October 17, 2002
Once More, With Affluence (Part 1)
So a few months ago my wife signed us up for a free trial subscription to Money magazine. (It would take a free subscription to get me to read the thing, too, because I've never been a huge fan of the glossy financial mags like Money and SmartMoney.) Their Fall 2002 offering, as the cover proclaims, is a Special 30th Anniversary Issue. It's littered throughout (and I do mean littered) with lots of retrospective stories − look how these particular Money readers have gotten filthy rich over the last 30 years; look how right and wrong we were on the stock market over the last 30 years; look how much the price of Himalayan rutabagas has changed over the last 30 years − those sorts of things.
Not much of it interested me, until I hit the issue's centerpiece article: "The Changing Face of Affluence." After reading books like The Millionaire Next Door repeatedly, I now find myself drawn to just about any article or book that touches on the subject of affluence in America. Right off, I'm interested to find out just what exactly the authors of the article believe constitutes "affluence." (Apparently, not everyone shares my belief that a household with an income of $130,000 and a debt load of $95,000 isn't anywhere close to wealthy, or affluent. They just represent the financial world's equivalent of binge-and-purge.)
From June 21 through August 21, 2002, the authors surveyed, via mail, a decent number of American households earning over $75,000 per year.
"We zeroed in on the affluent," they wrote, "meaning those who earn enough to be in the top 24% of American households, because they are the role models for success. Not coincidentally, they resemble typical Money readers."
Self-congratulatory pap aside, one has to wonder: Top 24% of what section of American households? Earners? Spenders? People who didn't get all their funds via inheritance? And how does earning $75,000 or more − with no provision made for debt levels and net worth − designate you as a role model for success?
They tabulated 1,767 responses and used them to compile lots and lots of statistics. Within the study, the majority of affluent decision-makers are between 35 and 54 years old and married, with children at home or in college. Their average age is 47; their median household income is $120,000. In 79% of the affluent households, the affluence is supported by dual incomes. We find out that 74% of them have a net worth of at least $250,000, and 25% of those have a net worth between $500,000 and $1 million. About 19% are millionaires.
(Finally someone mentions net worth. Still, we don't know how the net worth figures are distributed among age and income groups in the survey. Do some quick math with the expected level of wealth (ELW) from The Millionaire Next Door, and you see that the minimum ELW for a 35-year-old with an income of $75,000 is $262,500. So at least 26% of the interviewees − and likely more, since our ELW figures are based on minimums of survey age and income − are really NOT anywhere near true wealth, nor are they on track for it. For instance, a 45-year-old with income of $120,000 − the survey's median − ought to have a net worth of $540,000 if she's headed for true wealth.)
Beginning to get the feeling that many of the article's respondents are more of the "big earner, big spender" type than truly affluent? I was, too. Then you come across this telling paragraph, buried in the middle of page three:
|Counting their mortgages, affluents carry a considerable debt load − 60% owe $100,000 or more − but they are largely confident in their ability to manage their finances. Not that all days are sunny in the world of the affluent: Eighty-five percent of our respondents wish they had a bigger financial cushion, 36% frequently worry about money, and 32% say that they'd have a fairly big or very big problem paying an unexpected $5,000 bill. A sizable minority of 24% actually dread the day they have to pay their bills. And 42% report that they are buying less this year so that they can pay off their debts.|
Okay, personally, I'm 31 years old. I'm nowhere near affluent. My income is well shy of the $75,000 mark, and I'm currently the only wage-earner in our household, which, since my wife and I are expecting our first kid in December, is the way I want it. I am nowhere near my age group's ELW. Do I wish I had a bigger financial cushion? Yep, and I'm building it. Do I frequently worry about money? Sure − expecting your first child can do that to you. Would having to come up with an immediate $5,000 be tough? Absolutely. However, I haven't "dreaded" bill-paying for several years now. And this tells me something about the true financial status, and spending patterns, of at least one quarter of the respondents. I'm not so sure they've got their financial houses as well-managed as the authors of the article would like us to believe.
Later on, you read this:
|"To be affluent, you need to be able to buy most of the things you want, take a vacation once or twice a year, and still save," explains Edward Wolff, an economics professor at New York University. "You also need a cushion of assets to protect you from hard times. In most of suburban America, an affluent family with two kids would require an income of at least $100,000 a year and assets of $1 million." Only 15% of our survey respondents meet this standard, which is mighty high.|
Mighty high? Maybe. But what we see here, again, is that everyone and their mom has a different definition of affluence. And the editors of Money magazine seem to really want us to believe that their readers have found the way to wealth merely by bringing in high salaries ... and, of course, by reading their magazine's slick pages. Sure, these folks spend. Sure, they have debt. But hey − they're still richer than you. Right?
I'll relate some of the more interesting statistics in Part 2 of this article.
October 17, 2002
Play Great Defense