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Distributions and Investment Risk for Future Generations

Distributions and Investment Risk for Future Generations

A fascinating research article discusses public debt and intergenerational burden shifting. Using laboratory experiments, it seeks to understand how voters make choices about the way public debt should be accumulated in the presence of multiple and/or overlapping generations.

The study finds that in the presence of future generations, voters are comfortable with the government loading up with debt in the knowledge that this debt burden will have to be satisfied by future generations. But without considering future generations, voters are far more conservative about how much debt the government should take on.

Now, while the study is in the context of people voting about how much debt government should take on, how much it should spend on services, and who will eventually repay it, the principles and attitudes are relevant to multi-generational family wealth.

In a family, decisions must be made to balance present day distributions and investment risk profile (which may include debt) with the needs of future generations. Of course this is a function of the size of the family wealth and the anticipated future needs of generations to come. It is also a function of the historic attitudes to risk (particularly those of the wealth originator).

Consider This: To what extent does your family consider its investment risk profile and gearing levels with a view on the burden that may be transmitted to future generations? Are those next generations part of the discussion?

Original article:

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