Potential for Wealth & The Basics

What separates those who have the highest potential for building wealth from others? Is it exotic investments or timing the market? In many cases, it’s the basics of financial planning.

In our latest white paper, we discuss how Wealth Potential groups differ in terms of their behaviors and self-reported experiences related to financial management. We measured Wealth Potential with Data Points’ proprietary assessment of frugality, confidence, level of responsibility for one’s finances, and focus on trends and social pressures. When we divided the sample into groups, we found that high potential respondents reported engaging in what could be considered more positive financial behaviors and experiences than did their low and medium counterparts. Knowing client Wealth Potential can help firms and advisors predict how clients might behave when faced with financial challenges. 

Specifically, while over 60% of our sample indicated that they know how much their household spends each year on food, clothing, and shelter, there are differences in the level of knowledge between Wealth Potential groups: A larger percentage of high potential respondents (82%), versus their low and medium counterparts (41% and 65% respectively), indicated knowing how much they or their household spends each year on major budget items. Additionally, high and medium potential individuals indicated that they have easily tracked personal expenses and receipts compared to the low potential group. Whereas 87% of high potential respondents indicated it was easy or very easy to track, just over one-third of low potential respondents indicated the same. Understanding client Wealth Potential at the beginning of a relationship can help advisors and firms appropriately coach clients on the basics if needed, especially as their finances become increasingly complex over time given life events.

Although lower than expected, 85% high potential respondents indicated rarely or never taking money out of savings to pay monthly bills, while 59% of medium and 32% of low potential respondents never or rarely did so. Being able to predict this kind of action in the future may help advisors be a true mentor to their clients: coaching them to adhere to budgets and helping them understand when it is appropriate to take money out of savings.

Adapted from Financial Behaviors & Wealth Potential. Get the complete Financial Behaviors & Wealth Potential report here.

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