Understanding Riches: Why Only 33% of Millionaires Feel Wealthy
The U.S. has seen a remarkable surge in wealth in recent years, yet a surprising number of Americans, including millionaires, do not feel financially secure. According to a new report by Edelman Financial Engines, only 12% of Americans consider themselves wealthy. Even among millionaires, just 33% feel the same way. This finding sheds light on the complex relationship between wealth and perception in today’s society.
The report surveyed over 3,000 adults over the age of 30 from June 12 to July 3, including 1,500 affluent Americans with household assets ranging from $500,000 to $3 million. Despite the fact that the wealthiest 1% have seen their net worth increase significantly, reaching a record $46.2 trillion in the first quarter of 2024, there is still a disconnect between wealth accumulation and feelings of financial security.
The Rich Get Richer, But Does It Feel That Way?
The top 1% of earners, those with wealth exceeding $11 million, have experienced substantial gains in their net worth, largely driven by increases in their stock holdings. However, the wealth created in recent years has primarily been concentrated among homeowners, as highlighted by the Federal Reserve’s survey of consumer finances. This trend underscores the idea that homeownership, while an asset, may not always translate into a sense of wealth.
Jean Chatzky, a personal finance expert and CEO of HerMoney.com, explained, “Homes are an asset that we use every day; it’s not like the balance in your retirement account or your savings account.” This distinction between tangible assets like homes and financial accounts contributes to the disparity in how individuals perceive their wealth.
Inflation and Its Impact on Financial Well-being
The past few years have been marked by a period of high inflation, making everyday expenses more costly and squeezing household budgets. While inflation is now on a downward trend, prices continue to rise, putting pressure on consumers. The consumer price index, which tracks the average prices of consumer goods and services, increased by 2.5% in August compared to a year earlier, according to the Bureau of Labor Statistics.
As a result of these price increases, more Americans are turning to credit cards to cover their expenses, leading to a record $1.14 trillion in credit card debt nationwide. The average credit card balance per consumer stands at $6,329, up 4.8% year over year. This growing reliance on credit cards poses a significant threat to building wealth, as high-interest debt can hinder savings and investment opportunities.
Debt: The Barrier to Feeling Wealthy
Debt, particularly high-interest credit card debt, has long been identified as a major obstacle to wealth accumulation. Jean Chatzky emphasized, “Debt is, and has always been, a savings killer.” When individuals are burdened with credit card debt, they are unable to save or invest effectively, hindering their ability to build wealth and feel financially secure.
According to data from Edelman Financial Engines, 44% of Americans view credit card debt as the biggest obstacle to their wealth-building efforts. The New York Fed reported that approximately 9.1% of credit card balances transitioned into delinquency in the second quarter of 2024, highlighting the financial strain many individuals are facing.
The Perception of Wealth: How Much Is Enough?
When it comes to defining wealth, perceptions vary among individuals. Edelman Financial Engines found that 65% of those surveyed believe they would need $1 million in the bank to consider themselves wealthy. However, 28% set the bar even higher, stating that $2 million or more would be necessary to feel wealthy. Among millionaires, 68% indicated that they would need at least $3 million to feel wealthy, with 40% citing a threshold of $5 million or more.
In terms of income, 58% of respondents stated that earning $100,000 on average would allow them to feel secure about their everyday living expenses. A quarter of those surveyed believed they would need to earn over $200,000 to achieve financial security. While income certainly plays a role in feeling financially secure, experts emphasize the importance of saving, investing wisely, and working with a financial advisor to build true wealth.
The Road to Financial Security: Saving, Investing, and Planning
Experts stress that true financial security is not solely dependent on income or net worth, but rather on the ability to save more than you spend, maintain a diversified portfolio, and develop a sound financial plan. Isabel Barrow, the director of financial planning at Edelman Financial Engines, stated, “Feeling wealthy can also be connected back to not having to worry about money.” Living within one’s means, avoiding excessive debt, and planning for the future are key factors in achieving a sense of financial security.
A study by Northwestern Mutual found that only 32% of millionaires consider themselves wealthy, with nearly half recognizing the need for improvement in their financial plans. This highlights the importance of confidence and clarity about one’s financial future, rather than simply focusing on monetary wealth.
In conclusion, the relationship between wealth and perception is complex and multifaceted. While the rich are indeed getting richer, many individuals, including millionaires, struggle to feel financially secure. High levels of debt, rising expenses, and shifting economic conditions all play a role in shaping how individuals view their wealth. By focusing on saving, investing wisely, and planning for the future, individuals can work towards achieving true financial security and a sense of wealth that goes beyond monetary figures.