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Talk about a surprising piece of data.
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What does it mean to feel wealthy? For some, it could mean having a certain amount of money in the bank. For others, it could mean having the ability to spend freely without worry, or to meet a specific financial goal, like buying a large home.
But while there are certainly a lot of different ways to define wealth, it’s pretty fair to categorize people with a net worth of $1 million or more as wealthy. Yet recent data from Edelman Financial Engines reveals that only 29% of actual millionaires put themselves in that category.
At first, that might seem really surprising. But actually, there are a few different reasons that could explain why even those with $1 million or more to their name may not feel like they’re rolling in dough.
When lifestyle creep rears its ugly head
People who have or make a lot of money tend to spend a lot of money. And to a large degree, that makes sense. If you earn $300,000 a year and can afford a larger house and a nicer vehicle, why shouldn’t you have those things if you can keep up with a higher mortgage and car payment?
But there’s a difference between treating yourself to a nicer lifestyle and consistently upgrading your lifestyle as your income rises. The latter is a trap a lot of higher earners fall into.
And that’s why we’re constantly hearing stories about people who earn hundreds of thousands of dollars a year but remain saddled with credit card debt and have little to no money in savings. It’s a concept known as lifestyle creep, and it could help explain why so many millionaires don’t consider themselves wealthy despite having a large amount of financial resources at their disposal.
There’s also inflation to think about. Granted, it’s less likely to be a factor in millionaires thinking they aren’t wealthy, but it’s also been impacting consumers across a range of incomes for well over a year. And while we can argue that higher earners are better equipped to deal with rising living costs, let’s also remember that proportionally speaking, they’re probably taking the same hit.
Let’s say your vehicle maintenance used to cost you $300 a year, only this year, you’ve spent $400 due to inflation. You might think that a person earning $300,000 a year can easily cope with a $100 increase. But chances are, that person was spending $900 a year on vehicle maintenance due to having a fancier car, not $300. And so their costs might’ve risen by $300, not $100.
An odd but persistent phenomenon
Though it may seem odd to hear that so many millionaires don’t regard themselves as wealthy, it’s also not really a new concept. Inflation and lifestyle creep aside, some people define wealthy as being financially secure. And it’s possible to have $1 million or more in assets and not feel secure.
At the end of the day, wealth is very much a matter of mindset. And sometimes, more money can’t change the way a person thinks and feels about their finances.
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