really kicks in you might find that capital value falls on all the asset classes are so bad (eg imagine 3% a year) that you are happy to take 1% a year loss on your government bonds.


So countries go from a high real rate which is sustainable when women have lots of kids to a low real rate (or even negative) world when women start going to well below 2 children per woman.

well thats my theory. it would be good to discuss it rather than throw dumb ideas of side street to discuss is £8.8 trillion is real or just a figment of crashcheerleaders imaginations

N1AK

cells wrote: »

The poor young hard up generation who cant afford homes have £8.8 trillion heading their way.

There's a certain logic to your position although like many things numbers in aggregate can be misleading. In principle lower birth rates means inheritance is condensed; however that relies on no other factor being more influential (which in my opinion is unlikely).

The biggest single flaw is likely to be the distribution of wealth. With home ownership, late-term care etc falling I have my doubts that the proportion of people receiving a notable inheritance is not growing much if at all.

We've also seen a growing gap in birth rates between high-income and low-income families. This again means that children from low-income backgrounds will be sharing little amongst comparatively many, while inheritance passed down in wealthy families becomes more concentrated.

cells

N1AK wrote: »

There's a certain logic to your position although like many things numbers in aggregate can be misleading. In principle lower birth rates means inheritance is condensed; however that relies on no other factor being more influential (which in my opinion is unlikely).The biggest single flaw is likely to be the distribution of wealth. With home ownership, late-term care etc falling I have my doubts that the proportion of people receiving a notable inheritance is not growing much if at all.

but the savings rate is still positive so its not the case that the old are spending it on care homes rather than passing it down they actually appear to be saving more to pass down more. Distribution is wide think of it this way some 60% own homes and most of that will be outright on death so 60% of households will likely leave significant sums.

N1AK wrote: »

We've also seen a growing gap in birth rates between high-income and low-income families. This again means that children from low-income backgrounds will be sharing little amongst comparatively many, while inheritance passed down in wealthy families becomes more concentrated.

I dont think that is the case as rich people often mary not so rich people and the inheritance gets spread thin even at 2 children per woman. Think of the MP Goldsmith he has a £300m fortune, but that is down from £1.2 billion his father left his children. Goldsmith has 4 children so if he left his £300m evenly to them they would each land £75m. So in two generations a £1.2 billion fortune spreads down to £75million.

N1AK

cells wrote: »

but the savings rate is still positive so its not the case that the old are spending it on care homes rather than passing it down they actually appear to be saving more to pass down more. Distribution is wide think of it this way some 60% own homes and most of that will be outright on death so 60% of households will likely leave significant sums.

I dont think that is the case as rich people often mary not so rich people and the inheritance gets spread thin even at 2 children per woman. Think of the MP Goldsmith he has a £300m fortune, but that is down from £1.2 billion his father left his children. Goldsmith has 4 children so if he left his £300m evenly to them they would each land £75m. So in two generations a £1.2 billion fortune spreads down to £75million.

The figures you quote really don't counter my position that most people receive a very limited amount of inheritance. I'm struggling to find decent statistics to give a distribution, however the ONS published data in 2010 showing that 50% of inheritances were <£10k, and around 40% were £2k or less. It also demonstrated that factors related to already being wealthy (owning a property, being a manager, already being in the top 20% for wealth) increased the amount and likelihood of inheritance, and that factors related to being relatively poor (lower education, lower level job) made you less likely to inherit and to inherit less if you did.

Rich people occasionally marry not so rich, but it's rare enough that it's notable. Goldsmith is married to the son of John Bentley after all, hardly a modern day Eliza Doolittle... Even when they 'marry down' it'll be a someone from a dynasty marrying someone from a mere upper-middle class family.

If you can use him as an example to prove that the rich have plenty of kids then he's at least as much proof that money marries money. I would take the view that using one person as the basis for either position is ridiculous.

cells

N1AK wrote: »

The figures you quote really don't counter my position that most people receive a very limited amount of inheritance. I'm struggling to find decent statistics to give a distribution, however the ONS published data in 2010 showing that 50% of inheritances were <£10k, and around 40% were £2k or less. It also demonstrated that factors related to already being wealthy (owning a property, being a manager, already being in the top 20% for wealth) increased the amount and likelihood of inheritance, and that factors related to being relatively poor (lower education, lower level job) made you less likely to inherit and to inherit less if you did.

Rich people occasionally marry not so rich, but it's rare enough that it's notable. Goldsmith is married to the son of John Bentley after all, hardly a modern day Eliza Doolittle... Even when they 'marry down' it'll be a someone from a dynasty marrying someone from a mere upper-middle class family.

If you can use him as an example to prove that the rich have plenty of kids then he's at least as much proof that money marries money. I would take the view that using one person as the basis for either position is ridiculous.

I posted a link to an excel file which broke down the figures. Eg home many inheritences are left for each band.

You are greatly under estimation the scale and scope of gifted and inherited wealth. The largest stock of wealth is homes and that is spread wide with something like 65% of households owning their own homes. If we take 65% of 28 million homes x £200k a home that is £3.6 trillion in wealth right there and spread very widely. Pensions are also widely held and of course so are cash savings.

The inheritance data shows about £72 billion transfered each year. That is significant and it is spread to many many people its not one rich person leaving £72b to one person. If anything the very rich will pay no IHT as they will gift or otherwise get around leaving a lot via inheritances as it's very highly taxed.

Sapphire

cells wrote: »

The poor young hard up generation who cant afford homes have £8.8 trillion heading their way.

Eh? Many of the parents of such people don't have anything their offspring can inherit.

Curious somewhat irrelevant fact to this discussion: I know of at least two people whose parents are affluent in terms of property they own (inheritance in one case and luck in the other). The offspring are nice people, but they live at home, don't make much effort to work, have little drive except to 'enjoy life', and regard the properties as 'theirs'.

I know of one other person who lives a luxury lifestyle, with property here and in France. She is now unable to earn the massive earnings she used to do due to ill-health and changes in her profession, and has no pension or any other assets (spend today was always her way). Her parents gave her hundreds of thousands of pounds during her life (they worked incredibly hard in senior academic professions in Australia, Africa and other places). They saved hard and had pensions. Now the daughter is virtually demanding money from her mother, displaying resentment and causing tantrums and hysteria, when she must be aware that her mother should not give her any more money and needs it for herself (especially after working so hard during her life). The daughter doesn't want to downsize (says she has always worked hard in her life and doesn't see why she should change her lifestyle!). Her husband doesn't work but 'looks after' the properties, having had problems with employers because of his bolshy attitude. I have had strong words with her…

Perhaps it is better for society if people do not rely on an inheritance, but stand on their own two feet and have some sense of responsibility for their own lives, as they used to do. There are still people who work hard and don't think about inheritances, planning for their own futures, perhaps because they are not expecting to inherit, but there is definitely a proportion of people who do think as the above…

cells

Sapphire wrote: »

Eh? Many of the parents of such people don't have anything their offspring can inherit.

Curious somewhat irrelevant fact to this discussion: I know of at least two people whose parents are affluent in terms of property they own (inheritance in one case and luck in the other). The offspring are nice people, but they live at home, don't make much effort to work, have little drive except to 'enjoy life', and regard the properties as 'theirs'.

I know of one other person who lives a luxury lifestyle, with property here and in France. She is now unable to earn the massive earnings she used to do due to ill-health and changes in her profession, and has no pension or any other assets (spend today was always her way). Her parents gave her hundreds of thousands of pounds during her life (they worked incredibly hard in senior academic professions in Australia, Africa and other places). They saved hard and had pensions. Now the daughter is virtually demanding money from her mother, displaying resentment and causing tantrums and hysteria, when she must be aware that her mother should not give her any more money and needs it for herself (especially after working so hard during her life). The daughter doesn't want to downsize (says she has always worked hard in her life and doesn't see why she should change her lifestyle!). Her husband doesn't work but 'looks after' the properties, having had problems with employers because of his bolshy attitude. I have had strong words with her…

Perhaps it is better for society if people do not rely on an inheritance, but stand on their own two feet and have some sense of responsibility for their own lives, as they used to do. There are still people who work hard and don't think about inheritances, planning for their own futures, perhaps because they are not expecting to inherit, but there is definitely a proportion of people who do think as the above…

I'm not making a judgement to the pros or cons of inheritances. I am just pointing out that the scale and scope is massive more so than I had realised. When talking or thinking about economic issues its something that will probably impact many topics eg the housing market

BobQ

cells wrote: »

Typing out loud....

Theory: As each generation in the UK now receives in the region of £8.8 trillion* (my guess was £6 trillion) in gifted/inherited capital and now that women only typically have 1.8 children we have entered an age where youngsters don't need to save not with £8.8 trillion heading their way. The economy is responding by pushing real rates down to zero or even negative.


Factors to consider:

When children per women was over 2 it meant the wealth passed down generations would be shared requiring the next generation to save to fill the difference. With children per women below 2 its the opposite each generation gets more than the last.

In developed countries children per woman has been below 2 for some time (since about the mid 1970s) however this was offset by increasing life expectancy which explains somewhat why we did not go to lower rates sooner

With womens increasing age of first child, decreasing number of children and a much more slowly increasing life expectancy all colliding together we have seen a huge swing towards not needing to save



*https://www.theguardian.com/business/2016/aug/18/ons-data-shows-uk-wealth-wedded-to-property

A great demonstration of why averages are not a reflection of reality.