For some, no amount of amassed wealth will be enough, and many who do qualify as wealthy by most standards may not see themselves in that light. Others struggling with debt or unemployment may see these standards of wealth and feel a sense of defeat.
Understanding how you compare to your peers can be an opportunity to learn about money management and positive financial habits.
A fiery debate was sparked in Great Britain about what makes a person “rich” after a man on BBC Question Time wrongly claimed he was not even in the top 50 per cent of earners – despite bringing home £80,000 a year.
The man laid into Labour candidate Richard Burgeon, who was on the show to defend Labour’s new manifesto. He attacked the party’s claim that it will only raise taxes on the richest five per cent in the country.
“I am one of them people that he will tax more and I am nowhere near in the top five per cent,” the audience member said angrily – and incorrectly – to Burgeon. “I’m not even in the top 50 per cent,” he added later.
The man said he earned over £80,000 a year when asked by host Fiona Bruce, but again claimed: “I’m not in the top five per cent.”
Burgeon called the man “mistaken,” a response borne out in the latest data from HM Revenue & Customs. It shows that anyone earning above £75,300 is in the top five per cent of taxpayers.
Polling firm Yougov looked into what kind of salary Britons think makes a person “rich”.
The results showed that people in the UK think the top 10 per cent of earners – those bagging on average £60,500 a year – are wealthy. Almost 70 per cent of people called this group “rich”.
By this standard, Brits overwhelmingly think Question Time’s £80k earner is rich.
The UK population thought anyone one rung down the ladder was not poor, but not rich either. Over a third said those earning on average £39,800 – the 10 per cent of earners below the top 10 per cent – were “neither rich nor poor”.
Just over a third of Brits thought a person who earned this much was “rich” while practically none called them poor.
Those polled by YouGov only started to mainly think a person was “poor” once they got down to those earning on average £15,300, which put them in the lowest 40 per cent of earners.
But what about the wealthiest country in the World …United States of America who do they think is wealthy?
The vast majority of Americans do not meet commonly held definitions of what it means to be rich in the U.S.
Respondents to Schwab’s 2021 Modern Wealth Survey said a net worth of $1.9 million qualifies a person as wealthy. The average net worth of U.S. households, however, is less than half of that.
But wealth is in the eye of the beholder – a person’s location, career, community, background and so many other factors can influence his or her perception of wealth. Those perceptions may be evolving as new generations enter adulthood and redefine success.
“The generations of today, Gen Y and Gen Z, they don’t think about wealth and success the way boomers did, especially as it relates to finances,” says Penny Phillips, president and co-founder of Journey Strategic Wealth in New Jersey and California. “It was, ‘Save my money, make some investments and when I’m 65, I’ll try to take my first big vacation.’ Today, success is defined so much more by life experiences and impact and living for today.”
Indeed, the annual Schwab survey found that respondents are lowering the bar for what they consider wealthy. Compared to 2021 standards, respondents to the 2020 survey described the threshold for wealth as being a net worth of $2.6 million.
Alongside the coronavirus pandemic, rising inflation and low unemployment rates are both factors that affect how consumers perceive wealth, according to Amy Richardson, a certified financial planner at Schwab, on the company’s Intelligent Portfolios Premium team.
“We still don’t know how this bout of inflation is going to play out, but in the short term it’s probably fair to say that many people feel like they need to attain more to get where they want to go, regardless of their individual ideas about wealth,” Richardson wrote in an email.
Net worth is the sum of an individual’s assets, less liabilities. But individuals with high incomes don’t necessarily have a net worth to match, and the reverse is true as well.
“A lot of people who are wealthy in this country are wealthy not because of income, but because they own assets, they have investments that appreciated, real estate or otherwise,” Phillips says, while income funds an individual’s lifestyle and day-to-day costs.
An individual’s income can also be a measure of wealth.
To be in the top tax bracket of 37%, an individual filer must earn at least $539,900 annually in 2022, and married taxpayers filing jointly must collectively earn $647,850.
Among the top 5% of earners, the average annual wage was $342,987 in 2020, according to the Economic Policy Institute, a nonprofit think tank; among the top 1%, the average income was $823,763. Meanwhile, the average income in the U.S. in 2020 was $59,900.
“Different people make money in different ways, they have different skills, and wealth can go up and down for different reasons,” he says. “You should set a net worth of what you want it to be, whether it’s billions or thousands. Set a goal that will make you happy. Stop worrying about what your neighbor’s doing.”
For some, no amount of amassed wealth will be enough, and many who do qualify as wealthy by most standards may not see themselves in that light. Others struggling with debt or unemployment may see these standards of wealth and feel a sense of defeat. Understanding how you compare to your peers can be an opportunity to learn about money management and positive financial habits.
What level are you at…Do you think you need to level up?
