Interpretation of the 2023 China Household Wealth Health Index Report

On January 23, 2024, under the guidance of CITIC Financial Holdings, 12 companies, including CITIC Bank, CITIC Securities, CITIC Construction Investment Securities, CITIC Trust, CITIC Prudential Life Insurance, CITIC Consumer Finance, CNCBI Wealth Management, Baixin Bank, China Asset Management, CITIC Prudential Fund, CITIC Publishing, and CITIC Technology, jointly held the "Finance for the People - CITIC Wealth Festival Annual Ceremony" for the first time, and broadcast it live on Xinhuanet, Sina Finance, the APP of CITIC Financial Holdings, and CITIC Fortune Plaza.

This annual ceremony invited a number of domestic and foreign economists such as Russ Tweed, Kevin Kelly, Guan Qingyou, etc., and joined forces with CITIC research experts in various fields to discuss the topic of wealth management in the new era, put forward forward-looking views on the market in 2024, create an audio-visual feast with the collision of ideas, and help people live a better life with professional services.

Jiang Hongwei, assistant general manager of CITIC Prudential Life Insurance, interpreted the "2023 China Family Wealth and Health Index Report" at the annual ceremony, introducing the three-dimensional thinking of "risk", "return" and "scenario" to help families improve the resilience of wealth management.

Jiang Hongwei, assistant general manager of CITIC Prudential Life Insurance Co., Ltd

Jiang Hongwei believes that insurance, as a financial tool that is naturally linked to risk, plays a particularly key role as a gatekeeper in our family, guarding the last line of defense of family finances.

In 2022, CITIC Prudential Life Insurance, together with the Financial Associated Press and the Department of Social Psychology of Nankai University, created the Family Wealth Health Index (HWI) based on the concept of life-cycle risk coverage, providing each family with reference and evaluable family wealth health indicators and improvement directions through a four-dimensional wealth health scoring system of expenditure risk, sudden risk, investment risk and preservation risk.

In 2023, PwC Consulting assisted CITIC Prudential Life to comprehensively upgrade the Family Wealth and Health Index, continue to track the dynamic changes of the index, and provide solutions for families to formulate risk protection plans. At the ceremony, Jiang Hongwei interpreted the "2023 China Family Wealth Health Index Report" from three aspects.

Four-dimensional risk consideration: Comprehensively carry out family wealth planning

Jiang Hongwei said that through the survey, it was found that with the growth of age structure, the influencing factors of family assets, liabilities and cash flow are more diversified, which drives us to pay attention to the development pressure faced by families in various scenarios and carry out family wealth planning more comprehensively and rationally.

First, the sudden risk dimension shows that the awareness of family risk protection has improved, but the overall risk insurance coverage is insufficient. Compared with last year, the proportion of surveyed families with life insurance, critical illness insurance and other products has increased by 9.2 percentage points, but on the whole, 76% of families are still unable to cover five times their annual income with life insurance, especially a quarter of start-up families have not made risk protection allocation.

The second is the dimension of expenditure risk, consumer spending is more pragmatic, the awareness of pension planning is improved, and the attention to future cash flow guarantee is improved. The biggest concern of respondents about retirement life is the lack of wealth reserves, and the proportion of customers who choose to have insufficient wealth reserves has reached 45.4%, which has nearly doubled compared with last year. More than sixty percent of the respondents have opened a personal pension account, but more than one-third of the account holders have not yet carried out product configuration, families are more cautious when choosing pension products, and need to have a further understanding and cognition of pension financial products, so as to choose their own personal pension products.

The third is the investment risk dimension, the expectation of various investment returns has declined, and rationality and prudence have become the background color of investment. Since 2023, the performance of the domestic financial market and various investment assets has been under pressure, and the market performance has shown "volatility" and "shock" development. Domestic households recognize and follow the investment philosophy of diversification, but generally believe that investment is more difficult.

Fourth, in the dimension of asset preservation, asset isolation and wealth inheritance have gradually attracted attention, but they have not yet become a necessary action for family wealth planning. Nearly 50% of the respondents have built a family asset firewall through financial instruments such as insurance and trusts. The higher the annual household income, the higher the proportion of respondents considering wealth inheritance plans, with more than 70% of respondents with an annual household income of more than 1 million considering or having taken relevant actions.

Survive cyclical fluctuations and enhance the resilience of family wealth development

Jiang Hongwei pointed out that it is necessary to break through the two-dimensional thinking of the balance between "risk" and "return", build a three-dimensional thinking of "risk", "return" and "scenario", focus on the changes in the family life cycle, form a stress test concept, and simulate a number of risk scenarios to measure whether the family's cash flow is sufficient and whether the family's quality of life can be maintained.

The three-dimensional thinking of "risk", "return" and "scenario" is a new type of thinking on the measurement of cost and benefit, and a re-weighing of family "development" and "security". Change static thinking to dynamic thinking, and achieve a high-quality development model of seeking progress while maintaining stability by carrying out family wealth stress tests.

Jiang Hongwei believes that it is necessary to comprehensively identify the risk factors that affect the development of the family, analyze the direct impact of changes in the income and expenditure within the family, and the indirect impact of the external economic shock of the family. Through scenario simulation, the changes in the household cash flow statement and household balance sheet were observed. First of all, it is necessary to ensure that the family capital chain is not broken, and ensure that the cash flow is stable, the quality of life of the family does not decline sharply, and the economic fluctuation period can be smoothly navigated through the period of economic fluctuations by using reserve assets or flexibly adjusting various expenditures such as loan expenditures, parental support expenditures, daily expenditures, children's education expenditures, leisure and entertainment expenditures. Second, it is necessary to ensure the safety of family assets, not to trigger the risk of "family bankruptcy", and to reasonably control the loss of income, reduce the loss of principal, isolate the joint and several liability of liabilities, and ensure the stable development of the family under the most extreme circumstances.

Jiang Hongwei also took the analysis of risk variables of income reduction as an example to explain several scenarios.

The first scenario: the family grows in population, and the daily expenditure will increase the expenditure on raising and educating children. In this scenario, a healthy flow of funds will generally be maintained by adjusting the structure of household expenditure, which will have less impact on the overall wealth status of the household.

The second scenario: if one of the husband and wife is at home full-time because of the daily care of the children, the family income may be reduced by 30% to 40%, in this case, the family consumption needs to be downgraded, and non-rigid expenditure funds will be affected, such as pension reserves, education funds, etc. This requires families to consider the allocation of pensions and education annuities in advance to form special funds.

The third scenario: This is an extreme case, if a family member falls ill, the "breadwinner" of the family interrupts the source of income, and the household income is reduced by 80%, then the rigid expenses such as household loan expenses will face the risk of not being covered. Therefore, families need to make plans to resist sudden risks in advance, such as configuring critical illness insurance, medical insurance, accident insurance, whole life insurance, etc., to build a risk protection system covering all family members.

Jiang Hongwei summed up this as the bottom-line thinking of family wealth management, that is, whether there can be an adequate compensation mechanism for income loss to continue to maintain the normal operation of family life until family members recover and family life is stabilized.

Customer-centric to build a sudden risk control center

Jiang Hongwei said that CITIC Prudential Life, as the only insurance company in the "CITIC United Fleet", continues to provide professional insurance products and services that are more in line with the needs of customers for each family's risk protection system. CITIC-Prudential Life is customer-centric, builds a customer life cycle risk management system, and carries out comprehensive and rational family wealth planning for customers.

He said that from the perspective of insurance allocation, for the "pillars" of mature families under the age of 50, from the perspective of sudden risks, it is necessary to configure the necessary critical illness and medical protection, as well as accident risk protection.

In addition, he also suggested that the allocation of annuity insurance, participating insurance, whole life insurance, etc., should do a good job in family medium and long-term cash flow management, diversify investment allocation, and achieve smooth family investment risks. Finally, through the design of the insurance structure of insurance products such as whole life insurance, or combined with other financial products and tools, the risk isolation and preservation of family assets can be realized.

Finally, Jiang Hongwei concluded that CITIC Prudential Life will continue to improve and polish the "insurance + service" comprehensive protection solution, and launch serious illness housekeepers, health care housekeepers, pension housekeepers, and special personnel for case management, so as to provide customers with butler health management services covering the policy cycle, and give customers the confidence to pursue a better life.

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