Debunking myths about the uber rich

Last year, 0.003 per cent of the world's population held, in assets, the equivalent of almost 38 per cent of global gross domestic product.

The global ultra high net worth (UHNW) population - made up of individuals with a net worth of US$30 million (S$38 million) or more - grew to 199,235 individuals last year, with a combined wealth of US$27.77 trillion. In other words, 0.003 per cent of the world's population holds, in assets, the equivalent of almost 38 per cent of global gross domestic product last year.

The importance and influence of the world's UHNW individuals is increasing across various industries - from wealth management to luxury, as well as philanthropy, among others.

While many firms, brands and non-profit organisations specifically target UHNW individuals, little research on this population had been undertaken until recently. Here are eight common myths about the uber wealthy:

1. The world's wealthiest inherited all their money

This is a misconception. Sixty-five per cent of the world's UHNW individuals are self-made, with a further 16 per cent having only partly inherited their wealth before going off to make their own fortunes. In other words, only 19 per cent of the world's UHNW population have fully inherited their wealth.

In terms of fortunes, we also see that UHNW individuals with inherited wealth also have the lowest average net worth of US$130 million, as opposed to US$142 million for self-made UHNW individuals. Even for the world's 2,170 billionaires, 60 per cent have made their fortunes themselves, with a further 20 per cent classified as a mix of self-made and inherited wealth.

2. The majority of super wealthy are investment bankers

While it is true that the finance, banking & investment industry is the single largest category from which UHNW individuals have derived their wealth, it is far from the predominant sector for the UHNW population.

At the moment, 19 per cent of the world's UHNW pool is primarily engaged in that industry - meaning that the majority are not. This broad industry accounts for all categories of finance: investment banking to hedge funds, private equity, venture capital, etc. So this is a misconception.

3. Technopreneurs are all hoody-wearing college dropouts in their 20s

While this certainly is the popular image of the start-up technopreneur who has struck it big, the average age for an UHNW individual from the technology industry is 54, and many of these people are highly educated.

In fact, the technology industry accounts for only 4 per cent of the world's wealthiest, a surprisingly small contribution given the media blitz this segment of the UHNW population has received.

4. I have to go to an Ivy League university to be an UHNW individual

Although Harvard tops the rankings of the school with the most UHNW alumni, Harvard graduates account for only a small portion of the world's UHNW population.

It is also worth noting that although the universities with the largest UHNW alumni population are from the Ivy League - specifically, six of the top ten global universities (by number of UHNW alumni) are Ivy League colleges - their combined UHNW alumni population is under 7,000 individuals, or 3.5 per cent of the world's total UHNW population.

Furthermore, more than 27,000 UHNW individuals, or 13.6 per cent of the global total, do not have higher education at all.

5. The wealthy are immune to economic cycles

The ultra wealthy do react differently to economic cycles, with many seemingly impervious to fluctuations in the global economy. They are "high beta", thus their wealth tends to rise and fall more than most people's wealth as it is tied to financial markets more than that of middle class individuals, who have most of their wealth tied up in property.

However, it is not true that they are not affected by economic cycles. Indeed, the UHNW population declined by 20 per cent between 2008 and 2009, and its wealth by 22 per cent in the same period.

During the crisis, the wealth of billionaires fell by more than the S&P 500, with a 47 per cent fall in 2009. Nonetheless, even if their wealth falls, their consumption patterns continue to be far larger than the average individual's.

6. Chinese wealth is growing faster than everyone else

Last year, both China's UHNW population and wealth declined, and the country remains only the second biggest Asian UHNW economy, behind Japan. The United States still has three times the number of billionaires of China, and Wealth-X forecasts that it will take just over 20 years for Asia to overtake North America, let alone China.

Last year, the fastest growing UHNW economies were (surprise, surprise) Pakistan, Nigeria, Sri Lanka, Kenya and United Arab Emirates.

7. The wealthy don't give back

There are many ways in which the UHNW give back, and traditional philanthropy is merely one of the ways. The average UHNW philanthropist donates US$25 million over his lifetime; for billionaire philanthropists, it's US$100 million.

However, only a third of the world's UHNW individuals are estimated to have donated at least US$1 million, which is less than one per cent of their average net worth. Nonetheless, other types of giving back, such as impact investing, microfinancing, or simply job creation, are prevalent across the UHNW population.

8. The world's UHNW individuals fly by private jet and own a superyacht

Only a tiny proportion of the world's individuals have a high enough net worth to afford a 30-metre plus superyacht without overinvesting.

Wealth-X estimates that only about 20 per cent of the world's UHNW population, or fewer than 40,000 individuals, can afford superyachts and/or private planes. As a result, the chartering of these luxury crafts has become more prominent, and many UHNW individuals and their families still travel on commercial airlines, albeit in first or business class.

Although there are cases of extravagant living, the majority of the world's UHNW do not live ostentatious lives, but they can treat themselves to things and experiences that they really want.

The global UHNW population is large and growing. Within this population, there are variations: not all UHNW individuals have similar interests, backgrounds, aspirations and behaviours.

Indeed, while UHNW individuals all have access to significant wealth, there are numerous clusters and trends within this group, and without a keen understanding of what differentiators exist, marketing initiatives, client loyalty and retention of UHNW individuals will be sub-optimal.

For organisations that engage directly with this super-rich segment, knowing and understanding their traits and characteristics allow you to identify the right customers for your goods and services, or indeed, the right way to adapt your services or marketing initiatives to expand your client base.

Not only is it important to know how this population is currently segmented, it is also important to know what trends exist and how that may affect your global strategy. Some key trends were used as examples in this report, but as the population's demographics change and evolve, companies wishing to engage with the UHNW population need to be willing to learn, understand and adapt.

The writer, Sarah Merette, is a Research Fellow at Wealth-X Institute, the wealth and economics research arm of Wealth-X

This article was first published on June 14, 2014.
Get The Business Times for more stories.