How well-off will your children be?

From

A quarter of Australians (26%) expect their children to be high income earners when they reach their 40s.

Two-thirds (66%) expect their children to be middle income earners, found the Wealth Perception Survey undertaken by Fidelity Worldwide Investment and the Nielsen Company.
This was less than parents in India (76%), China (48%) and Singapore (38%); but above those in Taiwan (24%), South Korea (22%), Hong Kong (19%) and Japan (8%) who expected their children to be high income earners.

Of those Australians who expect their children to earn a high or middle income, two thirds believe this will be because:

  • they provided their children with a good education 68%
  • they expected them to work hard 63%, while
  • 45% said it would be due to their imparting good financial knowledge to them.

Those Australians who expected their children to earn a low income said this would be due to:

  • lack of economic opportunities 63%
  • no financial benefits from the family 44%
  • a lack of financial knowledge and skills 33%
  • a lack of good connections 30%, while only
  • 12% said it would be due to a lack of good education. 

Future income to improve – or remain the same
The Fidelity Wealth Perception Survey also found over a third, 38% of respondents, expect their own household income to improve over the next 10 years.

Only 16% expected it to worsen. A third, some 35% of respondents, thought it would remain the same.

Those already on a high income were the most optimistic about their income increasing, with no high income earners expecting their income to worsen over the next decade. Younger people were also more optimist than older people about their wealth, while those already on low incomes were more pessimistic.

Almost two-thirds, 65% of Australians, expect the income gap between low and high income earners to widen over the next 10 years. Just 6% expect it to narrow, while 29% expected it to remain the same.

Perception of income status can impact investment strategy
Confusion about income status can lead to investment mistakes, says Betty Ng, Fidelity’s Director of Investment Communication.

“Those in the lower income tend to over-estimate their ranking, while those in higher income brackets tend to underestimate their ranking.”

“This is important when it comes to investing,” says Ms Ng. “When people in lower income brackets overestimate their ranking they over-spend and invest too little.

“In contrast, when people in high income brackets underestimate their ranking they assume less investment risk than they can tolerate and forego higher potential returns. Or they may try to catch up with their peers by assuming too much risk in investments.”

Ms Ng added “as our income changes with age, education and work experience our definitions for ‘middle income’ also evolve, and so do our financial goals. Financial planning and investments entail regular revisions of our targets, not just a change in product combination.

”It’s also important for the next generation to understand how to maintain or grow the assets they may receive. Faith in education and hard work may prove insufficient to safeguard children’s financial future.

“Financial literacy may become the new pillar to secure a better income status. Australians will need to develop the financial skills to help them manage their savings and investments to their longer-term advantage.

“This suggests that investment is not just about selecting the best-performing securities or funds, but entails comprehensive financial planning based on individual circumstances, goal setting and regular review.”

Asia’s gap between rich and poor to widen
With respect to Asia, Ms Ng notes the survey found 76% of respondents expected the income gap between high income and low income gaps to widen in the region over the next 10 years. This is expected to lead to more government policies to reduce such gaps, such as China’s Harmonious Society Policy. These policies will have different impacts on different sectors – and investors – as government spending goes to targeted sectors.

The survey was undertaken in March this year in 10 cities throughout Asia.

To read the full Rich Me, Poor Me report, click here.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”).  Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity Worldwide Investment. This document is intended for use by advisers and wholesale investors. Retail investors should not rely on any information in this document without first seeking advice from their financial adviser. This document has been prepared without taking into account your objectives, financial situation or needs.  You should consider these matters before acting on the information.  You also should consider the Product Disclosure Statements (“PDS”) for respective Fidelity products before making a decision whether to acquire or hold the product.  The relevant PDS can be obtained by contacting Fidelity Australia on 1800 119 270 or by downloading from our website at www.fidelity.com.au. The issuer of Fidelity’s managed investment schemes is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. Details about Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website at www.fidelity.com.au. © 2012 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited.

You must be logged in to post or view comments.