BCG: Croatians save the most in real estate and cash, missing out on higher earnings from stocks, investment funds, and bonds

The financial wealth of Croatian citizens has grown significantly slower compared to the average in Eastern Europe and is aligned with global growth rates. Over the past 20 years, Croatia’s financial wealth has grown at a rate of six percent per year, while the Eastern European average was 10 percent. This large difference of four percentage points could partially explain the rather unique phenomenon that the real assets of Croatian households are twice the value of their financial assets, commented the results of the wealth survey of Croatian citizens Krisztian Horvath, partner and director at Boston Consulting Group.

– In comparison, in Eastern Europe, this difference is on average only 1.3 times greater in favor of real assets. We expect this growth rate to accelerate in Croatia over the next five years to seven percent per year, while for Eastern Europe as a whole, we expect a growth rate of eight percent – assessed Horvath.

Croatia also differs from Eastern Europe in the composition of its financial wealth. In Croatia, the share of longer-term wealth instruments such as life insurance and pension savings constitutes a significantly larger share (~40 percent) of financial wealth than in Eastern Europe as a whole (31 percent). BCG predicts growth in this category for Croatia, while this component of wealth in Eastern Europe is expected to stagnate at best and decline globally.

From 2018 to the end of 2023, the financial wealth of citizens in Croatia grew at an annual rate of 7.2 percent, reaching nearly $0.1 trillion. Croatia now holds 2.1 percent of the financial wealth of the Eastern European region.

– If we look even more closely at the composition of wealth, we can identify a potential reason for the slower growth of financial wealth among Croatian citizens, as previously mentioned: the share of cash and deposits has been much higher in Croatia than in Eastern Europe or globally. Meanwhile, bonds, investment funds, and stocks, which could generate higher long-term returns for investors than cash, are much less present in the portfolios of Croatian citizens – says Horvath.

These asset classes, with their combined share of 22 percent, are just slightly above half of the Eastern European average.

– Interestingly, at the same time, Croatia shows one of the more appropriate distributions of wealth within its society in Eastern Europe. People with less than $250,000 own 72 percent of total wealth, significantly more than in Eastern Europe (42 percent) or globally (30 percent). Although we see a slow decrease in that number, dropping from 75 percent in 2019, we still see a lower concentration of wealth in Croatia than elsewhere – comments Horvath.

This is especially true for the ultra-wealthy segment, which consists of people who own more than $100 million. This layer owns only three percent of total wealth, which is much less than the global 14 percent. It is worth noting that Eastern Europe shows an interesting pattern with 32 percent owned by the ultra-wealthy, but that number is skewed by Russia.

BCG expects the number of potential private banking clients in Croatia to grow, as the number of people with wealth above $250,000 could increase by 50 percent by 2028.

Regarding the global results of the financial wealth survey, it recorded a significant recovery of 4.3 percent in 2023, following a tough 2022. The majority of the growth was due to recovery in the financial market, as financial wealth – a subset of global net wealth – increased by nearly seven percent, after a decline of four percent in 2022. In the next five years, an estimated $92 trillion of financial wealth will be created.

– To capitalize on the growth of global wealth, industry players, among others, will need to establish a clear digital transformation strategy and leverage GenAI to manage costs and improve customer experience – said Michael Kahlich, executive director and partner at BCG and co-author of the report.

Financial wealth trends by region

Financial wealth in North America and Western Europe recovered in 2023. Supported by strong stock markets, North America was among the fastest-growing regions, with more than 50 percent of its new financial wealth in 2023. The recovery was not as strong in Western Europe, where financial wealth increased by 4.4 percent.

Although financial wealth in the Asia-Pacific region grew by only 5.1 percent in 2023, mainly due to a slowdown in wealth creation in China, BCG expects significant growth by 2028, with the region likely contributing nearly 30 percent of new financial wealth by 2028. Besides China, India is well-positioned as a driver of greater wealth, generating approximately $590 billion of new financial wealth in 2023, its largest increase in history.

International wealth increased by 5.1 percent in 2023, to $13 trillion, which is a slightly stronger figure than last year’s.

GenAI and the future of wealth management

BCG’s research on GenAI in financial institutions revealed that among more than 60 large financial institutions—including many wealth managers and private banks—85 percent believe that GenAI will be a highly disruptive and/or transformative force. But while everyone is talking about it, many players are still hesitant to act, with 82 percent of them lacking a comprehensive, long-term GenAI strategy and a short-term implementation plan.

– GenAI and other AI tools will disrupt traditional ways of working for wealth managers – said Akin Soysal, executive director and partner at BCG and co-author of the report. From client acquisition and engagement to services and ongoing support, there are many ways technology will streamline operations – also in the area of compliance – while simultaneously improving customer experience. The challenge for wealth managers is knowing where to start.