In the world of wealth, a sudden spell of disruption can prove to be a powerful force. In recent history, economic turmoil has often been followed by a surge in riches – at least for some.
In its latest wealth and lifestyle report, private bank Julius Baer looks at how high-net-worths are responding to the recent economic rollercoaster.
In an outbreak of high inflation, historic data would suggest that HNWs would be hit harder than the average consumer. Yet, the Swiss bank’s quantitative and qualitative research demonstrates a more nuanced effect.
The Julius Baer Lifestyle Index, which analyses the cost of goods and services intended to represent the typical HNW lifestyle, found that wealthy buyers using dollars experienced a typical inflation rate of just 6 per cent.
However, this headline finding comes with two important caveats.
The effective rate of inflation is much higher for local currencies – the result of a surging dollar in 2022 – and inflation has had a much bigger impact on services, such as five-star hotels and first-class flights, than goods.
Harnessing the bank’s global presence, the report also analyses how spending patterns are changing from one city to the next, to understand the relative cost of maintaining a HNW lifestyle in the world’s major urban centres.
What does the report reveal about the status of wealth in 2023?
Most expensive continent for HNWs
Asia is named as the most costly region for the wealthy for the fourth year running, with the cost of living well rising by an average of 13 per cent (in local currencies), across the region.
Hotel suites, business-class flights and luxury cars have seen the steepest rise, jumping 39.1 per cent, 32.9 per cent, and 25.2 per cent respectively.
The report found all three of the world’s most expensive cities for a HNW lifestyle are in Asia.
The city-state of Singapore takes the top spot, while the thriving hubs of Shanghai and Hong Kong take second and third place.
Lifting pandemic restrictions in Hong Kong saw hotel suite prices surge by 102 per cent, while the cost of fine-dining rose 45 per cent.
What’s more, the factors underpinning the price inflation look set to continue in 2023.
Despite less generous fiscal support than other countries, pandemic savings in China are estimated at between $400 billion and $800 billion.
Outside Asia, London and New York land places in the ‘world’s most expensive’ list.
Overall, prices for HNWs in London are up 14.7 per cent on average (in GBP). Despite this, the bank reports on ‘pockets of affordability’ in the city, with the price of health insurance much lower than global rivals.
Like London, New York has rebounded quickly from a hefty pandemic slump into a world of rising prices. The Big Apple has become the most expensive city on earth for private schools and the third most costly for property, the report shows.
HNWs take charge of their health
Unsurprisingly, the experience of living through a global pandemic has made health a top priority for the rich, but what does this mean in practice?
HNWs reported spending significantly more on health insurance in anticipation of their future medical needs.
And three years on from the first global lockdowns, home gym equipment remains a ‘must have’ item for richer households, with 59 per cent of respondents in the Asia-Pacific region investing in home fitness.
When it comes to ‘living well’, the survey reveals regional lifestyle trends.
In the Middle East, 61 per cent of wealthy respondents say they use the services of a nutritional consultant, while 46 per cent report spending money on cosmetic treatments.
This increased focus on health and wellness will continue to shape spending decisions, particularly as HNWs get older, the bank predicts.
‘Population ageing is poised to become a dominant global demographic trend of the 21st century,’ writes analyst Dr Damien Ng.
Changing nature of wealth in UK
Meanwhile, rising interest rates are having the biggest influence on ageing British HNWs, according to OCM Wealth Management. Chief executive Jason Stather-Lodge believes the ‘normalisation’ ‘of higher rates has made planning easier.
‘Clients can reduce their equity risk – while still getting a return from their cash – as they get older,’ he tells Spear’s. ‘Parents and grandparents are also now inclined to provide larger deposits for their children’s house purchases in order to keep mortgage costs down.’
Higher taxes could force wealthy families to leave the UK, according to wealth manager Jason Hollands, managing director of Evelyn Partners. The firm’s research recently found that a quarter of business owners with turnovers above £5 million have accelerated plans to leave the country over the past 12 months.
This begs the question: where will they go?
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‘As we can see from the Julius Baer report, wealth is becoming ever more globalised,’ says communications adviser Jordan Greenaway, who works with HNW families.
‘Emerging luxury hubs like Dubai and São Paulo are increasingly taking over from the old European mainstays.
One underlying factor, he suggests, is a hardening in attitudes towards wealth – at least in much of western Europe.
‘I have heard many of our clients say that they no longer feel as welcome in the likes of Paris and Milan,’ he adds.
And if this latest report confirms anything, it’s that those HNWs won’t be short of options when it comes to relocating.
