Defining wealth isn’t easy. It also tends to be a morbidly serious topic.
That’s why I’m including my own “down and dirty” definition just to keep the conversation from getting too high and mighty:
“You know you’ve got it made when your kids make bail on their own.”
I also like a definition from a Dallas real estate investor long ago:
“You’re wealthy when more money won’t change what you eat, what you wear, what you drive, where you live or who you sleep with.”
Most efforts in measuring wealth focus on the obvious — money. The IRS estimates “top wealth holders” among the living by examining the net worth of the recently dead. They also do it by analyzing the distribution of income on federal tax returns.
Sociologists tend to measure income and net worth in distribution deciles, also assuming it’s mostly about the money.
Banks like to set a dollar minimum for their wealth accounts, letting you know that if your net worth isn’t (pick a sum), well, you’re not eligible to be a “private client.” This is their way of telling you that no one at the bank will walk your dog while you’re skiing in Gstaad.
Basically, it’s always about the money and nothing but the money.
Until now.
The Charles Schwab Modern Wealth Survey for 2023, released in June, breaks rank with habit by discovering something quite amazing. While those surveyed felt you need $2.2 million to “be wealthy” these days, they feel wealthy at a mere $560,000. The survey also found that having large amounts of money wasn’t the strongest measure of wealth. Having time was more important than having money. So was being healthy. (You can read the survey here.)
Unfortunately, that’s pretty soft and mushy. More recently, for instance, a Bankrate survey found that U.S. adults thought they needed $233,000 a year to “feel financially secure” and “$483,000 annually to feel rich.”
Still, the Schwab study informs us that there is more to life than money.
Most of us know that. But we’re still curious about what the metrics are.
Here’s my effort to define, in stages of financial well-being, where the money rubber meets the existential road.
The Eight Stages of Financial Being
Level 1: Down and out. This group of people simply can’t function in their society, wherever it is. They live day-by-day with no reserves and literally no concept of the future. They use cash, don’t have a bank account and probably haven’t filed a tax return, or registered and insured a car. If they have one. They may have an addiction or an untreated mental illness. Some have a hustle going. It’s not about malice or criminality, it’s just how they cope. Wealth: zero. Income: less than spending.
Level 2: Living on the edge. This group pays its bills most of the time. They rent but often come up short. They can be disadvantaged by their family of origin. Or limited by their lack of education. But the rent-to-buy and we-tote-the-note lenders couldn’t live without them. They’re likely not to have health insurance. They can lose their job because their car breaks down. That’s why it’s just about impossible to plan anything.
Level 3: Almost making it. This group has regular work but limited job mobility. They hope for overtime. They may own a house with a hefty mortgage payment. They do their best for their children but college, or help with college, isn’t in the cards. Without a pension and with very little in savings, they may squeak through retirement if they use the equity in their house, typically their only significant asset. Social Security is a make-or-break deal.
Level 4: Covering the basics. This group is confident that they can pay their bills, enjoys job mobility, owns a house, saves regularly, helps their children with college and, perhaps, a home down payment. But even if they are lucky enough to have a pension, they still have significant worry about financing retirement. If they are flexible, they will cope.
Level 5: Locked and loaded. This group has worked, saved and planned. They may also have been at the right place at the right time for their home purchase(s) and their jobs. Their biggest issue is choosing when to retire. They can actively consider retiring early rather than working to 65 or 67. Even so, their wealth may not survive them due to medical or other expenses.
Level 6: It’s all about the kids. This group enjoys an income that is large and secure. They can afford whatever college their children hope to attend and have enough resources to think actively about how much (and when) to provide for the kids. They can be generous with their adult children with no impact on their personal standard of living. Secure retirement is a done deal.
Level 7: Treats for the grandchildren. This group has assets large enough to allow their grandchildren to live well in their first job, should they choose to be employed. Most people would consider them wealthy. They have enough income that prices for goods and services are pretty much irrelevant.
Level 8: Generous for all. This group, which is smaller than 1 percent of all Americans, has the kind of wealth that F. Scott Fitzgerald described in “The Great Gatsby.” They can easily live on a portion of their investment income. Their wealth is beyond familial spending. Much of their time can be devoted to thinking about good ways to give money away. Their philanthropy can become their vocation. Or not, of course.
I hope readers who would like to add to, comment on, or modify these stages of wealth will to write to me at scott.burns@dallasnews.com.
Related columns:
Scott Burns, “The 2020 Wealth Scoreboard and Social Security,” 10/31/2020 https://scottburns.com/the-2020-wealth-scoreboard-and-social-security/
Sources and References:
The Schwab Wealth Survey 2023: https://www.aboutschwab.com/schwab-modern-wealth-survey-2023
Jeanne Sahadi, “Here’s what American say they need to earn to feel rich, or even just financially secure,” 07/06/2023 https://www.cnn.com/2023/07/06/success/how-much-to-feel-rich/index.html#:~:text=How%20much%20would%20you%20need,a%20new%20survey%20from%20Bankrate.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns,
(c) Scott Burns, 2023
7 thoughts on “ The Eight Stages of Financial Being ”
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I am interested in levels 5-8 but your writing is too vague, needs $ numbers for net worth measured in investable assets. More to the point is the articles that WSJ is running, the latest was on what retirement looks like with net worth in excess of $ 5 million. The one today about “The Moves Wealthy Families Are Making to Skirt Estate Taxes” also is helpful. Sorry, i think you are losing your touch.
Hi Jay, Sorry you feel my writing is too vague. It’s possible, however, that you missed the point of the column. The Schwab survey found a vast gap in survey participants statements about wealth and feeling wealthy, with feeling wealthy requiring much less money. The money figure for wealth is a moving target, entirely relative to your past experience, where you have lived most of your life, who you associate with, and your personal notion of your “number.” I was trying to do something different by attempting to identify different stages of financial being.
Scott,
I did read the original Schwab report and this was based on their customers (I think all were Schwab customers and not a wide population sample….I also think the sample was 1000-2000 people which could be small). All perceptions from individuals.
As you stated in above reply, wide discrepancies in how each responded. Not only would a person need to know the exact financial situation (wealth, retirement benefits, investment portfolio, what is owned vs. mortgaged, etc) but you would also need to understand the individual’s mindset concerning what they value (latest/newest cars, large vs small homes, Starbuck coffees every morning, significant WW travel in what service (1st, Business, Coach), etc.
The perception is entirely up to the individual and how they live. If any hard numbers were included in your article, they would be incorrect for a vast majority of individuals and may cause those individuals that were happy BEFORE reading Schwab/your article to ‘sour’ on their own situation.
The other aspect which you cover with the caveat about medical or other items in Level 5. Long ago, I read that in a given time period, you can see people shift from one economic group to another (20% of population shifting up and down based on their circumstances). Just because you ‘reach’ one level does not mean it is permanent or that you could never fall into lower groups.
regards,
Bill
Exactly! The numbers from all the survey research and model building hardly qualify as guidelines after we understand the enormous differences in hopes and expectations among us humans. Similarly, it takes a long time to understand just how temporary everything is. Some find this depressing. We can overcome that by gratitude and the thrill of being alive.
I enjoyed the article!
You nailed us on “locked and loaded.” We have worked, saved and planned! Really well I might add! However, our concern is that our nest egg will be wiped out due to a serious health issue. I am investigating long term health care insurance and other options. Nothing is great and everything is expensive.
Sadly, long term care insurance has been an embarassment (and cause of class action suits) for insurance companies for decades and few marketers remain in the market. It’s also an example of how the institutionalization of care creates a cost level that the vast majority of households will never have the resources to afford.
Scott,
I have always thought that ‘insurance’ raises the costs that we all pay. This is not just the premiums but the costs for services and products that must be purchased. Rather than trading in hard earned cash from each policy holder, the holder ‘pays’ a fraction of the costs but the base costs continue to escalate due to the all the cash in the system. Similar to college costs. Markets that have lots of cash flowing, do not control the prices that are charged to people. We have runaway supply side of cash and a runaway demand: there is no balance to check prices in check. And we wonder why these two areas have significantly outpaced inflation in their escalating prices: Insurance and loan programs.
My 2 cents.
Bill