The best way to give people a sense of where they stand is to lay out some data. Every three years the Federal Reserve Board conducts a national survey that tracks the financial health of American households.
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The Fed slices and dices this stuff with the vigor of an Iron Chef; the result is a rich, if dry, array of offerings on household net worth, pension and income levels, plus other demographic side dishes.
Whenever I slip these tidbits into cocktail party chatter, people are surprised to realize how little money it takes to win a gold star from the Fed. If you and yours are bringing in $40,000 a year, you're doing better than half the households in America.
Or, as a Washington think tank recently pointed out: If you're a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.
Below you'll find the average income picture sliced into income levels. Think of this chart as a parking ramp. If your household income is $170,000, you're among the nation's top 10 percent wage earners and get to park on the top floor.
Anything in six figures means you're in the top 20 percent and get to park on the floor right below.
Annual income parking ramp
|Income level (percentile)||Median income (rounded)|
|Level VI (90 to 100)||$170,000|
|Level V (80 to 89.9)||$99,000|
|Level IV (60 to 79.9)||$65,000|
|Level III (40 to 59.9)||$40,000|
|Level II (20 to 39.9)||$24,000|
|Level I (less than 20)||$10,000|
So does making $170,000 a year make a person rich? Last year a plurality of respondents (29 percent) in a survey by The New York Times said that "rich" was making between $100,000 and $200,000 a year. Unfortunately, the survey didn't break out how many people in that salary range considered themselves rich. If the people I talk to are any indication, very few do.
Of course, income is only one part of the equation defining where you stand. Net worth is more telling. Net worth, as every financially precocious schoolchild knows, is the sum of one's assets -- home equity, investments, savings accounts, retirement funds, cars, furnishings and such things as jewelry, furs, wine collection, old baseball cards -- minus all outstanding liabilities such as mortgage balance, revolving and credit card debt, college loans and so on. Across all households, the national median net worth is $86,000. Half of your fellow citizens have more than that, half less. As you see, there's a massive disparity between the haves and have-nots.
Net worth parking ramp
|Net worth (percentile)||Median net worth (rounded)|
|Level VI (90 to 100)||$833,600|
|Level V (80 to 89.9)||$263,100|
|Level IV (60 to 79.9)||$141,500|
|Level III (40 to 59.9)||$62,500|
|Level II (20 to 39.9)||$37,200|
|Level I (less than 20)||$7,900|
We live in a country that once celebrated itself as egalitarian, yet 1 percent of the population -- nearly 3 million people -- currently has as much money as the 100 million people at the bottom of the ramp.
Yet when I ask those at the top of the ramp how they feel about the future, whether their fortunate place on the ramp gives them a measure of confidence about it, they shake their heads. They give me a look that says, "What planet do you park on?"
You and your broker
If you're not parked near the top of the ramp, you're of little or no interest to financial services firms and financial advisers. There's no money to be made at these levels. Last year, a handful of Wall Street firms told their brokers they would no longer receive commissions on accounts holding less than $50,000. This effectively tells people with nano-Numbers to get lost. But for the Wall Street firms, there's gold on the floors above. The greater the household assets, the more fees and transaction costs can be extracted from an account. The result is a flood of advertising that captures a lifestyle so gloriously affluent it's enough to make everybody feel poor.
Those who manage Numbers break customers down into innumerable segments to better target them through their marketing efforts. These segments take into consideration all the usual demographic characteristics, such as age, income and net worth. Other segmentation models define you according to psychographic qualities: personal interests, leisure-time activities, whether you are active or passive when it comes to managing your affairs -- including, for instance, how comfortable you are using a computer. Once a financial services company figures it has your Number, it will use what it thinks are the most effective channels to get its hands on it. It will place advertising in the magazines and newspapers you read and the television shows and Web sites you browse. And it will probe you incessantly through the mailbox, testing or selling financial products and services.
The Number industry divides people on the top floors of the garage into three broad segments of wealth, each of which is nicely profitable.
The biggest and broadest affluent segment consists of people with investable assets of between $200,000 and $1 million to $2 million. This group is sometimes referred to as mass affluent, and it would be fair to think of it as the meat and potatoes of the financial services business. If you're at the lower end of that range -- if you have, say, $300,000 in your accounts -- you're definitely of prime interest to the brokers and customer reps at Merrill Lynch, Smith Barney, Vanguard and the rest. But they need to be careful lest you cost them money.
To assign a real live broker (oops, financial consultant) to a client who keeps too low a Number is tantamount to Safeway assigning a personal shopper to anyone who comes in to buy a quart of milk. Still, there are profitable ways for financial services firms to serve smaller customers: the telephone, assuming they can keep the calls short and to the point and, better still, the online channel, where self-service is highly cost-effective. This is not to say that firms aren't happy to see you walk into their investment centers for a quick hello and a fill-out-the-papers session. They'll shake your hand, put an arm around your shoulder, even pour you a cup of coffee. After that, the more you manage your own modest Number, the better for them and the more cost-effective for you.
The next segment up from mass affluent is where the action gets white hot. This parking level belongs to those designated as high net worth individuals (or HNWIs). There are no universal criteria here. Generally, HNWIs have invested assets of at least $1 million, although some companies also target younger households with healthy six-figure incomes, knowing that their net worth is likely to reach target levels in the near future. Right now there are well over 7 million high net worth households in the United States, with a forecasted growth rate of 16 percent a year and projected assets of $32 trillion. Yum.
If their marketing efforts are any indication, Wall Street firms see HNWIs as the happiest people in the world, no matter that so many of them are, rightly or wrongly, distressed over their long-term prospects. Distress is not what's pictured in the ads. The ads are filled with images of zippy seniors who flash large white teeth and incredibly healthy gums. They dance. They jog. They bike. They fish. They golf. They snuggle. According to the ads, life is a theme park expressly designed for the middle-aged. Graying boomers waltz across their living rooms, raise glasses to one another on the decks of ocean liners and exchange smiles secure in the knowledge that a surefire blue-steel erection is just a pill away. These ads remind us that we are living in the Golden Age of Aging. Not only are we younger and healthier than middle-aged people used to be, many of us would probably have been blind, disabled or dead by now had we had the bad luck to have been born just a tiny bit sooner.
If you've made it onto the top levels of the ramp -- say you have at least $5 million in investments -- you are deemed to be an ultra high net worth individual (or UHNWI). This is a very nice position to hold in life, all the sweeter thanks to recent federal tax cuts. People earning $10 million a year hand over a smaller percentage of their income to the government than those earning a tenth of that and -- to a great degree -- escape the "gotcha" snare of the alternative minimum tax, according to The New York Times.
The treatment extended to a UHNWI approaches that accorded to royalty. As a UHNWI, you aren't offered a cardboard cup of day-old sludge from a Mr. Coffee machine. Now you qualify for a china cup of freshly brewed java from a gleaming French press. They'd better get another grinder or two. The Boston Consulting Group reports that 3,000 new households a year lay claim to $20 million or more in invested assets. Should you be among them, put your feet up and just whistle for service.
If getting yourself to a firm's teak-paneled office is too much of a schlep, the investment advisers will high-tail it to you. They'll be more than delighted to take you to dinner at the best place in town and toast your success with the finest vintages on the menu. They go to this expense because they obviously respect your business prowess and find you personally charming. Mostly, though, they admire you for your assets. They will ply you with leather binders filled with laser-printed pie charts, bar graphs and three-dimensional wave diagrams. Over dessert, they will produce PowerPoint slides that show how your nest egg will incubate and eventually burgeon into a soaring phoenix that will carry your Number higher and higher, all thanks to their nurturing and personal attention.
There is yet one more place to park, higher up and more exclusive still. This spot is for people for whom even discreet, private banking is déclassé. On this level of the ramp you forgo the wealth managers at even the toniest trust companies and rely instead on your own "family office," complete with its own in-house investment manager and staff.
Typically, families with family offices have $100 million, $500 million, $1 billion, enough to blow off even the Lehmans, the Goldmans and the Northern Trusts of the world. At present, there are approximately 5,000 family offices around the country. Family offices are not for strivers -- at least not yet. But family offices may be going the way of fractional jets, shared yachts and high-end vacation-home clubs. People with only 20 million Numbers have begun to band together to create, in effect, multifamily offices to oversee their investments and estate planning.
Back down on the street, though, it's another world. Most people have to circle the block, just looking for a way to get into the damn garage.