Study: Indiana Could Experience Major Transfer of Wealth

Wealth in Indiana Executive Summary Report

Background

Reflecting on a bit of history can help us understand the Indiana transfer of wealth (TOW) opportunity. The Dust Bowl hit in the 1920s and by the 1930s America was in economic depression. Times were hard and followed by the titanic struggle of World War II. World War II led to massive new spending, economic expansion and near full-employment eroding away the Great Depression and laying the foundation for prosperity.

The 50-year period following World War II witnessed some of the best economic times in American history. Americans bought homes, built businesses, purchased second homes, invested, acquired life insurance and procured assets of every nature in unprecedented amounts.

This history defines the starting point for Indiana’s transfer of wealth opportunity. The story does not end with current wealth holdings, but new wealth is and will be created, expanding this opportunity as we look to the future. This Executive Summary
highlights our findings from the Indiana Transfer of Wealth Project.

Summary Findings

Indiana has a somewhat lower current net worth (CNW) when compared to the United States on a per household basis. In 2005 CNW for the Indiana was $125,080 per household compared with the United States’ value of $144,112 (87% of the U.S. rate). This somewhat lower starting point impacts the likely TOW potential for Indiana over the study period. In 2005 we estimate Indiana’s CNW at $310 billion. Over time Indiana is projected to create new wealth (in real dollar terms) faster than historic wealth is dispersed. During the coming five decades (2005 through 2055) we estimate the transfer of wealth opportunity at $412 billion.

Think about the past 50 years in America and all the changes that have occurred. Contemplating, let alone modeling, what the next 50 years might look like is somewhat heroic. Focusing on the next decade we estimate that Indiana’s TOW opportunity is a remarkable $66 billion. If just five percent of this TOW opportunity were captured into community endowments across Indiana, over $3.3 billion in community endowments could be created. Assuming a conservative five percent annual payout rate, over $164 million annually would be available for community grant making.

Indiana Transfer of Wealth Scenario

Based on our final analysis, we estimate the following findings for Indiana’s transfer of wealth scenario:

--Current Net Worth in 2005 $310 Billion

--50 Year TOW Estimate $412 Billion

--10 Year TOW Estimate $66 Billion

--5% Capture Rate Opportunity $3.3 Billion

--5% Payout Rate Opportunity $164 Million

Findings illustrates our scenario of the timing of wealth transfer for Indiana compared to the United States. The U.S. TOW line is trending upward reflecting the ever growing U.S. population and economy. States like Colorado, California and Arizona have trend lines even steeper than the one for the U.S. Indiana’s
TOW line is positive but less steep than the U.S. TOW line. The reasons for this are many, but the primary factors shaping this trend are Indiana’s slower population growth rate and somewhat weaker economic performance. These factors can change over time through development opportunities. Again, this is only a scenario based on historical performance and reasoned assumptions about the future.

In 2005 we estimate Indiana’s CNW at $310 billion. Over time Indiana is projected to create new wealth (in real dollar terms) faster than historic wealth is dispersed. During the coming five decades (2005 through 2055) we estimate the transfer of wealth opportunity at $412 billion.Think about the past 50 years in America and all the changes that have occurred. Contemplating, let alone modeling, what the next 50 years might look like is somewhat heroic.

Focusing on the next decade we estimate that Indiana’s TOW opportunity is a remarkable $66 billion. If just five percent of this TOW opportunity were captured into community endowments across Indiana, over $3.3 billion in community endowments could be created. Assuming a conservative five percent annual payout rate, over $164 million annually would be available for community grant making.

--Demographically, Indiana has somewhat slower population growth and corresponding economic growth when compared to the United States. These realities contribute to somewhat lower TOW values. However, compared to many states, Indiana is somewhat richer (more current wealth).

--Within Indiana there is great diversity. There are areas where new wealth is being created rapidly (suburban communities, high amenity areas with second home development and economic growth regions). A counter point to these counties are other counties (some core city neighborhoods and more rural areas) where there may be population decline and economic erosion.

--Current net worth (CNW) is very important to understanding future TOW opportunities. CNW forms the foundation from which wealth accumulated over the past generation provides the starting point for future wealth formation. However, old wealth does not ensure future wealth creation. Deeper study of our analysis highlights counties that did well historically but are struggling today and vice versa.

--As one might expect, TOW opportunities are the greatest in the larger and more urban counties (i.e., Marion, Lake, Allen, Hamilton and Hendricks). Smaller and more rural counties tend to have lower TOW opportunities. However, even among the smallest and poorest Indiana counties, the opportunity to build local endowments is real and significant.

--Fifty years is a long time. It is hard for most of us to imagine what our world will look like in 2055. But as we look to the next ten years our eyes focus and we have a better sense of what might come. We also do a 10-year TOW analysis because of this reality. Some counties, even some of the poorest and most economically distressed, have a large 10-year TOW opportunity. Counties with aging populations will find the transfer of wealth happens sooner and more quickly. This is a call to action before the opportunity decreases over time.

--For this information to be useful, we think it is important to dream a bit. We use the arbitrary goal of capturing just five percent of the 10-year TOW opportunity to enable us to dream. For Indiana, if just five percent of the likely 10-year TOW opportunity were captured into endowments, a $3.3 billion endowment could be created. With just a five percent payout rate, approximately $164 million would be available to support betterment opportunities and critical needs each and every year!

--In our Technical Report (available from the Indiana Grantmakers Alliance), we also provide comparison information through “per household” values. This information can be helpful to you and your community to better understand the nature and extent of your TOW opportunity relative to Indiana and other counties.

No research report exists that can tell us exactly what the transfer of wealth opportunity is or will be for Indiana.
We are looking into the future and making reasonable assumptions about what will happen. Thinking about the last 50 years, chances are our world will change dramatically in the next 50. But our team at the Community Assistance Initiative, in partnership with the Indiana Grantmakers Alliance, have created scenarios
of what this opportunity might look like. We start with estimates of current net worth or present wealth holdings. We then look at key indicators of future wealth formation such as population growth, economic performance, saving and investment behavior along with several dozen other considerations to create this picture of the future. TOW can be a powerful tool for helping donors, foundations, organizations and communities better understand how community endowment building can provide important financial resources for building a brighter future.

About Indiana Grantmakers Alliance and Indiana Community Foundations

Indiana Grantmakers Alliance is a membership organization of grantmaking staff and Board members, dedicated to advancing philanthropy in Indiana by promoting legal, ethical, effective and efficient grantmaking. As part of the Alliance, the GIFT program (Giving Indiana Funds for Tomorrow) provides technical assistance to the statewide network of community foundations. Community foundations administer and serve more than $1 billion in charitable funds, helping Indiana residents make good things happen in their communities. For more information, go to www.indianagrantmakers.org.

Source: Indiana Grantmakers Alliance and Indiana Community Foundations

Community Foundation of Southern Indiana Press Release

A new study projects $412 billion will be transferred among Indiana generations by 2055, with $66 billion changing hands by 2015.

Commissioned by the Indiana Grantmakers Alliance, the study includes county-by-county projections showing the transfer of wealth from one generation to the next. The Indiana Grantmakers Alliance calls this a historic opportunity for charitable investments. Community leaders hope the results will inspire people at all income levels to consider making a charitable investment to enhance the quality of life and strengthen communities.

Projections for Clark, Floyd and Harrison counties, which are all served by the Community Foundation of Southern Indiana, are as follows:

Clark County: The net worth of the county was valued at $4.86 billion in 2005. During the coming decade, the transfer of wealth is estimated at $1.01 billion. If just 5 percent of that wealth transferred from one generation to the next could be placed in an endowment, nearly $50.5 million would be in that endowment. The money in the endowment would be invested, and if only 5 percent of it would be spent each year as it earns interest, an estimated $2.53 million would be available annually for grants to benefit local communities. Those opportunities will extend beyond the next 10 years, though, as $5.54 billion is expected to pass from one generation to the next in Clark County.

Floyd County: The net worth of Floyd County was valued at $3.67 billion in 2005. During the coming decade, the transfer of wealth from one generation to the next is estimated at $780 million. If just 5 percent of that wealth transferred from one generation to the next could be placed in an endowment, nearly $39 million would be in that endowment. The money in the endowment would be invested, and if only 5 percent of it would be spent each year as it earns interest, an estimated $1.95 million would be available annually for grants to benefit local communities. Those opportunities will extend beyond the next 10 years, though, as $3.9 billion is expected to pass from one generation to the next in Floyd County.

Harrison County: The net worth of Harrison County was valued at $1.01 billion in 2005. During the coming decade, the transfer of wealth is $380 million. If just 5 percent of that wealth transferred from one generation to the next could be placed in an endowment, nearly $19 million would be in that endowment. The money in the endowment would be invested, and if only 5 percent of it would be spent each year as it earns interest, an estimated $950,000 would be available annually for grants to benefit local communities. Those opportunities will extend beyond the next 10 years, though, as $2.18 billion is expected to pass from one generation to the next in Harrison County.

Building a Stronger Community

“This study will start conversations and make people think about what is most important to them here in Clark, Floyd and Harrison counties. We hope they’ll consider making a charitable investment through the Community Foundation of Southern Indiana to enhance the quality of life and encourage sustainability,” said Laura Hansen Dean, president and CEO of the Community Foundation of Southern Indiana.

The study follows the work of Boston College researchers who reported that the United States was at the beginning of a $41 trillion transfer of wealth from one generation to the next (Havens & Schervish; Boston College, 1999). The Center for Rural Entrepreneurship in Lincoln, Neb., conducted the Indiana study and has conducted similar research in Nebraska, South Dakota and Wisconsin.

Battling ‘Brain Drain’

Like Indiana, those states face swiftly changing demographics, an aging population and the loss of young people to metropolitan areas and the coasts. Indiana is currently battling ‘brain drain’ – the loss of college graduates to other Midwestern states and beyond – and a changing business climate that has seen corporate headquarters move outside the state. These are among the top concerns residents have about quality of life.

“This is an opportunity to think about charitable giving in a new way,” Dean said. “This is about charitable investments that will help our community survive and thrive.”

About Indiana Grantmakers Alliance

Indiana Grantmakers Alliance is a membership organization of grantmaking staff and Board members, dedicated to advancing philanthropy in Indiana by promoting legal, ethical, effective and efficient grantmaking. As part of the Alliance, the GIFT program (Giving Indiana Funds for Tomorrow) provides technical assistance to the statewide network of community foundations. For more information, go to www.indianagrantmakers.org. For access to the complete Transfer of Wealth report, contact the Community Foundation at (812) 948-4662 or (888) 388-2374 www.cfsouthernindiana.com.

Source: Community Foundation of Southern Indiana.