China's new rich show confidence in rising financial well-being

China's rising affluents are showing evolving financial needs, which offers a clear path for the financial advisory industry to support long-term financial well-being, a survey showed.

Amidst a slight decline in overall financial well-being, China's rising affluent population remains confident in their finances, supported by the prospects of economic growth and a strong belief in their own wealth management abilities, according to the annual China Rising Affluent Financial Well-Being Index.

The joint study by Shanghai Jiaotong University's Shanghai Advanced Institute of Finance (SAIF) and Charles Schwab & Co Inc shed light on the shifting investment perceptions and behaviors of China's rising affluent, providing valuable insight into their evolving financial needs, and offering a clear path for the financial advisory industry to support their long-term financial well-being.

The 2023 index reveals a marginal decline in the overall financial well-being score to 70.78, down from 72.20 in the previous year. The Planning, Management, and Engagement sub-indices also recorded decreases.

However, despite this slight setback, the rising affluent display unwavering confidence, with the Confidence sub-index recording a small growth of 0.17 points, reaching its highest level since the inception of the study, at 74.51. Furthermore, 59.9 percent of respondents stated that they have become more confident since the previous year. Overall satisfaction increased to 8.06 out of 10.

The income groups recorded a distinct divergence, with respondents earning between 15,000 yuan (US$2,055.49) and 30,000 yuan per month, as well as those earning over 30,000 yuan, reporting satisfaction growth. On the other hand, respondents earning between 10,000 yuan and 15,000 yuan experienced a decrease in satisfaction.

While sustained economic growth remains the rising affluent's primary source of confidence, with 54.0 percent attributing their confidence to this factor, 41.8 percent also draw confidence from their own wealth management ability.

The study also indicates a shift in the rising affluent's focus toward long-term concerns, such as critical illness expenses, retirement, and support for parents. Financial goals related to critical illness have grown from 33.8 percent in 2021 to 37.1 percent in 2023. However, rising affluent's need to effectively integrate these changes into their day-to-day wealth management practices to improve their ability to realize long-term goals, such as retirement planning.

Surprisingly, the study reveals that while 78.8 percent of rising affluents expect to retire in line with the national retirement age, only 59.0 percent have done any retirement planning, with even the oldest age group recording a lack of planning at 54.4 percent.

The rising affluent's expectations for investment returns contrast significantly with their investment strategy, risk tolerance, and market realities. While 58.4 percent of respondents expect returns between 20 percent and 40 percent, 40.1 percent reported flat investment returns in 2022, and 29.8 percent reported growth of less than 10 percent.

Addressing these mismatches between expectations and reality, Professor Wu Fei from SAIF emphasized the need for targeted financial literacy education. He suggests that building investment expectations in line with risk tolerance and market conditions is crucial for long-term financial well-being and the achievement of financial goals.

"This year's Index suggests the behavioral biases and wealth management challenges facing the rising affluents, against the backdrop of shifting economic growth patterns deserve attention. Targeted financial literacy education is therefore necessary," Wu said.

Lisa Hunt, managing director and head of International Services at Charles Schwab, further stressed the importance of tailored services, advice, and education to address existing shortcomings in present practices.

"Financial institutions should work together to ensure that individual Chinese investors can access the services and solutions necessary to secure long-term financial wealth and well-being," she said.