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Part I
Have a vision and a plan
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Chapter 1
The necessity of private wealth
Lien Luu
Learning outcomes
1.1Defining wealth
1.1.1Global uneven distribution of wealth
1.2Reasons why it is necessary to create wealth
1.2.1Push: increasing life expectancy
1.2.2Push: gap between life expectancy and healthy life expectancy
1.2.3Push: falling birth rates and ageing population
1.2.4Push: diminishing role of the government in retirement provision
1.2.5Push: diminishing role of employer
1.2.6Push: diminishing role of the family
1.2.7Pull: relationship between health and wealth
1.2.8Pull: relationship between wealth and longevity
1.3How much money do you need in retirement?
1.4Examples of students who became millionaires
1.5Ways to create wealth
1.5.1Guiding principles
1.5.2Financial literacy
1.5.3Planning
1.6Conclusion
Answers to Activity 1.2
End of chapter test
References
Young people in the UK and many other countries face unprecedented financial challenges – rising student debt, stiff competition for jobs, barriers to home ownership, dwindling state benefits and prospects of a longer working life. Indeed, newspapers frequently speculate that, as a result of the high cost of providing pensions, young people in the UK might never be able to retire. Yet, the UK’s formal education system does not adequately prepare young people to deal with these challenges and consequently, personal debt has now reached a record level and people, both young and old, are struggling to meet their personal financial commitments. This chapter explores why you should take control of your personal finances and build a secure future by creating private wealth.
Learning outcomes
By the end of this chapter you will:
•understand the importance of taking control and responsibility for your personal finances;
•be aware of fundamental demographic and social changes in society that necessitate individual responsibility;
•understand the benefits of creating personal wealth and the different methods of wealth accumulation.
1.1Defining wealth
‘To get rich is glorious’ is a quote commonly attributed to Deng Xiaoping who became the leader of an impoverished China in 1978. He introduced an ambitious programme of economic reform resulting in a remarkable transformation of the country. In the process, the Chinese were given the state’s blessing to embark on a rapid quest for the accumulation of private wealth. More than 30 years later, China has more billionaires than the USA: 568 billionaires in 2016 compared with 535 in the United States, giving China the biggest population of billionaires in the world (Hurun cited in Frank, 2016). Box 1.1 highlights other differences in the wealthy between the two countries.
Box 1.1Comparing the rich in China and the USA China’s relatively recent economic rise means that the wealthy tend to be younger and that the rich are more likely than their American counterparts to make their fortunes in property. Key differences are:
America’s wealthy have more money. The net wealth of the top 400 in the USA accounts for 15.09 per cent of GDP, while in China it accounts for 7.6 per cent.
America’s wealth is distributed more evenly across the country. Wealth in China is more concentrated in coastal areas. These areas have benefited from policies promoting development. The top nine people on Forbes’ list of the wealthiest Chinese are from those provinces. In contrast, America’s wealthy are spread more evenly throughout the country. Except California and New York, there are not very significant geographical differences.
China’s wealthy are younger. Since 1992, China’s market economy has grown rapidly, and many of today’s wealthy began to get rich then. People around 50 years old make up the largest group; they were around 30 years old in 1992. The average age of China’s richest 400 is 49 years old, the average for the USA is 65.
Sources of wealth. China’s wealthy made their fortunes from property, while in the USA information technology is an important source of wealth. America’s wealthy come from a greater variety of fields: sports, the media, express delivery services and airplane rental. In China, these industries have not made anyone wealthy enough to make the Forbes list. The ability of the internet to create wealth is strong in the USA, but China’s wealthy IT moguls got rich through income from the online gaming industry. Of China’s wealthy, 129 had operations related to property and their total worth makes up approximately 35 per cent of the ...
