What is Considered Wealthy?
How does one define wealth? The dictionary defines wealth as an abundance of valuable possessions or money, or the state of being rich and having material prosperity, or even simply having a plentiful supply of a particular resource (money?). You could break it down even further and define wealth by generation. A Millennial may define wealth differently from someone in Gen X or a Baby Boomer.
So how do you define wealth? I wanted to touch on this subject because I recently came across a number of different articles and research papers that I read on the subject. All of very fascination, and enlightening, but very different, because the definition of wealth varies so much by age, generation, and even more so by region and demographics. A Baby Boomer in small-town Iowa is going to have a very different idea of what being “wealthy” means when compared to a Millennial in San Diego or Boston.
Charles Schwab performed a study on the subject, called the ‘Modern Wealth Index’ and came to the conclusion that we, as American’s, overall define wealth as having a lot of money, enjoying life, being able to afford whatever they want, and ultimately living stress-free. Pretty simple definition of wealth…but just how much money is considered a lot to enjoy life and afford whatever you want?
How Much Money Makes You Wealthy?
- The average American says they need $2.4M to be wealthy.
- The average American says they need a net worth of $1.1M to be financially comfortable.
- Philadelphia and Houston had the lowest wealth threshold of the participating metros at $1.7 million each.
- Boston and Denver came in just below average ($2.4M), with a desired net worth of $2.1M to be wealthy.
- San Diego residents say they need a net worth of $2.7M, while Los Angeles residents say they need $2.6M.
- New York residents came in at the highest, with a needed net worth of $3.2M in order to be considered wealthy.
Note: net worth is assets minus liabilities. For many people, home equity can make up a big share of net worth, followed by retirement and investable assets.
How Are We Improving our Wealth Accumulation?
The true way to build wealth is by budgeting, which allows you to live below your means. Next, you must set up a financial plan and corresponding financial goals, while saving and investing toward said goals. And then it’s all about staying on track with your budget, savings, and financial goals; you must stay the course, for a very long time, in order to truly achieve wealth.
- About two-thirds of Americans have a financial plan, but only a quarter has plans in writing.
- 74% of Millennials have a financial plan; 34% have one in writing and 40% have a financial plan, but just not in written form.
- 62% of Gen X have a financial plan; 21% in writing and 41% have an unwritten plan.
- 58% of Baby Boomers have a financial plan; 18% in writing and 40% have an unwritten plan.
- Those with a written financial plan are more likely to have a budget, a rainy day fund, and a monthly savings goal.
- Millennials and those with a written financial plan are most likely to have engaged with their work-sponsored retirement account.
- 84% of Millennials and those with a written financial plan are most likely to be aware of brokerage/investment account fees.
- 75% of Gen X’ers and 65% of Baby Boomers are aware of account fees.
- 35% of Millennials are “very confident” in reaching their primary financial goals, compared to only 17% of Gen X’er’s and a paltry 13% of Baby Boomers. Obviously time comes into play here…Baby Boomers are approaching retirement and know exactly where they stand, whereas us Millennials have nothing but time on our side to help correct any issues.
Note: I am so very proud of my Millennial cohort here! Look at us planning out our financial futures so much better than our elders. That sets us up nicely for a well-to-do retirement. Funny how Millennials still get a bad reputation for over-spending (avocado toast, Millennials?).
10% of Americans are Worth $1 Million
Few people achieve the aforementioned “wealthy” and millionaire status I just laid out. Only about 10% of Americans are worth $1 million or more, according to a 2017 report by investor research firm Spectrem Group. In fact, to be considered wealthy by this new criteria, you’d need to have about 30 times more than the approximately $80,000 net worth of the average U.S. household, according to the most recent data collected by the U.S. Census Bureau.