Investing

A Third of Americans Blow Through Their Inheritance

What do Americans do with an inheritance? Most people spend at least half of it. Nearly a third spend all of it. And it all adds up to real money.

In 2012 a researcher at Ohio State University found that Americans who receive an inheritance save about half of what they get and spend, donate, or manage to lose the rest. Researcher Jay Zagorsky noted that over by 2022 older Americans are expected to transfer about $4 trillion in wealth to their heirs. That means that about $2 trillion will be sloshing around in the economy.

Or maybe even more, according to more recent research by Zagorsky. Some 30% of Americans who receive an inheritance had negative savings within two years of receiving the inheritance. That means they spent or lost all of it.

That may not be as bad as it sounds. Zagorsky’s 2012 research is based on the National Longitudinal Survey of Youth 1979 that has interviewed some 7,500 baby boomers in their 20s, 30s, and 40s a total of 23 times since 1979. The median inheritance was $11,340, not exactly a king’s ransom.

According to the 2012 study, about 20% of families receive an inheritance and another 14% or so expect to inherit something. That’s a relatively concentrated group of Americans.

The research found that of people who received $1,000 or less, more than 40% spent all the money. For those who inherited $100,000 or more, the percentage who spent it all dropped to 18.7%.

The similarities between winning a big lottery prize and blowing through an inheritance are striking. Lottery winners saved just 16 cents of every dollar won and bankruptcy rates soared for winners in just 3 to 5 years after winning. If you think about an inheritance as if it were a lottery prize, we’ve already got you covered.

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