The Perception of Wealth: How Much Money Does It Take to Be Considered Rich?
In San Francisco, the city known for its high cost of living, it takes a staggering $4.4 million to be considered wealthy, making it the highest threshold in the country, according to a recent survey by financial services company Charles Schwab. The survey also revealed that the amount of money required to be seen as rich has increased over the past few years due to inflation. Interestingly, younger generations have a lower benchmark for wealth compared to older generations.
According to the survey, Americans now believe it takes an average of $2.5 million to be considered wealthy, up slightly from $2.2 million in 2022 and 2023. However, there are generational differences in perception. Baby boomers have the highest threshold, considering $2.8 million as the benchmark for wealth. On the other hand, millennials and Gen Z have lower expectations, with $1.2 million being seen as wealthy.
California, as a state, had the highest wealth expectations. Respondents from San Francisco stated that it takes $4.4 million to be considered rich, followed closely by Southern California with a threshold of $3.4 million. In contrast, cities like Dallas, Phoenix, and Houston had the lowest thresholds at $2.2 million to $2.3 million.
The jump in the level of what is considered wealthy aligns with a period of surging inflation, which has raised the overall cost of living. As living expenses rise, so does people’s estimate of how much money is required to live a wealthy life. The survey’s $2.5 million wealth threshold is nearly 14 percent higher than in 2022. During this period, the cost of living rose by more than 11 percent, according to data from the St. Louis Fed.
Despite facing the challenge of high inflation, more than one in five Americans expressed optimism, stating that they were “on track to be wealthy.” Generation Z showed the highest level of optimism, while baby boomers displayed the lowest. Additionally, nearly a third of respondents believed they were on track to be in control of their finances, with millennials and Gen Z being more optimistic in this regard.
Rob Williams, managing director of financial planning at Charles Schwab, emphasized the importance of a written financial plan. He stated that people with a financial plan are more confident about achieving their personal financial goals. Financial planning helps individuals understand their current financial situation and create a roadmap to reach their desired wealth.
The concern about rising prices and inflation’s impact on people’s lifestyles is not unwarranted. The Federal Reserve’s report on U.S. households’ finances in 2023 revealed that nearly two-thirds of Americans felt financially worse off than the previous year due to changes in prices. Inflation remained the top financial concern, despite the inflation rate falling over the prior year.
Furthermore, a survey conducted by asset management firm Schroders found that rising prices lowering the value of savings was a significant worry for retirees. Less than half of Americans in retirement believed they had saved enough, and almost 90 percent expressed concerns about inflation reducing the value of their assets.
However, it’s important to note that higher inflation doesn’t always lead to eroding asset values. The effect on investments depends on the type of assets an individual owns. Investments with fixed returns, such as certain bonds or certificates of deposits, tend to fare poorly as inflation erodes the value of cash over time.
On the other hand, investments in commodities such as oil, precious metals, or agricultural goods tend to perform well during periods of high inflation. Value stocks, which are considered undervalued by the market, also tend to outperform growth stocks in such situations.
In conclusion, the perception of wealth and the amount of money required to be considered rich has increased in recent years, primarily due to inflation. California, particularly San Francisco, has the highest wealth expectations in the country. Despite concerns about rising prices and inflation’s impact on lifestyles, individuals with a written financial plan feel more confident about achieving their financial goals. When it comes to investments, the effect of inflation depends on the type of assets owned, with certain investments performing better than others during periods of high inflation.
