What Does It Mean to Be Rich?12
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.
Thanks for another great post Jean. I am very sensitive to the fact that others may not have the financial resources that we do. We too, live below our means. And I also resist possessing anything that shouts wealth. It just makes me feel uncomfortable.
As a child, I never thought of us as rich or poor. I just knew that we were happy with our life and had “enough”. In retrospect, we were squarely middle class, and I remember my dad volunteering for extra overtime to make sure we could go on family vacations (camping!) and there were always gifts under the tree at Christmas for all the kids in our large family.
My husband’s generous pension from his state employment has added to our financial security. We were told that his pension was the equivalent of a million dollars in assets over our lifetime. In addition to this, we both managed to save carefully over the years of our employment.
I don’t mind talking about finances with the anonymity of the internet, but otherwise I tend to keep those things private.
I too, am looking at ways to make more of an impact financially with causes that are important to us.
Carole, Because most of us interact only with people from a narrow slice of the economic structure, almost everyone in the United States, children and adults alike, regard themselves as “about average.” I have asked students in an introductory sociology course to first estimate their total family income for the past year and then to describe their social class; those with estimated family incomes of $20,000 (poverty level) and those with estimated incomes ten times that amount (in the top 10%) all described themselves as “middle class.”
When we were building our Porterville house, one of the workers called us millionaires!
It was shocking to realise that is so. But not ‘dollar’ millionaires.
And the one per cent are light years beyond us, who are merely middle class. Most South Africans don’t have ‘disposable’ income for retirement. Even that, is a privilege reserved for those who don’t battle to survive.
Diana, I tend to think of “millionaires” as those with annual incomes of at least $1M, not those with $1M in assets; but the wealth data made me question whether it is reasonable to think of myself as “merely middle class.” Does the term “middle class” have any meaning if it covers 98% of the population (all but the top and bottom 1%)?
the ‘working poor’ as opposed to the rest.
Wow! Thank you for an informative (and brutally honest) meditation on the great American divide. I’m sure it puts things in a new perspective for many people.
John, The data certainly put my situation in a new perspective. I think, like many retirees, I had fallen into the habit of evaluating my situation by the “fixed income” I am living on and not considering what a luxury it is to be able to have a fixed income generated by savings and investments. Most people, no matter how much they scrimp and save, will never be able to achieve that level of security. For someone earning wages in the $12-$15 an hour range to save even as much as my employer put away for me, they would have to be saving about one-third of their pre-tax income — not a very realistic goal. Even someone at the median weekly income (pre-tax, not take-home) of $800 would have to save 25% of their gross income (assuming no access to an employer match, which most people don’t have).
“Brutal honest” is a good way to describe this post. I have always shied away from writing about money but the concept of where I’m at on the scale of “What Does it Mean to be Rich” occurs to me often, especially when I have my housecleaning service at the house or when I read about how close to the wire a fellow blogger is living.
One word of caution I might add: Having spent a lot of time in the stroke survivor community I saw how easily people can lose all or most of their assets during their recovery process. Even people with good insurance need therapies and/or care that isn’t covered and I’m sure that’s true with other medical situations. In your position, if you needed a temporary assisted living you can afford it without giving up your home. You can afford to hire the extra help it would take to support you at home, too, should your health fail. Not everyone can. With a good Will in place you can give away your money to charity AFTER you’re gone but until you die, remember a good size nest egg can keep you out of a the nursing home or afford to pay for one of the better ones, should not able to avoid going.
Before Oprah came on the scene my idea of being rich was to be able to have homes in many location like she eventually did. Now, she is downsizing the number of her homes and auctioning off much of her stuff to live more simply. Money can’t buy happiness. Rich or poor, we all find that out eventually. People like her and Bill Gates who help so many people are rich in many ways besides their assets. Their assets/hard work to get them where they’re at allows them to pursue helping others with their expertise but isn’t that ability to help others available to anyone one of us only on a smaller scale? I’m digressing, time to stop writing….. Interesting blog, topic today!
Jean, Don’t worry; I’m not going to blow my retirement savings on either luxuries or charities. The truth is that I’m congenitally cautious about money. This is why, when I realized my relative position in the wealth structure, I increased my budget for charitable contributions by decreasing some other lines in my budget, not by increasing the amount I am living on.
I am especially conscious of the looming issues of long-term care. Both my parents spent most of the last year of their lives in nursing homes, and I was the one who handled the nursing home bills and did the paperwork for their Medicaid applications after they had used up all their savings and became “medically indigent.” I know what a difference it can make to be able to afford a better facility with better trained, better paid staff and a lower patient: staff ratio. And, as someone who values solitude, I know what a huge difference it would make to be able to afford a private room. My idea of a nightmare is having to spend the rest of my life sharing a tiny space with a roommate I didn’t choose!
I suppose when people describe this post as “brutally honest,” they mean that I have talked openly about money. I realize that talking about one’s income or wealth is considered crass, and that these rules of etiquette are particularly strong among the more affluent. Two things make me more likely to reject those rules: (1) a grew up in a world of blue-collar union jobs where hourly wages were publicly negotiated and were not a secret; (2) as a sociologist, I’ve been trained to ask who benefits from rules that keep us from knowing what inequality in the United States actually looks like.
I share the same nightmare about being a nursing room with someone we didn’t pick for ourselves and have nothing in common with.
We all benefit for your candor and “brutal honesty.” It opens up dialog and makes us all evaluate where we’re at.
This is a very interesting post, Jean. Linda of Two Fixer-Uppers sent us to you via her blog post. I didn’t even think of ourselves as rich because we still watch our pennies. However, we are also very lucky in that we saved from the time we were married. We also have pensions that keep us comfortable in our retirement. It makes me sad to think of all those people who are not as fortunate. We have to count our blessings.
Kay, Thanks for visiting and for commenting. I think the media focus on the lifestyles of the super-rich distorts our sense of our relative position because we think if we’ve always saved and still watch our pennies we are somewhere near the middle of the economic structure. We don’t have much opportunity to realize that most people don’t have pennies to watch. I find it shocking that 50% of full-time workers are in jobs with no retirement benefits of any kind — and, of course, these are the people with lower wages who find it harder to make ends meet, have no discretionary pennies to watch or save, and get less in Social Security when they retire (because your benefit is based on your earnings). Because of my politicized up-bringing (my father was a union activist) and my training as a sociologist, realizing all this doesn’t so much make me sad and remind me to count my blessings as it makes me angry and wondering how to create social policy to reduce inequality.