The purpose of wealth means different things to different families around the world. In the Asia Pacific region, expectations tend to focus on long-term prosperity and wealth preservation. With ultra-wealthy families growing at an extraordinary rate across Asia, the need for flexibility with financial planning is becoming more important than ever.
Cultural beliefs are an important part of self-determination. They govern people’s values and how they choose to plan their futures with confidence. For families in Asia, the priority is long-term prosperity, with the next generation expected to preserve the family wealth and use it as a means for growth.
The UBS PwC Billionaires Report 2018 perfectly describes how cultural values are currently influencing wealth transfer in Asia: “they say that the first generation makes it; the second generation preserves it; the third generation squanders it. Yet the cliché no longer appears to be appropriate”.
Global wealth planning needs to cater to the following considerations by providing flexibility for diverse cultures, expectations and personal wishes.
Growing wealth planning needs in Asia
The number of ultra-wealthy individuals in Asia Pacific, and particularly in China, is growing exponentially. Billionaires in the region saw their net worth grow by almost a third (32%) to reach UDS 2.7 trillion in 2017, according to the UBS PwC Billionaires Report 2018.
12 years ago, China was home to 16 billionaires but today there are 373. Now, globally, one in five billionaires are Chinese. It is thanks to innovations in technology and e-commerce, and, with Asia at the forefront of the current technological revolution, this growth shows no signs of slowing.
The same report from UBS PwC predicts that USD 3.4 trillion will be transferred over the next 20 years, which is almost 40% of the total billionaire wealth in the world today.
Wealth planning needs are growing at a colossal rate, especially in the Asia Pacific region where many families are new to billionaire status. That is why education and flexibility are both imperative in wealth planning – because it enables families and individuals to make confident choices about their futures.
Cultural values towards wealth in Asia
Wealth in Asia has primarily come from hard work and perseverance. Families want to transfer their wealth to the next generation – but they also want to pass on their values around dedication and industry.
According to the Asia Pacific Wealth Transfer Report 2017, 64% of benefactors had conditions attached to an inheritance. These instructions are a way for families to make sure their wealth is preserved by the next generation. Many parents are also concerned that their children may overlook the family’s principles, having been influenced while studying or working abroad. Conditions around how wealth is used can help educate the next generation about their predecessor’s principles.
51% of respondents in the same report also said they intended to gift assets gradually to inheritors during their lifetime. It enables parents to teach their children how to manage wealth responsibly, before they are given full control.
Wealth planning products and advice need to accommodate different values, so families can confidently choose exactly how they would like to pass on their estate.
The new age of billionaires
In China, a surge in new billionaires is having a profound effect on attitudes towards wealth and managing finances. There is a rising entrepreneurial mindset, with 62% of billionaires who inherit a family business going on to start additional businesses, according to the UBS PwC research.
This culture may be driven by values around wealth preservation, but also from a cultural aspiration for entrepreneurial success and innovation. Between 2016 and 2018, China produced 50 unicorn companies – just slightly behind the US at 62. Shenzhen is recognised as a challenger for Silicon Valley and entrepreneurs in the region are racing to be the innovators who disrupt with their new technologies, from AI to healthcare advancements.
As smart risk takers, this new age of billionaires in Asia may want to take a similar approach when it comes to investing so will need the freedom to do so.
Prioritising education
China’s entrepreneurial success is partly down to its cultural focus on education. We are seeing the same trend in how families manage their financial planning.
56% of respondents in the Asia Pacific Wealth Transfer Report 2017 citied self-education as the source of their understanding of financial planning. 63% also said they manage their own investments to improve their understanding of wealth.
By equipping themselves with wealth planning knowledge, individuals can make confident decisions in how they manage their finances. The next essential component in helping families across Asia lead a self-determined life is flexibility, because it gives them freedom to make their decisions in their own way.
Sources:
UBS PwC: Billionaires Report 2018
Capgemini: Asia Pacific Wealth Transfer Report 2017
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