MILLIONAIRES: JUST A DIME A DOZEN
In 1953, Betty Grable, Lauren Bacall and Marilyn Monroe starred as three lovely and persistent gold diggers in the comedy “How to Marry a Millionaire.” Decades later, you’d probably want to ask why they bothered setting their sights so low.
To mix monetary metaphors, millionaires these days are a dime a dozen. And you can bump into them everywhere from Kmart to Hermes. Millionaires now constitute 3% of the American population. With more than 2.7 million families having liquid assets of more than $1 million, it’s pretty clear that a new benchmark for what constitutes comfortable wealth is needed.
There have been endless jeremiads about what is tearing the American fabric as the gulf between rich and poor grows wider, but in reality what may be happening is the creation of a whole new class between the middle class and the Filthy Rich. Perhaps they could be called the Merely Rich.
“When do people feel wealthy? It certainly isn’t with a million dollars anymore,” said John J. DeMarco, senior vice president of PSI, a Tampa-based firm that collects data on the affluent for banks, mutual funds and others. “Most well-off people don’t feel rich. ‘Me, I’m comfortable,’ they might say. They have high levels of financial insecurity. The older ones remember stock market crashes and oil embargoes, some bad things that make them wary.”
Well, not too wary.
The sales of luxury goods are soaring. The Tactical Retail Monitor, a newsletter that reports on consumer spending trends, projects that sales of high-end goods--expensive jewelry, luxury cars and the like--will climb 21% this year. On any given day, you can see ads in newspapers for baubles like a $20,450 18-karat gold Rolex watch at Tourneau or $34,000 strands of pearls from Tiffany & Co.
“Part of being a millionaire, even today when a million isn’t what it used to be, is being able to get the [brands] rich people are used to buying,” said Ron Insana, an anchor for the cable financial channel CNBC who regularly interviews the wealthy and Wall Street-wise. “Some of these things have a little cheaper line. You can have a Mercedes for $38,000 now. It isn’t as big as the old big Mercedes, but it still looks like a Mercedes and performs like one.”
Insana is writing a book with hedge-fund speculator Michael Steinhardt, who he said is worth about $500 million. “We did talk one day about what you might need to feel wealthy,” Insana said. “He thought $10 million, exclusive of your house, would be enough to live an extraordinarily nice life. With that, you could invest in municipal bonds and have $500,000 a year tax-free. Unless you are a serious art collector, you couldn’t spend 500 grand a year.”
The whole dynamics of wealth seem to be changing.
“What has happened is that many in the middle class have been able to move up, but it has become harder and harder to be poor and get out of that,” said F. Gerard Adams, a professor of economics and finance at the Wharton School of the University of Pennsylvania.
“In previous generations, you could have a high school education and make a decent income. Now you have to be a technical guy or a college graduate. But, let’s face it, a million bucks is still a lot of money.”
Yet no longer enough for many.
A few years ago, Parents magazine commissioned a poll to ask average Americans about their reactions to $1 million. Only 26% said that $1 million would make them “really rich.” Fully half said they would be happy with $1 million but would still work full time. And 23% indicated that $1 million “is no big deal.”
Americans’ dissatisfaction with having mere truckloads of money is not a healthy psychological sign. Dr. Roderic Gorney, a professor of psychiatry and director of the Program on Psychosocial Adaptation and the Future at UCLA, recalled a patient who won the Irish Sweepstakes and had enough money to quit the plumbing business he had hated for years.
“His immediate delight lasted three or four weeks and was followed by a severe depression,” Gorney said. “As Oscar Wilde said, ‘The only thing more tragic than a person who does not get his heart’s desire is one who does.’
“People are often held together by the stresses of financial necessity,” Gorney said. “When that is eradicated by sudden affluence, the baling wire sometimes gets snipped and what erupts can be problems like gambling, alcoholism, drug dependence.”
Desire for endless streams of money manifests itself early--very early, Gorney said. “Newborns need to absorb 20% of body weight in food per day to survive,” he said. “The fundamental value for the baby is very largely that more is always better.”
As time goes on, we are supposed to be taught limits, that “just enough” is better. “But so few of us are ideally nurtured, there are tremendous numbers who don’t wind up that way and continue in adulthood with that more-is-better infantile formulation,” Gorney said. “From that, we get people who are in pursuit of excessive sex, excessive sleep, excessive power, excessive food or who just can’t get enough money.”
But Insana, from his Wall Street vantage point, doesn’t see the current road to riches that way at all. “It feels different than the 1980s. It isn’t a race as it was then. You had to have the right car, the right suit and a lot of everything,” he said. “Tiffany and Saks are doing well now, and art is selling again. But it isn’t as excessive now. People aren’t buying on margin. They truly are more sensitive to the possibility of losing what they have.”
Perhaps that is because the new Merely Rich are being more prudent. More than 40% of all new mutual fund money is coming from 401K and other retirement plans, most of which don’t allow borrowing on margin and are generally untouchable, thus able to accumulate over time. That has always been the way to go, said researcher DeMarco.
He notes that, adjusted for inflation, $1 million today is equal to $163,000 in 1950 dollars. But had you invested that $163,000 in Dow Jones Industrial Average stocks, which are hardly wildly speculative, you would now have $3 million.
And the numbers of Merely Rich are growing by leaps and bounds. Those families with $1 million in liquid assets--portfolios not counting real estate, cars, art or other not easily sold items--have increased by 14% each year since 1990. Given that rate, there are more than 1,000 new Merely Rich families created every day, and they will increase to 7.4 million by 2000. That means they will go from 3% of the population today to 7% just three years from now.
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Clearly, it will become harder and harder to keep ahead of the Joneses, although those in sales and marketing will not give up the game.
“There are a good number of people who can choose to buy something special, and a Jaguar can serve their passion,” said Kathleen Hamilton, a publicist for Jaguar of America. Hamilton said that new Jaguar buyers, on average, earn $225,000 a year and have a median age in the early 50s. But Jaguar is reaching out to more of the Merely Rich. For the first time, it is encouraging dealers to sell and warranty off-lease Jaguars.
“Now we’re putting people into cars that are $25,000,” Hamilton said. “And by the time we come out with a new model in the $40,000 to $50,000 range in 1999, they will be part of our customer base.”
If you aren’t on the way to your $5 million or $10 million nest egg, or whatever may now be seen as satisfactory, don’t count on old Uncle Milt or maiden Aunt Sally to help you out. People rich and poor are living longer and using up more of their available cash.
“The press had a field day out of a Cornell University report saying that baby boomers stood to inherit $10.4 trillion, which is certainly a lot of money,” DeMarco said. “The problem is, most of them never got to the part where the economists said that would be spread among 70 million households over 50 years.”
In reality, the median baby boom inheritance will come to a mere $23,000. “That’s hardly something to lead you to a private Swiss banker,” he said.
If you want your extra millions, DeMarco said, start your own business.
“It’s the major reason there has been an increase in this kind of wealth,” he said, noting the 19% annual growth rate in small businesses. “The road to success used to be up the corporate ladder. We used to revere the CEO of GM. Now it’s the guys who started Microsoft.”
And as long as the Merely Rich don’t overly revere Bill Gates’ $24 billion (last we checked), they might just find contentment.
“It is uncommon that an individual in pursuit of superwealth says, ‘I don’t have to do this anymore,’ ” said UCLA’s Gorney.
“Some in pursuit of moderate wealth, though, are very commonly able to say, ‘OK, I have $2.5 million in the bank and that’s all I’m going to need. Now I’m going to devote time to other things.’ It’s people who can make such changes in course commensurate with changes in reality, who don’t have character distortions. It is these people, not necessarily the extraordinary wealthy, who are the real contributors to society.”
