John Petika, Jr.: Welcome to the next edition of our speaker series at The Petika Wealth Management Group here in Clearwater. This is John Petika, Jr. We have a really unique call today talking about the research behind the 2025 UBS Global Wealth Report.
My guest today is James Mazeau joining us from Zurich, Switzerland today. He's an economist in our investment research department here at UBS and helped to oversee the creation of this publication. So, James, welcome to the call.
James Mazeau: Thank you very much, John.
John Petika, Jr.: One of the things I really enjoy about our job is we get to work with some of the most productive entrepreneurial families in the world. The fact that we can use you and your team to get a global view of the wealth going on and where it's moving and how it's created I think is a really unique thing. So I'm really excited to have this conversation with you and how you guys came up and created this pretty cool report.
James Mazeau: Well, it's been running for years, or decades now. It's something that we inherited from the Kyrgyz-Swiss Bank, and they had that running for years. They were looking at the sources of wealth and wealth creation in a number of countries and just collecting all sorts of stats.
It was initially originally done by a group of professors, uni professors. They worked on open-source databases, et cetera, and we decided to tweak it slightly, and instead of just doing a data dump and looking at the growth in the world in many, many countries, we just skimmed it a bit, folks in a couple of countries. We looked at it more in themes such as wealth transfers. We looked at assets allocation. We looked at different many things rather than just doing a data dump, and that's how we get into key insights and that's what makes it really interesting.
It's a living report. So this year's focus was on the everyday millionaires, and next year will be something different, and that's what's really, really interesting. As data sources evolve, we get new insights. We can also revise the data that we modeled in the past. So it's really a dynamic process.
John Petika, Jr.: Well, can we talk a little bit about the drivers of household wealth, not only here, how it grew in the United States, but in different countries as well?
James Mazeau: Sure. I think one common pattern we have is that households typically work and they have labor income, and they need to finance a lot of expenses, expenses that they have. But then they're also able to generate savings most of the times. Not every household and not every year, but usually they can. When they invest these savings, then they generate investment returns, be it income or capital appreciation. Typically you have your stocks, but also real estate.
This is how most households get wealthy, and that's the large majority of them. Then you have some, I think, wealthier households, but not always, who will get or generate their source of wealth not through labor income or not just through labor income, but also through entrepreneurship. They will set up businesses and grow their businesses, and then they will sell them or pass them on. So that's something that happens, too.
But common here is you need prerequisites for this. You need robust economic and political institutions for this to work. You need economic growth, and that just happens when you have rules. So you need the rule of law, you need government policies. You need certain things that exist which you find in, I would say, all developed countries. But you will not find this in developing countries, or not all the time. And so, sometimes you go through times of chaos and there are just no rules anymore, and then everything collapses. And so, in, I would say, developing countries, you can have wealth growth that can be stronger, but also much more volatile. That's something that we've also noticed.
One other trend is demographics, is as we have less and less kids, I mean an aging population, then inheritance is also now a meaningful way of getting wealthier through time when you compare households across generations.
John Petika, Jr.: Now the other thing is going through this report year after year, you're seeing households are getting richer and richer. We've also had ... Since the pandemic, 2020, we've had pretty serious inflation, not only here in the United States but across the world. Are these households actually getting richer or are we just getting inflated?
James Mazeau: Well, I mean that's a fair question. We look at wealth bands. So we look at wealth bands that we denominate in US dollars. So for the US, it's really convenient. But we look at 0 to $10,000, 10,000 to 100,000, 100,000 to 1 million, and 1 million and above. What we've done is we've looked at how wealthy households get in each of these bands, and actually every year they do get richer, or there's less and less people in the lower band and they just move their way up to the higher band.
But then you'll say, okay, what about if we adjust these bands for inflation? Then in real terms, it's also true that households are getting wealthier year on year, but not every year. So 2022 was a year where households in the US on average didn't get wealthier, and that was at the peak of inflation. But last year, I would say inflation was sitting in the US, households on average did get wealthier. These dynamics are true across many countries, but not everywhere, because inflation dynamics are not the same and equal in all countries.
John Petika, Jr.: So I also noticed in your report, about 43% of the world's millionaires live in the United States. There's as many millionaires in the United States as the next nine countries. I see all these economists and investment strategists are saying invest abroad and invest international, but are these other countries going to catch up to the United States? I mean 43% of the millionaires are here in the US, and that's a big number.
James Mazeau: It's a very, very big number. It is astonishing. It's interesting that you raise that question because when we did the press release or the press conference, one of the press conferences, when we released the report, there were also journalists saying, "So who's next? Who's going to beat the US?" and my answer to that was, well, there's no country right now.
There are countries who are catching up, who are getting wealthier, and who are experiencing wealth growth that could outpace down the United States for a year or two, a couple of years. China is one of them. China's catching up, second economy, but it's nowhere near in terms of number of millionaires. I don't think you'll have any country that's going to catch up or beat the US anytime soon.
Now if that were to happen, you would need to see a country that would boom economically for years, perhaps even decades, and you'd have to see on the other side a huge source of US residents, and we're not likely to see this, or if we were to see this, then something really bad would happen, something we wouldn't want.
But then we would talk about the millionaires. The very, very wealthy, the ones at the top of the pyramid, the billionaires, they are very mobile. But most millionaires, especially at the lower bands, when you're closer to 1 million, they're not wealthy. Most of the wealth is tied in real estate, in a house, and they're not going anywhere. So I think the US is likely to house the largest share of millionaires for the years, if not decades to come.
John Petika, Jr.: So one of my first books that I've read before I got into UBS was The Millionaire Next Door. I think that was a really unique book that you've had these everyday millionaires living next door, but that book was ... I think that was wrote in 1996. It is the million-dollar threshold. I mean is that even a relevant threshold nowadays?
James Mazeau: I would say it isn't. I think ... We have the TV show. I guess you have it in the US, like Who Wants to Be a Millionaire? That doesn't make any sense. I mean it's still nice. If you were to tell me I would to win $1 million, I'd be very happy. Would it change my life completely? Maybe not. Yes, it would change my life. I think I could afford many more things. But, number one, I mean my case, I'm turning 37 soon, I wouldn't stop working. Where I live in Zurich, with very, very pricey real estate, I don't think I could even buy my dream house with this. And so, it means I would continue on working.
Most millionaires, if you're going to look at them in the US, I'm guessing they are working and they still need to work, unless they are retired. Most of their wealth will be, as I said earlier on, in real estate, maybe most of the wealth, if you look at it in gross terms. If you net it out with outstanding mortgages, then there may be less.
I think these everyday millionaires, when we talk about it in the report, is people with net wealth between ... Or adults with net wealth between USD1 and 5 million. They have spending patterns that resemble that of the middle class, so they don't spend like the very wealthy.
Now of course they live comfortable lifestyles, but, again, you have the extremes. You could also have, on the one hand, very young and talented people who work in the tech industry, who've made a lot of money through income or capital gains, but they still have high income. You could say they live a good lifestyle.
Then you could have also people who have inherited a house. Remember, I think the average house price in the US, it's worth around half a million US dollars. So you add to that retirement incomes and other valuables, and you can soon easily reach the $1 million mark.
And so, the other extreme of the household would be somebody who inherited, let's say, a flat in New York worth USD1 million and with very low income or almost no income, maybe just social security, and that person isn't necessarily living the life of the millionaire.
So that's the thing. If you were to ask me, I think the next threshold would be 5 million. According to me at least, $1 million is not enough to stop working unless you live a very frugal lifestyle. At 5 million, maybe it wouldn't be enough for me, but it gets me thinking. I'm guessing a lot of people could afford, if they have some right planning, to stop working with that amount of money.
But it just means that the frontier has moved, and I think now we need to look at 5 million plus, 10 million plus to get at what it is to be a real millionaire and really well off. That's what people had in mind maybe in the '80s and the '90s of being a total millionaire. So that really has changed.
John Petika, Jr.: I'll tell you, at 5 million, I think it really depends on where you live.
James Mazeau: For sure.
John Petika, Jr.: I mean I was just up in our new building, the 11 Madison building, it was formerly the Credit Suisse building, and the price is up in New York. I just can't imagine them being sustainable for the everyday person that lives in New York City. So I think it really depends. We're over here in Clearwater, Florida, which is a completely different economy down here than New York City.
But as far as the composition of US wealth as compared to our international countries, I always imagine the United States, as far as the entrepreneurial mindset, and then you think of England and you see the TV shows and you've got old family money in these old estates in England. How is the difference between the United States' composition of wealth and then what's observed in other countries that are wealthy as far as millionaires?
James Mazeau: When you look at them, I think they both have rather high shares of real estate, and that's a common theme. Again, when you look at millionaires, it depends. If you're looking rather at the lower end of that band, close to 1 million or top band. If you're talking a hundred million plus, then, yes, you have businesses in there, you have companies, you have a lot of things.
But if you take on the average and you're more skewed to the medium worth composition, you'll be more skewed to people on the lower end of the segment, closer to 1 million, then there'll be a lot of real estate. If you net it out with outstanding mortgages, you may be close to a third of the total net wealth.
US households will tend to hold more stocks. They take more risk on average. There's more of that risk-taking culture than you will find in other countries, and that's quite interesting. You will also see ... And they hold it, I wouldn't say, in direct holdings, or they can through ETS, but it's with their discretionary liquid wealth and it's not tied up in retirement assets or on a pension fund.
So in this country, in Switzerland where I work, and in other European countries, households will hold equities, for instance, but indirectly through their pension funds. When it comes to their own wealth, a lot of people will hold cash, and they will not hold a lot of equities and investments.
That's the pattern you see. The US compared to other developed countries like risk a bit more, so they hold less cash and much more investment securities than other countries. I think that has to do with the risk culture. Germans, on the other end of the spectrum, if you want to compare it to a developed country, they don't like equities. They are risk-averse. That's something that's very interesting and it's not a thing that's likely to change anytime soon. That's just a cultural thing that distinguishes people of different countries.
John Petika, Jr.: The other thing in the report that you guys did was that you had the median wealth and then the average wealth. I see the United States is not even in the top 10 countries when it comes to median wealth per adult. Could you explain that research piece between the median and the average?
James Mazeau: Sure. I mean when we look at the median, what it means is the number, if you talk about wealth, that will separate the bottom 50% and the top 50%. Average can be skewed. If you have in your sample on the US population a lot of very, very wealthy individuals, it's going to pull up that average. Whereas if you look at median, then if you have a lot of very wealthy people, it will usually be lower than the mean or the average.
That's exactly the case in the US. It's much lower when you look at median compared to average, much lower than other countries, because you have more wealth inequality. You could say that this is because the distribution is not as important in the US as in other countries, especially European countries, and also because you have a lot of very, very wealthy people.
So when you look at the Gini, what is inequality coefficient, then you see more inequality in the US. It's not bad per se. When we look at the average wealth or median wealth, it's not low per se, but it is maybe surprising that it departs so much from average wealth.
This shows that the US is a country of contrast, and you'll see a lot more of very, very, very large fortunes. I mean most of the world's billionaires are in the US and you will not find them in many of these other countries, but at the same time you will see many people that may be closer or much closer to poverty line. So that's a country of extremes, which we don't see in most other developed countries. That's something that we will see in countries like Brazil or countries like Russia, or some emerging countries or countries like China.
John Petika, Jr.: So, James, let's talk about baby boomers. Baby boomers hold the majority of the wealth here in the United States. You turn on CNBC and other news outlets and they're talking about an $80 trillion transfer, wealth transfer, to the next generation. Do you have any thoughts on that as far as the baby boomers and this big wealth transfer that we're seeing?
James Mazeau: Yes, I think there are many misconceptions. So this is not going to happen overnight. All your baby boomers, it's a large cohort, but they're not going to pass on their wealth within the same week, and it will take decades. You will have also first horizontal transfers, typically between spouses, and then you'll have these vertical transfers. So they can go to kids or ... I don't know how it works in the US, but you could also transfer money to the grandkids or other people, if you are just talking about transfers within the family.
But one of the misconception is that at some point quite soon Gen Z will inherit all this, and that's not true. People who inherit will also be rather old or they won't be that young. So they'll be in their 50s, in their 60s, or maybe even in their 70s, and still they will have a different mindset than their parents or the people from who they are inheriting, and they might invest their wealth differently.
And so, that calls upon understanding the mindset of people who are going to inherit that money, and then understanding the complexities of wealth planning and legacy planning, which I think a lot of people have not thought through. If you don't have the right conversations with your heirs in advance, then you can have wealth destruction that happens.
I don't know, John, if you have noticed this with some of your clients, but sometimes you have big fights when somebody passed away and wealth is transferred. You have the kids who just fight for the money and they just end up destroying the wealth or liquidating the company because they just want a share of it and they don't want to manage the company.
And so, these are the big challenges that many developed economies are going to be facing in, I think, the coming years or coming decades. But, again, it's not something that's going to happen overnight, and people who are going to inherit will not be that young.
John Petika, Jr.: Yeah. One of the things we do work with a lot are multi-generational families, and we've seen some sad cases where there is poor estate planning. The first generation might've missed something like a vacation home somewhere and didn't properly say what they wanted to do and it passed on to the next generation. It's sad. It causes fights.
We've seen some families do it really well. Well, they'll have family meetings, almost like a boardroom of a company, and they will talk about what they expect their wealth, how it's supposed to transfer, and what their wishes are.
So, yeah, we've seen the good and the bad, and I think it's an interesting thing that's happening right now because more and more conversations that we have with these families is all about multi-generational family planning.
I know we're getting close to the end of our time here, but do you have any final thoughts on things that we might have not touched on that you think will be important when it comes to the research that you did?
James Mazeau: We touched on a lot. I think some people have asked me that growth in the US outpaced out of other country this year. Is that trend tend to continue? Could we have a reversal, a change of fortunes? But also we touched upon when we talked about what other countries could be coming up. What could destroy wealth? What is '25 going to look like, because we looked at 2024?
I usually say that with a rather weak US dollar versus a basket of currencies this year so far, it won't change much to the wealth expressed in US dollars. If we look at the wealth composition of most households, they don't hold that many foreign or international equities or assets. Most of them are US-related assets or US-designated assets. So it's not going to change much.
It's maybe going to change things for the very top wealthy people, but not that much. Even with a weaker US dollar, it could also mean that you have earnings that are translated into US dollars that would be stronger, and all else equal, it would just maybe boost your valuations that are denominated in US dollars.
So it won't change much. What could change is if you have a recession, economic recession, in the US, that could be policy-driven. This could impact wealth growth of US households. But apart from that, I think we've touched upon most of the things, John. I don't know if you're happy with it or if you want to redo a couple of questions or add some things.
John Petika, Jr.: No, I think this is great. I think we covered a lot. If you're listening to this podcast, you can get the 2025 Global Wealth Report. You can reach out to us. You can shoot us an email at petikawm@ubs.com, and we'll send you a digital version.
But, no, James, I think you and your team did great work on this. I'm looking forward to as these continue going forward and the different drivers of wealth, and it's good. As long as wealth is being created and people have jobs, that's good and it makes it a prosperous country, and that's good, and that leads to good things. So thank you, James. I really appreciate your time with us today.
James Mazeau: Thank you very much for having me, John.
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