Entrepreneurship driving wealth creation more than inheritance

Entrepreneurship has superseded inheritance as the main source of wealth creation in developed economies, according to a global survey of high net worth individuals, while in developing economies many entrepreneurs are now dealing with succession and inheritance planning for the first time.

The Barclays survey – Origins and Legacy: The Changing Order of Wealth Creation – found that there has been a big shift in the way the world’s wealthiest are spending and sharing their money due to changing patterns of wealth creation.

According to the report, 40% of those surveyed listed entrepreneurship as one of their main sources of wealth, compared with 26% for inheritance. In the UK the difference was bigger, with 45% attributing their wealth to entrepreneurship, compared with 14% accumulating it through inheritance.

To illustrate how this has changed over the past quarter century, the report cited the 1989 edition of the UK’s Sunday Times Rich List where only 21% of those included made their fortunes themselves – compared with almost 80% in this year’s edition.

Today, the report said, technology and property are the sectors where people are making money most quickly, and this is even truer in emerging markets – where, on average, it takes 11 and 10 years respectively to accumulate wealth in these sectors, compared with 13 years in other industries.

In the developed world wealth creation takes an average 15 years in the technology sector, 19 years in the property sector and 20 years in other industries.

In India, 84% of individuals agree wealth can be created faster today compared with the past, while in the UK the number of people who agree with this statement is nearly half at 45%.

When it comes to sharing their wealth, HNW individuals in emerging markets are increasingly giving away money to family or charitable causes during their lifetime, rather than as inheritance.

In Qatar, for example, 42% of HNW individuals plan to give away all of their wealth during their lifetime and in India it’s 20%, compared with only 5% of HNW individuals in the UK.

Catherine Grum, head of wealth advisers for the UK and EMEA at Barclays, attributes this to differing perceptions of how wealth can be used to help the next generation.

“Those who have made their money through business in more developed markets, such as the UK, would prefer the next generation to carve out their own path, rather than disrupt the entrepreneurial cycle and discourage the entrepreneurial spirit by simply having wealth handed down to them,” Grum said.

“Wealth creators in emerging markets, however, very much see their money as an enabler for their family and to the wider wealth cycle. They want to pass their wealth down and leave their business as a legacy for future generations. ”

Philanthropy is more common among those who have experienced fluctuations in wealth – which the report attributes to a stronger sense of shared experience with those in difficult circumstances.

Thirty three percent of those whose wealth declined in the economic downturn cited charity as one of the main uses of their wealth compared with 24% of those whose wealth increased in the same period.

European respondents were more likely to give to charitable causes out of a sense of duty and responsibility, with this being the case for 72% of respondents in Spain, 69% in the UK and Switzerland and 84% in Monaco.

Elsewhere, the personal fulfillment philanthropy brings was seen to be a stronger motivating factor, especially in China (71%), Latin America (65%) and South Africa (56%).

The report surveyed 2,000 HNW individuals in addition to interviews with entrepreneurs, academics and professionals.