Earning lots of money, or being born wealthy doesn’t mean you’re good with money. Why? Because our relationship with money is emotional – not circumstantial. 70% of lotto winners end up bankrupt and 48% people with six figure salaries are living pay-check to pay-check, have debt and no retirement fund.
High net-worth low financial wellbeing
High net-worth individuals have more resources at their disposal, so most people assume the HNW community has strong financial health. A recent UK report proved the opposite to be true. 92% HNW underestimate how much money they need for a comfortable retirement. Those with investable assets of between $250k and $500k think they’d need $45k on average compared to those with $3m and over who think they’ll need $72k a year.
Interestingly, the younger demographic within this group are the most unrealistic. Since life expectancy will impact our younger generations, the research highlights that Millennials and GenZ are the least likely to prepare what they will need for retirement, reiterating why early financial planning is essential to stop people mindlessly losing money.
Cash-rich time poor
A recent book by economist Professor Daniel Hamermesh finds that “people who were always or often stressed had the highest earnings.” It seems money goes hand-in-hand with the feeling that there aren’t enough hours in the day. Does this mean people who are time poor don’t have time to learn how best to arrange their finances? We know that more money requires more complex management, particularly when it comes to tax, retirement and investing. This is a problem because financial health can’t be bought, it takes time to nurture.
When does good debt become bad debt?
You would expect that HNW people accumulate good debt as a means of growing their net worth. For those of you who don’t know, to put it simply: ‘good’ debt is money owed for things that can help build wealth over time such as student loans or mortgages, ‘bad’ debt is credit cards or other types of consumer debt that don’t improve your financial assets. Our latest research reveals that 3 in 4 HNW have debt, probably not surprising, and we might assume this is good debt? Wrong. The report uncovers that 1 in 5 of this demographic is struggling with their debts.
Inflation and investing
Like all of us, the HNW demographic is worried about inflation – our report says 65% feel impacted. Growing wealth is near impossible in line with inflation. Most people have resorted to high-risk investing. Why? Well, with inflation at 5% (in US and 10% in UK) and the base interest rate at just 5% (in US and 4% in UK), low-risk investments have no hope of keeping pace with the cost of living. What’s more, the stock markets have experienced their own problems. Fear controls the market with post-pandemic global inflation, rising interest rates and the war in Ukraine. But, it’s not advisable for novice investors to dive in without guidance in what could be considered hostile conditions. The question is, how can people take their opportunity to invest before it’s too late? One thing’s for sure. They need help.
Where does this leave us?
What this HNW exploration proves is that everyone is affected by money, no matter your salary bracket. It’s more psychological than most of us realize. That’s why one-size doesn’t fit all. Everyone has different knowledge, and different time available to better their understanding. April marks financial literacy month. It’s a perfect time to refresh or even gain new knowledge to broaden our financial futures. It’s actually an all-year-around activity. Take the opportunity this month to raise awareness of why everyone needs to work on their relationship with money. Here are some key consideration to kick start the conversation around financial education in your organization:
Personalization: Meeting an individual where they are at, and their skill level, needs personalized financial education. That way the experience is relevant, relatable, and tailored to help everyone take the very best action for them and their unique set of circumstances.
Ways of learning: Everyone absorbs information differently. Our research found that HNW prefer to learn using financial literature (38%) and short-form videos (31%) over the likes of television (14%) or advice on forums (16%). When it comes to learning and development, employers should consider a wide range of learning methods to suit and engage each individual.
Frequency: The more time you invest in financial education, the bigger the return for both the individual and businesses. Our report found that people who regularly worked on their financial skills and knowledge are 66% more hopeful, 41% have increased their savings, and 34% have a better understanding of their employee benefits.
Learn more about how you can support your diverse workforce. Download the report.