I know, I know: the title “gives the game away.” And it does. But perhaps not in its entirety, Gentle Reader. I restrained myself from applying the title I really wanted to use.
Breck Dumas of Fox News tells us:
It takes more to be viewed as rich in the U.S. this year than it used to, according to new data.
Charles Schwab’s annual Modern Wealth Survey released this week found Americans now believe it takes a $2.5 million net worth on average to be considered wealthy in 2024, up from $2.2 million for the past two years.
[…]
Although the results showed Americans think it takes more to be wealthy now than it did in years past, the survey indicated they believe the amount needed for financial comfort has declined.
Respondents said that in 2024 it takes a $778,000 net worth to be financially comfortable, down from last year’s survey, where they said it takes a cool $1 million.
The article also delves into differences of view among regions, especially among cities. One highly revealing statement came from San Francisco:
In San Francisco, residents said a person needs $4.4 million to be considered wealthy…
That’s Tony Bennett’s city by the bay for you. Keeping one’s lawns free of used needles and feces comes at a high price.
Note that the amounts given in the article are about one’s net worth: i.e., the value of all your possessions minus the amount of your aggregated debt. Most people don’t have a precise idea of their net worth, which should come as no surprise. It can be hard to compute the value of everything you own. (Determining the depth of your debt is a trifle easier: just add up the figures from all the dunning letters.) Besides, who would pay for all your used appliances and your old clothes? Never mind the amount.
The typical financial advisor takes a simplified approach that ignores movable property. His computation of your assets would include only liquid wealth plus equities plus real estate. If you own something very rare or collectable, he might grudgingly allow that into the total. Nevertheless he would caution you about how the market for such things can vary from your expectations and over time. That’s a cautious approach to net worth, one that I prefer.
However, that financial advisor certainly would include the entirety of your debt. He’d demand to know about your mortgages, home equity loans, car loans, loans on major appliances, credit card balances, and whatever else you owe to anyone for any reason. These days, Americans tend to owe a lot, in a lot of directions. That’s one of the reasons it’s been said that the dollar is based on debt: we have to work like Billy Hell to meet all those monthly payments.
The key to what’s been called middle-class poverty lies in indebtedness. That’s also the key to staying out of it.
If you own a single-family home free of any mortgage or line of credit, you’re on your way to financial comfort by most people’s standards. (Yes, the annual property tax rip-off must be considered, but in most parts of the country property taxes average about 1% of the market value of the home, are deductible from other taxes, and thus are relatively moderate.) Home prices, averaged over the whole nation, are near to half a million dollars. New home prices are higher still. That looks awfully good on your financial guru’s list of assets. But remember that you must own it free and clear: no mortgages, lines of credit, or liens. Most American homeowners carry mortgages, which dims the picture somewhat.
Savings? These days they’re getting pretty rare. The economic slump has eaten deeply into Americans’ savings. A substantial number have had to tap their IRAs and 401(k) accounts to meet current needs. Arguably worse, we tend to spend all too lavishly on non-necessities: home improvements, new cars, new furniture, travel and vacations, dining out, electronic gadgets, all the day-to-day indulgences that characterize contemporary American living. In consequence, a great part of Americans’ aggregate savings lies in those IRAs and 401(k) accounts. The balances there, while they can be impressive, must be discounted by a large factor. They’re made up of deferred income, and therefore not yet taxed. (Roth IRAs are an exception.)
So the status of “wealthy” is not that easy to achieve. You must rid yourself of all that debt. That can take a lifetime… if you can manage it at all.
If there’s any financial Prime Directive parents must teach their children, it’s to avoid debt. That’s harder than it’s ever been. It’s virtually painless to borrow money these days, which is a big part of the reason for Americans’ diminished ability to defer gratification. Our preference for indulgences today at a price to be paid tomorrow lands a lot of us in financial quicksand. That quicksand can be escaped in most cases, but it usually requires a degree of self-denial far more stringent than the original delay of gratification would have been.
Some of the oldest maxims about controlling spending and debt are among the best:
- Save a little every week.
- Don’t carry a lot of money around.
- Don’t use credit unless it’s unavoidable.
- Before every contemplated purchase, ask yourself “Do I really need this right now?”
If you’re a financial “sinner,” who’s entangled himself in debt and would dearly love to be free of it, don’t regard yourself as forever lost. Apply the four rules above and meet your payments. Gaze forward in time to the shimmering prospect of debt freedom. And stay upbeat.
When the great Sir Edward Grey wrote that “Happiness consists, not solely in having what one wants, but also in not having what one does not want,” he probably wasn’t thinking of personal debt. Then again, given the sort of financial difficulties for which the European landed nobility have long been famous, he might have at that.
Here endeth Fran’s unplanned harangue on wealth, money, and debt. Have a nice day.
