Developing a wealth mindset

THERE are various avenues to get rich, whether that’s being born with a silver spoon, marrying well, securing a high-paying career, creating wealth through business or sound investing, receiving a big windfall, or inheriting wealth.

But we all know that it is not how much you earn (or inherit) that is important, but what you do with it. This is where developing a wealth mindset is essential, an area with much room for improvement.

A recent survey by asset management and investment firm Capital Group, The Great Wealth Transfer, found that a significant portion of wealth holders expressed regrets about how they used their inheritance, with a notable percentage wishing they had invested more. The research highlighted challenges in communicating succession planning and suggested that inherited wealth is often underutilised, with a small percentage invested in securities or mutual funds.

In fact, trillions of dollars are estimated to be transferred from baby boomers across the US, Europe and developed Asia to younger generations in the coming decades. Capital Group said that with millennials and Gen Z receiving larger inheritances at a younger age, they could benefit from a financial adviser’s market insights and long-term investment perspective.

Conducted in February and March this year, the survey reached out to 600 high-net-worth individuals (net worth of at least US$1 million, investable assets between US$250,000 and US$10 million, and received inheritances of US$100,000 to US$50 million) across Europe, Asia-Pacific and the US to explore their approaches to using inheritance and their own succession planning.

Here are some highlights from the study:

• Nearly half (47 per cent) of respondents inherited directly from their grandparents. A majority (55 per cent) received between US$1 million and US$25 million.
•  A substantial 60 per cent of global wealth holders expressed dissatisfaction with how they used their inheritance, with one-third regretting having underinvested.
• Inheritance money often sits dormant or underutilised. On average, only 22 per cent of inherited capital is invested in securities or mutual funds and 11 per cent in a pension fund. 
• Among Gen X and millennial inheritors, 65 per cent say they have regrets about how they used their inheritance money, with nearly two in five wishing they had invested more.
• Millennials globally are more likely to turn to social media and “finfluencers” for investment advice when they inherit (27 per cent) than to financial advisers (18 per cent).
• While 61 per cent of respondents rely on lawyers and 49 per cent on accountants for succession matters, only about 15 per cent utilise financial advisers.
• Of all respondents, 79 per cent will leave no specific wish on how inheritance must be used. Apac inheritors are more hands-off (82 per cent) in their succession planning than those in Europe and US (both at 77 per cent).

Singapore inheritors save more, invest less

In Singapore, a higher proportion (54 per cent) are inheriting directly from their grandparents than the global average, meaning younger inheritors in Singapore may be coming into significant wealth without having accumulated the financial knowledge to manage it effectively.

Singapore inheritors are most likely to receive their inheritance assets in the form of real estate (19.7 per cent), followed by business interests (18.1 per cent), and then cash (17.7 per cent). Cash inheritance is more common in Japan (19 per cent) and Singapore (17.7 per cent) than in Hong Kong (11.8 per cent).

Compared to their global counterparts, Singapore inheritors invest the least into retirement accounts or pension funds (8.9 per cent) with their inheritance. They are also less likely to put their inheritance towards a major purchase like a car or a house (9.6 per cent) versus their global peers (11.9 per cent).

Instead, Singapore inheritors put more of their inheritance into savings (18.6 per cent) than the global average (12.2 per cent) and invest less overall (27.4 per cent vs 32.9 per cent) although 32 per cent wish they had invested more. Those who do invest are strongly sustainability-minded, with 85 per cent stating it is important that their investments generate both strong financial returns and measurable sustainability outcomes, compared to the global average of 80 per cent.

A large majority of Singaporean respondents (89 per cent) indicated that their investments in actively managed funds have outperformed their investments in passive funds. They also have high hopes about advanced technologies, with 68 per cent of Singaporean inheritors (versus 62 per cent globally) stating artificial intelligence and other technologies will improve financial advice by driving deeper personalisation and easier access.

When communicating with their designated inheritors, the dominant challenge cited by Singapore respondents is discomfort around conversations about death (35 per cent), whereas global respondents are most deterred by the awkwardness of conversations about money.

The survey showed that there are opportunities for financial advisers to engage wealth holders and help them better navigate their journey with inherited wealth for a more sustainable and resilient financial future.

Women are investing less, but inheriting more

Looking at women in Apac more broadly, it’s interesting to see that they’re even less likely to invest their inheritance. On average, only 22.8 per cent of inherited wealth is invested by women in Apac, compared to 27.4 per cent across all genders in Singapore and 32.9 per cent globally. Despite this, 38 per cent of women in Apac wish they had invested more – a higher proportion than in Singapore (32 per cent across genders) and globally (34 per cent across genders). As such, financial advisers would do well to financially empower women too.

A 2024 study conducted by Capital Group that polled US consumers showed that many women are poised to become “double inheritors”, that is, potentially inheriting from their spouses and parents. A substantial amount of wealth (US$100 trillion) is expected to be transferred from baby boomers and older generations by 2048. And many women are projected to inherit a significant portion of this wealth. 

Much research has been done on the differences in how women save and invest compared to men. For instance, women are perceived to be better savers and cautious investors who do their due diligence before making an informed investment decision. At the same time, women have relatively longer life spans but may end up with less accumulated wealth as they are more likely to be family caregivers and have shorter or interrupted career paths. 

Understanding the unique challenges that women face will help advisers to address them better.

Tips on developing a wealth mindset

Everyone has their own “money story”, which is largely influenced by their circumstances and wealth mindset. The latter refers to a collection of money attitudes, and habits that influence the way he manages and grows wealth. It goes beyond simply wanting to be rich and instead focuses on the psychology that underpins sustainable financial wellness.

Developing a wealth mindset involves identifying and overcoming negative beliefs about money and wealth, and enhancing the ability to grow and preserve wealth. 

Here are six considerations:

• Long-term approach: Focus on your short, mid and long-term financial goals. This includes strategic planning for savings, insurance, investments, retirement and career development.
• Continuous financial education: Constantly upgrade your financial knowledge in areas like protection, investing, market trends and estate planning to be empowered to make informed decisions.
• Defer gratification: Resist immediate spending in favour of saving, protecting and investing for your goals.
• Be proactive: Find ways to reduce expenses, increase income and invest wisely, instead of passively waiting for opportunities or adopting knee-jerk reactions to financial crises.
• Risk management: Not taking any risk is a risk. Understand and take calculated risks that have the potential for significant returns, while also having contingency plans.
• Resilience: Learn from setbacks, adapt and persist towards goals despite challenges.

A wealth mindset, coupled with a holistic financial plan with measurable goals, is crucial for navigating your life journey well. This includes putting newly acquired wealth to work to achieve long-term financial success.

The writer is head of financial planning literacy at DBS Bank and author of bestsellers Retire Smart and Money Smart