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.
“On the positive side of things, the job market has roared back from the depths of the pandemic-driven recession and wages have steadily risen. So, while people are feeling the bite of inflation, many are also doing better from an income perspective and have been able to maintain their spending patterns while also focusing on amassing savings and investing,” she said.
Net Worth vs. Income
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.
[Read: How to Calculate Your Net Worth.]
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.
“Wealth inequality is a growing issue in our country, especially for underrepresented communities,” Richardson says. “We know that low stock market participation exacerbates wealth inequality and that’s one reason we’ve been excited to see many people eager to learn about the markets and start investing for the first time during the pandemic.”
Standards of Wealth
For some, no amount of amassed wealth will be enough, and many who do qualify as wealthy by these 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, experts say. They advise taking cues from co-workers and competitors on issues of salary, for example, and setting net worth goals that consider the possibilities seen in peers as well as your unique circumstances.
But Eric Pierre, CEO, owner and principal of Pierre Accounting in Texas, says when it comes to money, this saying holds true: Comparison is the thief of joy.
“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.”
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Update 04/14/22: This story was published at an earlier date and has been updated with new information.