For high-net-worth investors in America, planning is key to confidence in financial goals

Sep 12, 2019 | The Economist Intelligence Unit


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Ensuring long-term financial well-being in the face of economic uncertainty.

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The relationship between a person’s confidence in achieving their financial goals and their wealth is far from linear. Saving enough for a retirement that may stretch for 30-40 years and financing college tuition for children while having a sufficient amount leftover to pass on a meaningful inheritance can be challenging and require careful planning.

Saving for the future

With 6.6 million high-net-worth individuals (HNWIs), the U.S. has more wealthy individuals than Canada, the UK, mainland China, Hong Kong and Singapore combined. The U.S. also ranks first globally in its ability to generate wealth, according to the EIU 2019 Wealth Opportunity Index.1

Despite a strong environment for wealth creation in the U.S., when asked about their most important financial goals, investors cited protecting their wealth ahead of increasing their wealth (see Figure 1). In fact, nearly two-thirds (64 percent) of Americans at the highest wealth levels (US$5MM+ in investable assets) report being concerned about how they will ensure their long-term financial well-being—a similar share as among HNWCs (adult children of HNWIs) and those who earn high incomes but are not rich yet (HENRYs). When it comes to overcoming this challenge, “doing thoughtful long-term planning is the start,” argues John Fullerton, founder and president of Capital Institute.2

These are among the findings of a recent global survey by The Economist Intelligence Unit (EIU), commissioned by RBC Wealth Management. The survey included HNWIs (those with at least US$1MM in investable assets), HNWCs and HENRYs who have a minimum income of US$100,000.3

According to Fullerton, the issues U.S. investors face in achieving financial protection and security lies in the construction of the U.S. economy. “We’ve created an economic system that basically has monetized and commoditized all of our needs…The amount of money needed to do that…has gotten higher.” For example, “to think about how much money you need to retire and not be a burden on your kids (such as affording healthcare and long-term care needs) can be a worry,” he says.

Notably, 34 percent of U.S. HNWIs cite saving for retirement as a top goal, with 26 percent also listing preserving their wealth for their children. Furthermore, a higher proportion of HNWIs at the US$5MM+ wealth level cite health/healthcare expenses as an obstacle to achieving financial goals than their equivalents in Canada and the UK.4

FIGURE 1: Aiming high
Which of the following are your most important financial goals? (U.S. HNWIs, percentage of respondents selecting each option)

Saving for retirement is also on the minds of HENRYs (59 percent), despite this group only being 21-38 years old and likely decades away from that stage of life. Here too, these younger workers are not necessarily overstretching themselves financially, as only 15 percent say credit reliance is getting in the way of their financial goals.

Instead, some of their most common obstacles are those they seemingly lack control over and which relate to future financial challenges, including the rising cost of living (49 percent) and having to take care of family (26 percent). Similarly, the rising cost of education5 is a growing area of focus (the average cost of attendance for an Ivy League school in 2019 was more than US$73,0006), with both HENRYs and HNWCs listing “saving for my children’s education” as being among their top five financial goals7. Those who find themselves in the sandwich generation—with both children and parents to take care of at the same time—can face all these challenges at once, which can make it particularly difficult to feel financially reassured.

Commenting on this trend, Barbara Stewart, a global researcher on women, youth and finance, says, “younger people simply want smart advice on financial planning.” In particular, she notes that Millennials “want and expect value.”

A financial plan to prepare for the future

This task is made more urgent for younger Americans by their lack of confidence in their own financial planning—among survey respondents, a lack of financial planning/experience is cited as an obstacle by three times as many HNWC (21 percent) and HENRYs (20 percent) than HNWIs (seven percent). However, the problem is more far-reaching than only for younger respondents. For example, nearly twice as many women than men cite a lack of financial management knowledge/experience as a challenge.

While planning does not necessitate making drastic changes, it does involve at least reviewing finances to see whether a person’s savings and investment strategies are able to cope with sudden changes in employment or personal status. And with three-quarters of U.S. investors agreeing that it is more important than ever to future proof your wealth (with HNWIs and non-HNWIs recording a near identical share), there is a clear acknowledgement that delaying is not an option. As Heraclitus, a Greek philosopher, said, “change is the only constant in life”—an expression that feels especially relevant to the volatile stock markets. If investors are going to achieve financial well-being and protect their wealth for the future, ensuring that their investment strategies are able to adapt would be a good place to start.

References
  1. For more information on the wealth creation environment, see the 2019 Wealth Opportunity Index.
  2. Capital Institute is an organization that analyses how the economic and financial system can improve for the benefit of all.
  3. The EIU survey included 629 U.S. respondents.
  4. Some 21 percent in the U.S. cite health/healthcare expenses as an obstacle, compared with 18 percent in the UK and 17 percent in Canada.
  5. According to one study, the cost of university has risen almost eight times faster than wages since the late 1980s https://www.forbes.com/sites/camilomaldonado/2018/07/24/price-of-college-increasing-almost-8-times-faster-than-wages/#77dc167166c1
  6. https://www.univstats.com/comparison/ivy-league/cost-of-attendance/
  7. In the survey, 21 percent of adult children of HNWIs listed saving for my children’s retirement as being among their top financial goals.

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Wealth planning