In an eye-opening study entitled, Spotlight on the New Wealth Builders, just released by The Economist Intelligence Unit and sponsored by Citi, an emerging wealth class has seemingly slipped into the world scene without much notice. I’m not sure why, mainly because the implications of this new generation of investors has the potential to make big waves with regard to methods of wealth building.
So, who are these new wealth builders? The study defines these “New Wealth Builders (NWBs) as households with financial assets of $100,000 to $2 million.” In my opinion, the big news is not how much money these Millennials have, but how they act with regard to their wealth, particularly on a global stage. As we Baby Boomers start to transfer over our $30 trillion dollars of wealth to the next generation, it is important to understand what this generation really cares about and how they plan to handle investing.
Allow me to paraphrase some points of the study in order to give you an idea of the NWB’s profile:
- They constitute the world’s fastest-growing and broadest wealth segment.
- They are self-made – 97% of NWBs earned their wealth, only 3% say they inherited it.
- They are modest – 83% don’t consider themselves wealthy.
- Their wealth is newly acquired – 79% of NWBs acquired most of their wealth in the past 10 years.
- They are charitable – 97% donate to charity.
- They are global citizens – they travel abroad for business and pleasure.
Ok, so why is this important? Because “since 2010, the number of households in the NWB segment has grown faster than either the High Net Worth or Mass Market Segment.” Granted, some of this new slicing and dicing of wealth is just an interpretation of an existing story. (For instance, “you say ‘po-tay-to’ and I say, ‘po-tah-to’”).
According to Spectrum Market Insight 2015, who looked solely at the U.S. market, “In 2014, there were 29.5 Mass Affluent households with a net worth between $100,000 and $1 million.” Their definition of the Millionaire segment, are “those with a net worth between $1 million and $5 million.” This cuts across the NWBs referenced above. The next group that Spectrum Market highlights is the “Ultra High Net Worth” market, with a net worth between $5 million and $25 million. The Economist’s definition of the Mass Market household is one with financial assets of under $100,000, which they see as contracting. By the way, as Edward. N. Wolff points out in his Working Paper No. 589, “Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze, this segment of middle class investors is shrinking.” (That is an article for another time.)
Which countries are growing the NWBs at the fastest pace? According to The Economist Intelligence Unit research, when they look at projected growth in the number of NWB households between 2014-2020, Latin America will grow at 11.1%, with Asia Pacific nations close behind at 10.1% and North America only at 2%. “In 2014, $23 trillion of NWB assets in the US exceed those in China by 18%. Come 2020, [they predict] that because of its population advantage and a rate of economic growth fueled by the loosening of monetary and fiscal policy, China will outstrip the US in NWB assets by almost 2 to 1, $53 trillion to $27 trillion in the US.” Today this total NWB sector “exceeds 267 million households worldwide and represents $88 trillion in assets.” It’s time to take notice of this group and really look behind the numbers.
What do these global NWBs have in common, besides money? According to the study, they really have a heart. “They are humble with a generosity of spirit that focuses on making progress for those around them. They are hardworking and mobile, with a natural affinity that transcends geography. NWBs set a high bar for global citizenship. Nearly eight in ten NWBs acquired most of their wealth in the past ten years. Almost none (3%) attribute current wealth to inheritance.” Giving back is a huge priority; say 97% of these NWBs.
So, what are the implications for teaching our Millennials about the new world of investing? The Economist Intelligence Unit found that the “vast majority, 84%, self-direct their investment portfolios; though slightly more than half seek professional guidance… Domestic equity leads all rival asset classes… Most investments reside currently in strong and stable nations with long commitments to free and transparent markets… ”
The survey implies that our offspring wants to learn to invest on their own, so we must teach them. This all starts with financial education, my wheelhouse Get young kids involved in using their “Long Term Savings” from their hard earned allowance to start to invest in individual stocks. By the time they are ten years old, they know what clothes they wear, movies and TV they watch, and electronics they will die without. Those are the company’s stock you should buy for them. When they hit 18 years old, it is time for them to build their own portfolio.
I have an affiliation with a global broker dealer, which has a mobile investment platform perfect for NWBs just starting out, called DriveWealth. I work with them because of their business philosophy: they believe in financial inclusion, they educate, and they give affordable access to invest in the U.S. stock market on a global basis and support a multinational charity, called World Merit. There are lots of other companies that are available to start that investment account, but most require high minimums, ranging from approximately $1,000 - $5,000. Most emerging NWB-18 year olds will not have accumulated that much to start an investment account.
We Baby Boomers need to understand that this new generation of investors wants access and education, so that they can add value not only for themselves, but also for the world. Actually, Millennials you need to teach Baby Boomers a thing or two!
