April 11, 2016 by Jean
I’ve been kept away from blogging recently by the intense rehearsal schedule leading up to my Beethoven concert. Even though I wasn’t writing blog posts during the period just before the concert, however, I was still processing ideas about inequality triggered by Stiglitz’s The Great Divide (see Who Benefits?). In particular, I’ve been thinking about what it means to be rich.
We might think of ourselves as rich in relationships or rich in experiences; but mostly, when we think of being rich, we think about money. But how much money makes us rich? This is a tricky question to answer because we evaluate our situation by comparing ourselves with others we come into contact with, and the segregation of American society by socioeconomic status means that we mostly interact with people whose economic situations are similar to our own. When I was a child living in a working-class neighborhood of tenement houses, shops and factories, I thought the people who ran the general store on the corner were rich. They lived in a spacious flat above the store that had plush wall-to-wall carpeting, their daughter had a crayon box with 128 colors (I had never had more than 8 colors), and they bought new clothes every year in the fancy department store downtown (my sister and I wore their hand-me-downs). When I went to college, the range of income I encountered widened and my understanding of who was rich shifted to my classmates who were children of doctors and lawyers.
As a professional sociologist, I had a clear understanding of the income structure of the United States and knew my college professor salary put me in the top 20% of American households. I contrasted this awareness with the attitudes of academic colleagues who complained about their salaries, feeling poorly compensated in comparison with other professionals. But I did not think of myself as “rich,” reserving that characterization for the super-rich with their mansions, fancy cars, private jets and lavish lifestyles. In this, I was typical. Almost no one in the United States considers themselves rich. Indeed, because of that tendency to compare ourselves with similar others, the more affluent are actually more likely to feel that they don’t have enough.
One way to distinguish the affluent from the rich might be to look at wealth rather than income. Where income refers to how much a household has coming in a year (in wages or interest on savings or capital gains), wealth is the value of everything a household owns minus the value of any debts (net worth). One definition of “rich” is being able to live on the proceeds of wealth without having to work for wages. The range of wealth in the United States is much broader than the range of income and much more unequally distributed. Knowing this, I assumed that I was lower down in the wealth distribution than in the income distribution.
I was prompted to take a closer look at my assumptions when one of the friends in my book discussion group sent me an email noting that there are many more millionaires (those with net worth of $1M or more) in the United States than she would have guessed, and I realized that if you add together the value of my retirement funds, other savings, and the value of my house, I come very close to being a millionaire! Was I typical? Were many of those millionaires sixty-somethings with substantial retirement savings and paid-off mortgages?
Trying to understand the role of retirement savings in the wealth of Americans led me to a U.S. Census Bureau report on the distribution of household wealth, where I was flabbergasted to discover that my assets put me in the top 10% of wealthiest American households (those with net worth of $630,754 or more). Retirement savings are indeed an important component of wealth in the United States. Those in the 65-75 age bracket are wealthier as a group than any other age group, with those of retirement age disproportionately represented among the millionaires. This is also the only age group whose assets increased in the aftermath of the Great Recession. The great wealth divide seems to be not between the billionaires and the rest of us, but between those who have retirement savings and those who do not.
This has been a difficult post to write because I find myself resisting the idea that I am wealthy. After all, I don’t live in a mansion (or multiple mansions), travel in a private jet, or buy $5000 shower curtains. My idea of a great vacation is tent camping at public parks. And yet, I have resources that more than 90% of Americans would feel themselves very fortunate to have. It’s tempting to attribute those resources to my own hard work and thrift. But the fact is that, although I have always lived below my means, I could not have done so without a salary that left me with discretionary income. Even more importantly, I worked at a profession and for an employer with a generous retirement plan, one that most American workers, especially those with the lowest wages, don’t have access to. My employer contributed 10% of my salary to a retirement account for me. Even though I put in extra money of my own beyond that, TIAA-CREF (the holder of my retirement account) tells me that 60% of my retirement savings can be attributed to the contributions of my employer – which means that, even if I had never put in any retirement savings of my own, I would still be in the wealthiest 10%.
How will this knowledge change the way I think about my money? I don’t expect to start living a lavish lifestyle, but it’s important to realize that my assets give me options that others don’t have and to be sensitive to that. I am remembering with some embarrassment an online exchange I had recently with a Master Gardener who was expressing disappointment with the cost of courses at the Coastal Maine Botanical Gardens. I jumped in to defend the garden, saying that I thought the cost of the courses was justified. But he was not criticizing the garden for ripping people off, just saying that the cost put the courses out of reach for most people. I was tone-deaf to that concern.
With wealth comes responsibility. Not just the responsibility to be aware of and sensitive to my privileged position, but the responsibility to be generous. Once I got my head around my position in the wealth distribution of the United States, I went back into my budget to rethink the distribution of my income. I did not increase the amount of monthly income I am taking, but I did reduce the amount I budget in some areas (e.g., clothing, entertainment) in order to increase my budget lines for gifts and charitable contributions. I can no longer tell myself that I can’t afford to contribute much to charity, that the wealthy will have to take that on. I am one of the wealthy.