The 2023 Charles Schwab Modern Wealth Survey highlights the many paradoxes of wealth in America. Over 1,000 individuals of all different backgrounds filled out the survey.
Overall, the survey, conducted between March 1 and March 23, 2023, says it takes a net worth of $2.2 million to be considered wealthy in 2023. The net worth amount is the same as it was in 2022 but up from $1.9 million in 2021.
If there’s one positive thing a bear market does, it’s that it lowers wealth expectations.
In this post, I’d like to look more closely at the data and point out the wealth paradoxes. Americans don’t seem to understand what it means to be wealthy. We also don’t seem to act according to our financial goals and personal beliefs!
Wealth Paradox #1: Inflation Is Not As Bad As It Seems
The first paradox of wealth is Americans’ inability to accept reality. Americans believe inflation is a big negative to lifestyle quality.
High inflation is why the Federal Reserve has aggressively raised interest rates since 2022. However, despite inflation reaching 40-year highs, the amount of net worth necessary to feel wealthy has not increased.
With inflation up between 4% to 6.4% YoY in 2023, it would be logical to believe the net worth required to be wealthy in 2023 would also rise by 4% to 6.4%. If so, the net worth range in 2023 should be between $2.288 and $2.34 million. But paradoxically, the net worth amount stayed flat.
So maybe, the threat of inflation to American livelihoods is overstated. Just as life goes on whether you take action or not, inflation goes on whether you’re accumulating more wealth or not.
Wealth Paradox #2: Feeling Wealthy Despite Not Having Enough
48% of Schwab’s Wealth Survey respondents feel wealthy, yet the average net worth of those who feel wealthy is only $560K. Yet, we just learned that $2.2 million is the net worth considered by survey respondents to be considered wealthy! A $1.64 million shortfall is huge, especially in terms of percentage.
Therefore, either the respondents are lying about the amount needed to feel wealthy, lying about their net worth, or are inexperienced about how much it really takes to feel wealthy. Or maybe Americans are simply delusional about money.
As a personal finance writer since 2009, I believe most people overestimate their needs due to fear and uncertainty. At the same time, most people underestimate how much wealth they can achieve over time through consistency and compounding.
It’s hard to know how much money you really need until you are put in the situation. It’s also hard to know how you’ll feel once you get to your target net worth figure.
The differences between the imagination and the reality are why I try to write every article on Financial Samurai from firsthand experience.
Wealth Paradox #3: Feeling Of Wealthiness By Generation
Another paradox is that Millennials feel the wealthiest among the four major generations. Yet, the mass media consistently rags on Millennials for being the unhappiest, loneliest, and poorest generation.
Despite making up nearly a quarter of the population, Millennials — defined as those born between 1981 and 1996 — own a scant 3% of the country’s wealth, according to the Federal Reserve’s Survey of Consumer Finances.
In the survey, 57% of Millennials feel wealthy compared to only 40% of Boomers. Yet, in another wealth paradox, it is the Boomers who are actually the wealthiest generation in history given they saved and invested over the longest bull market in history.
Below is one of many charts you can find that highlight the percentage of U.S. household wealth by generation. Boomers are dominating the amount of wealth in America, followed by Gen Xers, Millennials, and Gen Zers.
Why Do Millennials Feel The Wealthiest And Boomers The Least Wealthy?
So what explains why more Millennials feel wealthier than other generations? My hunch is that American Millennials have more perspective than the mass media gives them credit for. They grew up with the internet and know how lucky they are relative to billions of others who didn’t grow up with their same privileges.
Millennials are also in the prime age range for earnings and health. Because they are making career-high incomes, they are most hopeful about accumulating more wealth than when they were in their 20s. And because they are also still healthy, they get to feel physically good while enjoying their wealth at the same time.
As for why Boomers feel the least wealthy, I think the answer is time is more valuable than money. When you have the least amount of time left in your life compared to other generations, then you feel the least wealthy. Boomers also have more health issues and regrets regarding what they could or should have done when they were younger.
But yet in another wealth paradox, studies have shown happiness tends to increase the older one gets. In fact, I’ve argued that greater happiness is the best reason to retire earlier!
Wealth Means Having More Money Than Time: No Paradox Here
I didn’t have to even look at the Time vs. Money question to know that most Americans feel that having time is more important than having money. I’ve felt this way since I was 13 when my 15-year-old friend passed away in a car accident.
As you can see from the chart, Boomers have the greatest number of members who believe time is more valuable than money at 67%.
But curiously, Millennials have the lowest percentage of participants who believe time is more valuable than money at 56%, despite not being the youngest generation surveyed. I’m not sure why.
The stronger you hold the belief that time is more valuable than money, the more motivated you will be to save and invest for the future. You will also be more motivated to retire earlier or find a job you also enjoy doing.
My strong belief in the value of time is the reason why I left my job at 34 and have not returned. So far, I have yet to find any full-time job that is more valuable than my freedom.
My strong belief in the value of time is also why I didn’t find it difficult to regularly save over 50% of my after-tax income for over a decade. For me, the reward of buying back time in the future was well worth it.
Those Who Believe Money Is More Valuable Than Time
Despite 61% of all generations believing time is more valuable than money, that still leaves 39% who believe money is more valuable than time. To me, 39% is a shockingly high percentage because while we can always make more money, we can never make more time. I think the percentage split should be closer to 80% / 20%.
But I also recognize why a large percentage of people would say money is more valuable than time in a wealth survey. First, the survey is focused on money, so there may be an invisible hand of persuasion. But more importantly, if you feel you do not have enough money, then you will logically choose money over time.
Describing Wealth Shows More Paradoxes
The final paradoxes of wealth are what the survey participants describe as what wealth means to them.
- 72% of participants believe having a fulfilling personal life and a healthy work life balance are the most important aspects of wealth, yet Americans are the most overworked people in the world. Americans work more hours a week and take the fewest number of vacations a year.
- 70% of participants believe not having to stress over money is more important than having more money than most people they know. Yet, the long-term median saving rate in America is only 5%. If Americans truly believed wealth is not having to stress over money, Americans would save a greater percentage of their income.
- If 63% of survey participants believe being in good health is more important than being successful, why don’t Americans eat better and exercise more? Americans have the highest obesity rate in the world.
- If 64% of survey participants believe in paying for experiences to spend time with family now over leaving an inheritance, then why is there more than $50 trillion in wealth set to be transferred from the oldest generation?
Not Acting According To Our Beliefs: The Biggest Paradox
It is clear that many Americans do not act according to their financial beliefs. As a result, many Americans will suffer from dissatisfaction, regret, and unhappiness as they get older.
To all Financial Samurai readers and listeners, I encourage you to act more congruently with your thoughts. Don’t be that person who puts off starting a business, writing a book, traveling, joining a different industry, or finding love someday. Because if you never take action, someday tends to never come.
My Current Wealth Paradox
I’m currently experiencing a wealth paradox because I’m finding it difficult to spend a lot more money to decumulate, despite accumulating more than I need. Instead, I continue to save and invest at least 20% of my after-tax disposable income every year to provide for my family.
After 24 years post-college, I find it hard to change my financial habits. I’m constantly hedging against an unknown future that could include bear markets, illnesses, thefts, and accidents.
Now that my family has stabilized at four, I should be able to model out more aggressive spending patterns. For the second half of my life, I plan to eliminate my wealth paradox by giving more, spending more, and investing less.
Wanting to give more is partially why I continue to write so much on Financial Samurai, despite the time it requires. I want to help more people to obtain the financial courage to do more of what they want.
It Takes Two In A Married Household To Spend
The other problem I have is that even if I want to spend more money, I still face the challenge of getting my wife on board.
But upgrading homes has proven to be a challenge, so we let that funny money stay invested in stocks, bonds, and online real estate. Over 10 years, the probability is high our investments will be worth even more, which further compounds my wealth paradox!
Just as saving money requires intentional effort, spending money requires an equal amount of intentionality. However, given the path of least resistance is to do nothing, it’s much easier to just let our investments compound to greater wealth.
Reader Questions And Suggestions
What are some wealth paradoxes you notice in America or your country? What are some wealth paradoxes you recognize in your own life? Why don’t more people take action to get what they want?
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