The 'New Rich' and What It Means to be Wealthy

Thursday, December 12, 2013

Rolls Royce

It's a question that many parents grapple with at some point in their lives: "Are we rich?"

The answer may be "Compared to what dear?" or "Yes" even though there's a gnawing feeling inside that "rich" is a far off possibility.

But who, really, is rich?

The Occupy Wall Street movement popularized the idea of the wealthiest 1 percent—a small number of Americans with, in the eyes of the movement, a disproportionate amount of wealth. But according to new data from the Associated Press, that 1 percent might look more like 20 percent.

"The new rich have household income of $250,000 or more at some point during their working lives, putting them—if sometimes temporarily—in the top 2 percent of earners," the AP writes. About 20 percent of American adults will reach those ranks at some point in their lives. 

That income number—$250,000—has appeared across the media spectrum over the last several years as the cut off point for tax breaks for "the rich." Should it really be considered the wealth tipping point? 

As Michael Norton, professor at Harvard Business School and co-author of "Happy Money: The Science of Smarter Spending," explains, income is very different from wealth.

"If you think about everything you have, minus everything you owe, that's really the way to think about whether you're rich or not—not your income in any given year," says Norton. "If you look at inequality of income and inequality of wealth—and often we confuse the two—income is just what you made this year and wealth is everything that you have."

When taking the theory of income vs. wealth into account, one may ask: Who are these "new rich," really? What makes someone feel wealthy? And what is the relationship between income and happiness?

"A lot of these people are people who had one good year," says Norton of the AP's "new rich." Norton adds that in the United States, there is much less income inequality than there is wealth inequality. 

"It's really wealth that is distributed very differently among Americans," he says. "Wealth is where we see these big disparities."

Norton says that according to his research, many people think reaching the next level of income brings happiness—but the data shows that more money doesn't necessarily make people happier than the rest of us.

"It's time start shifting from thinking about money and starting to think about the other things in your life that make you happy as a way to really have a good life," he says.

Guests:

Michael Norton

Produced by:

Jillian Weinberger

Editors:

T.J. Raphael

Comments [2]

Dibendu Nag from India

The U.S. Competitiveness Project is a research-led effort to understand and improve the competitiveness of the United States. The project is committed to identifying practical steps that business leaders can take to strengthen the U.S. economy.

Dec. 14 2013 10:00 AM
Larry Fisher from Brooklyn, N.Y.

Money is a weapon. I use whatever money I have to be wealthy. I use money to buy groceries and have parties with friends and family. I use money to make videos, and to pay bills so that I can write.

If I had more money, I would have bigger weapons; bigger parties, bigger explosions in my videos; and I would get a computer that doesn't sound like "Chitty, Chitty, Bang, Bang."

If I had less money, I would still be wealthy. I just would have cheese and cracker parties, and I would use a pencil and scratch paper to get my ideas across.

Dec. 12 2013 02:44 PM

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