New research shows that to be considered wealthy in the United States, you need to have $1.9 million in net worth.1 At the same time, other research shows that no one actually feels wealthy.2 This is an interesting juxtaposition as a person, or couple, could be considered wealthy by society even when they don’t feel wealthy. So, should “wealth” really be based on net worth (assets), or is there a better definition?
The Modern Wealth Survey done by Schwab in the first half of 2021 surveyed over 1,000 Americans. The survey reveals “Americans believe it takes an average $1.9 million in personal net worth to be considered ‘wealthy.’” Net worth, or financial capital, is defined as assets minus liabilities. In other words, net worth is the value of property, investments, savings, and business assets minus any debt.
A fascinating finding in the survey is that before the global pandemic (beginning of 2020), $2.6 million was considered “wealthy.” The survey attributed the drop to how the pandemic changed priorities around “saving, spending, and mental health.” The survey also defined other important metrics: To be financially “happy,” a person needs only $1.1 million. To be financially “comfortable” only requires $624,000.
My experience as a private wealth manager for over 15 years is that few people feel “wealthy.” Whether a person has $200,000 or $20 million, they do not feel rich. It is always the person next door that seems to have more. Research corroborates this and also shows that most people define wealth as about double the amount of what they have.2 So, a person with $1.9 million would classify wealthy as $3.8 million.
I counsel my clients to redefine wealth to be so much more than just financial capital (assets). Wealth should be a combination of financial capital, human capital, and intellectual capital. Human capital is your physical and emotional well-being. Intellectual capital is your knowledge, skills, and experience.
Financial assets are easy to quantify, which is why they are the metric most often used. However, financial capital doesn’t ever bring happiness or comfort by itself. It only brings feelings of joy or comfort when coupled with human and intellectual capital. When financial capital is deployed to obtain experience or education, it can have a lasting impact. When it helps an individual or couple realize they have “enough” to be comfortable in retirement, then it brings comfort. When used to help facilitate family gatherings where stronger bonds and cherished memories are formed, it can bring happiness. When used in charitable work or to help the next generation improve their own human and intellectual capital, it can bring fulfillment.
“Wealth” isn’t really defined by a number, like $1.9 million. That is a number that others think they need. I have seen people with less that I would consider wealthy and I have seen people with more that aren’t. Real wealth is defined by the comfort, happiness, impact, and fulfillment that is found in life.
So, are you wealthy?
Sources:
- https://www.aboutschwab.com/modern-wealth-survey-2021
- https://www.npr.org/2019/04/19/715145723/why-no-one-feels-rich-the-psychology-of-inequality
