A little wealth, but no income

The war in Ukraine and its destruction remind us that everyone can have a little heritage without necessarily being rich. In the past, those who had a little capital also had income. It was the class of pensioners. They did not have a good reputation: they were considered idle, playful, debauched and useless.

Today, a new social class appears. These are those who have family assets that they will inherit, but from which they do not derive immediate wealth or financial income. The advantage of having this capital exists, however, but it manifests itself in another way.

The “classic” rentier was the consequence of the industrial revolution of the 19th century. He made the heyday of, among other places, Paris, cafés and absinthe consumption. This good time did not last long. The First World War and the crash of 1929 eradicated this social class.

But since the Second World War, little by little in Europe and the United States, a heritage has been reconstituted in families. Today, the generations following the baby boomers are born into a family that has more and more accumulated capital, which completely changes their approach to life.

Thus, in France, in 1970, inheritance represented only 35% of global wealth. Today it is over 65%. Each year, the equivalent of 15% of GDP is transmitted. In the United States, according to the firm Cerulli Associates, the millennial generation will receive in the next twenty years more than 22,000 million dollars of wealth from their parents.

Priority to real estate

This family heritage, which traditionally was limited to the wealthy classes, is increasingly appearing in the middle class. There is, however, a difference. The wealthy classes can afford to invest in the stock market, in the arts or in leisure. The middle class prefers real estate. Buying an apartment or a house for the family is a priority.

But real estate does not transmit income like a financial investment. This means that the new heirs of this middle class are capitalists without financial rent. One day, they will touch their heritage. Until then, the financial impact is non-existent. They are a bit like those land-rich, income-poor farmers.

On the other hand, they benefit from other advantages. Having assets “on hold” is a significant safety net against the vagaries of life. The proportion of children who leave their families late continues to increase. In Italy, more than 30% of children aged 30 still live under the family roof. Others leave and return soon after. It’s the boomerang generation.

Freedom of mind and time

The existence of assets on hold allows great flexibility in the choice of work. Many students today turn down very financially attractive jobs simply because they don’t like the company. Having capital in reserve in the family allows you to be more demanding about your work options and to wait for the right opportunity.

Some, more enterprising, use family capital as collateral to launch their own businesses. We cannot emphasize enough the importance of family capital in the financing of start-ups. Before going to borrow from the bank, we prefer to do so with our parents or cousins.

For others, it allows them to engage in a worthy cause. The collaborators of many humanitarian or societal organizations are often the children of people who are not well off. It’s easier when there’s money at home. This makes it possible to go to demonstrate in town at midday when others are at the office and working for their retirement.

Triple taxation

Yet our society continues to dislike people with a little heritage. There is always the impression that it is illegal. Taxation reinforces this feeling. Wealth is taxed three times: as income tax, as inheritance tax when inherited, and finally as negative interest when saved. Hard to do worse…

The greatest advantage of a family patrimony, even without financial annuity, is to give a certain freedom of spirit and especially time. From Aristotle to Wittgenstein, via Schopenhauer, all the great philosophers have emphasized that the supreme freedom was to have time, for oneself, to write, to think or simply to live. Having assets allows it.

Not having to work to build retirement capital is a luxury that previous generations could not afford. Often one lost one’s life to earn it. Today, for a whole generation, that is changing. You have to know how to appreciate it; as long as it does not lead to being irresponsible or unnecessary.

The previous column: Globalization: a strategy that has become too risky?

Leave a Comment