An unprecedented shift is underway. Throughout history, most of the world's wealth has remained firmly in the hands of men. Now, though, women are generating and
This transformation could bring many benefits. For example, women are often likelier to hire women and invest in women-owned businesses, helping to create further opportunities and breaking down barriers. This shift may also reshape patterns of philanthropic giving and sustainable investing, areas where women often have distinctive priorities. These changes — and many others — could help create a more prosperous and equitable world. But while wealth brings many opportunities, it also poses challenges for its owners.
Essentially, financial wellness is about knowing that one's
Financial wellness is critical because it contributes to overall well-being. Financially well people are likelier to feel at ease, confident and fulfilled in other dimensions of their lives. By contrast, financial unwellness is what takes hold given the realization that personal finances are neglected and perhaps deteriorating. This triggers anxiousness and stress, which in turn can undermine happiness and physical well-being. For entrepreneurs, executives, investors and other wealth owners, financial unwellness can seriously detract from professional, social and family life.
When I mention financial wellness in the context of UHNW individuals, however, I am sometimes greeted with surprise. The implicit assumption is that financial wellness must be automatic for those with net worths of tens or hundreds of millions of dollars. In fact, UHNW individuals are vulnerable to financial unwellness for much the same reasons as everyone else, albeit on a different scale. These include excessive spending, poorly managed investments, sizable overborrowing, inadequately prepared successors and inadequate wealth planning. Such factors — especially when combined — undermine financial wellness and can cause wealth to deplete within the owner's lifetime.
Naturally, financial wellness matters for people of all genders. However, I argue that it is especially relevant to women today, given the transformation of wealth ownership. The ability to create wealth in business or careers is separate from the ability to manage personal finances effectively. Intensely busy female entrepreneurs and top professionals may lack the time and energy to learn about and tend to the issues that lead to financial wellness. Also, the financial services industry has historically focused its offerings and messaging on men, leading to knowledge deficits between genders.
While ultimately a state of mind, financial wellness rests upon objective facts and behaviors. For the UHNW community that I serve, there are four pillars that support the development and maintenance of financial wellness.
Ally Bank is hosting a new series of virtual workshops where it hopes people will speak frankly about their emotions tied to money.
The first pillar is financial literacy. To know that present and future needs can be met, it is essential to have a thorough understanding of why this is so. This demands a working knowledge of core financial concepts, such as inflation, compounding and the time value of money. It also requires a solid grasp of topics such as asset allocation, borrowing strategies and taxation. Despite its foundational importance, financial literacy is patchy throughout the world. In the United States, for example, only 23% of men and 9% of women were found to have "very high" levels of financial literacy in
The second pillar is building a core investment portfolio, which contains most of a family's wealth beyond business assets, homes and treasured collections. Consisting of a carefully selected mix of different asset classes from around the world, a core portfolio's goal is to preserve and grow wealth over the long term. Many affluent families rely on their core portfolio to meet current and future needs, especially if they have sold a business. It may also help to diversify the risks of having a large amount of capital tied up in a family enterprise.
The third pillar is strategic borrowing. There is a misconception that being financially well means being free of debt. However, borrowing against certain assets in a careful and considered way can assist with pursuing important goals, including seeking enhanced investment returns, raising liquidity without selling assets, enabling portfolio diversification and complementing wealth planning strategies. So, despite borrowing's inherent risks, a strategic approach can help augment financial wellness.
The fourth pillar is comprehensive wealth planning. This process seeks to mitigate a broad range of threats to wealth, while easing its transition to successors. Without planning, there is a much greater risk that wealth is dissipated within its creator's lifetime or upon transfer. Excessive taxation, divorce and other litigation are among the reasons for this. Most UHNW individuals are painfully aware wealth has usually failed to endure for more than a couple of generations after creation and are concerned to avoid this outcome themselves.
In my view, private banks and wealth managers have a critical part to play in enabling UHNW financial wellness. This begins with promoting awareness of the concept and providing ongoing education for clients and their family members. Hosting forums and communities for women clients, for example, can enable learning and development among like-minded peers.
Despite the wealth manager's role as a guide and provider of related services, though, financial wellness is not something that UHNW individuals can outsource. Instead, it should be regarded as a lifelong personal commitment that is best achieved in active partnership with a variety of professionals. As female wealth creation and ownership accelerates, the wealth management industry must be ready to educate, innovate and empower.
