Australians remain stingy in the face of a $5.4 trillion inheritance boom

We Australians like to think of ourselves as generous but also as a nation of battlers, even though the reality in both cases is very different.

On the generosity scale we are actually well down the list, with a recent NAB owned JBWere Bequest Report finding that we are a very long way behind nations including the UK and the United States.

And on the battler scale, we are actually quite a wealthy country with that wealth spread more evenly across society than many other countries, despite remaining inequalities.

Massive boom in inheritance coming

Given that the Baby Boomer population bubble is set to pass on an extraordinary $5.4 trillion in wealth over the next 20 years, it is hard to justify why we are so stingy in giving to charity even after we have died.

There are probably some cultural and historical reasons for the relative scarcity of charitable bequests and also some different inheritance and estate taxation rules in other countries that might favour more charitable giving but even then, Australians are remarkably stingy with just under 1% or $1.3 billion of this year’s estimated inheritance pie of $150 billion going to charities.

US and UK easily outperform us

In the UK, the rate is a much higher 2.7% at $7.6 billion while in the US it is an amazing 4.4% or $69 billion.

It is an important issue because Australia’s population growth is slowing and the number of annual deaths is expected to rise from around 180,000 now to more than 330,000 within 40 years.

Australia also remains near the top globally for average household wealth.

NAB executive for private wealth, Mr Michael Saadie, said that given Australia’s strong economic situation, we really should consider improving our support for charities.

“Australia is a fortunate country with a strong economy, wealth, and a relatively small population. However, our giving to charitable organisations through bequests significantly lags many other wealthy nations,” Mr Saadie commented about the report.

“We hope this report helps support a shift in consideration of the impact bequests can have in helping support worthwhile causes and create lasting legacies through charitable and for-purpose organisations.”

Where does the money go?

So, if inheritances are not going to charity, where do they go?

Over the next 20 years, the expectation is that 38% will go to the partner if still in a couple at time of death, or to the next generation (who are likely to be nearing 60 years of age) if single.

A further 10% is expected to go to wider friends and family.

It is not just in the amounts going to charity that Australians are stingy but also in the percentage of the population that is expected to make a charitable bequest.

Just 6.5% of the population are expected to make a contribution compared to 10% in the US and 13.7% in the UK.

At the moment, the report found that bequests mainly go to health and medical research, animal protection, welfare, and international aid.

“If we grew the current charitable bequest rate, it would transform both the for-purpose sector while benefitting Australian society more broadly, while still providing generously for our families,” Mr Saadie said.

Untied gifts outperform other fund-raising

It is interesting to note that bequests are one of the most important ways that charities are supported, making up around 20 of the largest 50 annual philanthropic gifts in Australia.

They are mostly unrestricted in their use and have a return on investment around six times the average for all fundraising, making them a really valuable source of income by a large margin.

So how can we become less stingy and give more to charity while still looking after our own family members?

Removing barriers could boost bequests

The report recommends removing a few barriers, such as allowing charities to be nominated as beneficiaries of superannuation savings and providing ‘living bequests’, which would offer a small tax incentive in return for a larger binding request in future.

It is easy to see what a massive difference could be made, with the JBWere report showing that if the rate and value of charitable bequests rose to just 3%, this would see $8 billion donated annually by the end of the decade.

That is a massive increase on the current $1.3 billion and would transform the amount of worthwhile work charities could achieve.