Study: Having $2 Million Does Not Make You Wealthy
Charles Schwab recently released its annual modern wealth survey and the results are more interesting than ever. The study is an annual examination of how 1,000 Americans between the ages of 21 and 75 think about saving, spending, investing, and wealth.
The biggest news out of the study is probably this:
Americans believe it takes an average $2.3 million in personal net worth to be considered “wealthy.” That’s more than 20 times the actual median net worth of U.S. households, according to the Federal Reserve’s Survey of Consumer Finances released in 2017.
So having $1 million or even $2 million is not considered wealthy nowadays in America. Who knew? I’ll say this with some snark but lots of seriousness, these survey participants really need to spend some time in 2nd and 3rd world countries.
Maybe this is their problem. From the study…
The best advice I can give them would be this….
From the survey:
The burden to ‘keep up with the Joneses’ has been part of our culture for decades, but it appears that social media and the fear of missing out (FOMO) have increased the pressure to spend,” said Terri Kallsen, executive vice president and head of Schwab Investor Services.
The Bloody Socials
Shocker alert, social media ranked as the worst influence on how the survey participants manage their money.
From the study:
More than a third of Americans admit their spending habits have been influenced by images and experiences shared by their friends on social media and confess they spend more than they can afford to avoid missing out on the fun.
I guess that means all those pictures of food at kitschy restaurants really do have an effect. The social engineers, errrr… people manipulators, err….. employees at Instagram, Facebook, and Twitter are no doubt delighted to see these results. Their ability to manipulate you algorithms will only get better as a result.
You Might Need A Plan
Full disclosure – I’ve never had a financial plan or even a budget and I reached financial independence in my mid 40’s. Plans and budgets are great tools but their usefulness is very personality based. I tend to have a “wing it” personality in most aspects of life. I do not necessarily recommend this to others.
From the study:
More than 60 percent of Americans who have a written financial plan feel financially stable, while only a third of those without a plan feel that same level of comfort. Those with a plan also maintain healthier money habits when it comes to saving.
So according to the survey most people are not like me and probably do need a financial plan. The ones who have one are clearly doing better.
Perhaps they wrote in their plan what they would do if they had a million dollars. From the study…
Sigh…. This is clearly not what they should have written. Having a written financial plan clearly does not assure that it’s a good one.
As fierce financial warriors we know the correct answer is to pay down your debt first, with a low-interest mortgage arguably being the only acceptable debt to carry.
But okay, what would they spend this $1 million on? According to the survey they’d spend it on a house first. In the vast majority of the United States one does not need $1 million for a house. But the gargantuan home bloat phenomenon continues and there’s lost of great pics on the socials of those perfectly manicured mansions.
After the home, the survey respondents then said they’d spend it on cars (sigh) and travel.
Only then would they pay down debt.
Gotta Love The Optimism Though…
Only 8% of the survey respondents considered themselves wealthy. Remember, according to them that means being worth about $2.3 million.
But a full 60% think they will be wealthy one day. And of those, 52% think it’ll happen within 10 years. Confidence is a great trait to have.
However, according to their other responses in the survey they better put away their phones, ignore what their neighbors and friends are doing, and get to work.
Ten years goes fast.
Wow, that’s some incredible optimism. I find it astounding that 54% would spend a million dollars rather than invest it. That says it all right there — financial education in America is in terrible shape.
I think the results of this survey really say that most people want to be wealthy, but they have no idea how to go about *becoming* wealthy.
Clearly, personal finance bloggers like you and I have our work cut-out for us!
$1,000,000 will immediately annuities to roughly $37,000 per your, indexed to inflation.
That’s a lot of security for the average person.
$2.3 million is about $85,000 per year indexed to inflation, for life.
I usually spend 30,000 – $40,000 per year, so $2.3 million to me is a TON.
Yep, we better get don to work Tako. You teach ’em how to pick winning stocks and I’ll show them the indexing way – let’s go!
Interesting results of this survey. Sort of reminds of me of the Barenaked Ladies song If I had a million dollars. I mean haven’t you always wanted a monkey? LOL
In the 80s $1M was considered wealthy so the $2.3M now is probably in line with that given the erosive effects of inflation.
Yes inflation matters a “millionaire” doesn’t mean what it used to, but $2.3 million dollars is a butt-load of money.
Actually it’s only $7,666.00/ month at a 4% withdrawal rate for 30 years. So if you retire in California you might not be able to maintain your lifestyle throughout retirement.
$7666 month is a butt ton of money, I stand by it 🙂 And I’ve spent tons of time in California and there are plenty of places in that beautiful state where you could easily live on that. It’s not just all SF, SD, and expensive coastal towns. My friend is a mountain guide in Bishop and makes around 80k a year, he lives very very well. And he gets to climb all day 🙂
My parents ages 93/91 recently passed away. They had been living in an assisted living facility for the past five years in Solana beach, Ca. They had a small two bedroom , one bath , kitchenette. It included three meals a day weekly maid service etc. The facility was very nice but not extravagant. I would liken it to a cruise ship that didn’t leave port. Planned activities, local transport etc. There was a base rent of about 6K a month, a second occupant fee , a fee for medication management (times 2 ) and then a tiered fee for levels of care based on the numbers of additional hours staff had to spend dressing , bathing , transporting etc. (times 2) . It is true my brother and I could have placed them in a less expensive facility ( in Bishop) but we wanted to be closer to them so they could continue to participate in family gatherings etc. in the end the monthly fees were running around 17,000/ month……………yes you read that correctly. The long term care industry is designed to relieve you of all worldly possessions. Even 2.3 million may not go as long / far as you expect.
Similar experience with my wife’s mom. My mom hired caregivers, 12 hours a day, 15 dollars an hour who take care of every need at her own home. Works out to about $6,000.00 dollars a month caregiver fees. They cook, bath, drive etc. My mom lives in a really nice house and did not want to leave. FYI my mom needs to be in control – this gives her that.
Aging in place is the best option , in my case my parents moved from the Midwest to be closer to my brother and myself. The home they sold could not be replicated for anywhere near the same price here.
Thanks for sharing your story as well, it helps me think about things I might have to deal with.
My Mom is about that age and the prospects of long-term scare scare me, a lot. It’s another reason that I’m not fully W2-retired. Thanks for sharing your story
“these survey participants really need to spend some time in 2nd and 3rd world countries.”
YES! Exactly. This is exactly what I routinely tell people. People in these countries have little to nothing, yet many do just fine with much, much less than what we have. The ones who struggle are on the brink in a way none of us can imagine because there’s no safety net – no food stamps, no disability, no nothing. Either they stick together with family and make a situation work or they fail, but it’s all on them. And contrary to popular belief, as much as we love granite (or quartz or whatever) counter tops, they’re not necessary and will never make your food taste better.
But scary results. It definitely illustrates how little understanding people have of finances and how much education is necessary.
Wait, did you say granite countertops aren’t necessary for survival? I’ve been lied to!!!
Probably by HGTV! I’m a total HGTV junkie. 😉
Americans do not (on the whole) take vacations outside ‘Murica. They go to DisneyLandWorld, Six Flags (even though they don’t know other flags used to fly over this land), the beach, the mountains and places in the lower 48. Before the Patriot Act, only 4 percent had passports because they could use their driver’s license or birth certificate for ID when crossing into Canada (and rarely into Mexico). If you gave them a plane, the vast majority still would not go. I agree they need to get out even just in this hemisphere. Americans need to visit the second oldest democracy in this hemisphere —Haiti!
I feel like I have a distorted view because so many people I work with travel abroad regularly. On the same hand, though, some people constantly ask about the “strange” and “dangerous” places I go and I want to go to such “weird” places. I was also told how naive I was before going to the Middle East on my own and that I had “really better be careful!” Of course, it was usually by people who never went beyond the Jersey shore. (insert eye roll)
I’ve been to the “bush” of Kenya twice and my biggest takeaway has been this: These Kenyans living in grass huts with no water or electricity, who live on about $1.50/day from goat herding, are some of the most pleasant joy-filled people I’ve ever been around. They are welcoming and will literally roll out the (hand-woven grass) welcome mat in the shade for you to hang out and be comfortable. If they have something you need, they’ll give it to you. They aren’t constantly striving for more stuff. They’re content as long as the village water hole still has some water they can reach.
I’ve been to Kenya as well, in addition to many other really poor countries. You’re so right, they’re more happy than us in general.
I had a very similar experience in Ecuador with a family who lived in a hut filled with guinea pigs. They had no use for money. Guinea pigs served as their currency. The man of the house/farmer was so proud of his home and land. But you often hear that those with the least to give are the most generous. We can all learn from that.
Read a book recently “Mean Genes”, sort of a compilation of what genetic code people think of how genetics affect human behavior. Under the chapter “greed” the authors think everyone is programmed genetically to never be happy with what they have in terms of material possessions. You get a brief uptick in happiness when you get a surprise influx of money, but then back to normal level. This is why billionaires did not stop at 100 million. Bottom line – you will never be made happier acquiring material things or wealth because your ancestors were probably the ones that never stopped acquiring and therefore produced more offspring that survived. Seems disturbing to me, but you can use this book to rationalize never retiring.
Thanks for the comment, the book sounds interesting and I’m gonna put it on my list.
Interesting. It could be based in biology and the need to pursue more for survival and propagation of the species.
yup. i found the book depressing. wish i never read it. ignorance is definitely bliss when it comes to genetic determinants of behavior. unless – you use it to manipulate people. guess what…
I’m gonna skip that book. 😉
Maybe we need a guinea pig index fund 🙂
Aw, I love that idea!
we never had a written plan either, but i did figure out what our lives cost when i got this job around ’04. we were living well, in my opinion, and started saving like crazy and investing those savings. i hope the masses don’t stop wasting money on the goods and services of the stocks i own. they’ll sink like rocks if that happens!
2 million bucks is a lot of money.
Ha, love it. Let’s hope the masses keep mindlessly consuming so we can reap the profits. Very sinister 😉
That’s really optimistic. I think it’s mainly due to the good economy. I’m sure people would be a lot more pessimistic when we get a recession. It’s pretty amazing the majority think they’ll be wealthy in 10 years. How is that going to happen when they want to spend a million dollar? I guess wealthy means spending more to most people.
I didn’t have a written plan when I was young. It was mostly just spend less and invest more. That works.
I agree Joe, when the recession/correction comes, it will be fascinating to see how things play out, esp in the FIRE community.
It is always shocking the attitude, perception and of course the level of financial intelligence that many in North America have. Our hope is that more people clue in to a more sound economy based in ecological wisdom which could be achieved if we transitioned to buying to own rather than buying to consume.
As for that $2 million, wow that is just crazy as I feel beyond blessed and set for life with half of that in net worth.
I agree, $2.3 million is a butt-ton of money. Besides living in NYC or San Fran you’re set for life anywhere else.
The optimism is a good thing. That is the starting point. We need to couple that to financial education.
I agree, a positive mindset is a good start, but the behavior must match the mindset.
I recently received $1,000,080. lump sum (had no other option) USA dollars as part of my pension. Live in California. Taxes took slightly less than 1/2 of it. I put all the money into VCADX. This is how i see inflation. How much does a “good” car cost new? In 1971 a good new car out the door was about $3,500.00 dollars. Now it is about $43,000.00 dollars. Figure things in 2019 cost 12 times what they did in 1971. A million in 1971 is equal to a 12 million portfolio now. No need to get excited about receiving one million dollars in 2019. By the time you are done with taxes where I live it is actually $54,000.00 dollars in 1971 money. Much of life is illusion. One million dollars is an example.
Well a lump sum is taxed differently than earning a salary of $1 million or gaining $1 million in cap gains. True that a million doesn’t mean what it used to but I would say someone with $1.5 million in net worth is wealthy in the majority of America. “Wealthy” is a very subjective thing of course, so many would disagree with me as the survey participants obviously do.