Rich let rip

Wealthy Americans are spending up, exceeding or at least matching pre-recession peaks.

Summary: Forget the recession; America’s wealthiest are splashing out their cash like nothing ever happened. Wealthy consumers are exceeding or at least matching pre-recession spending peaks on entertainment and leisure, travel, memberships, collectibles and consumer goods. And, while baby boomers are more conservative, Gen X/Y millionaires are spending up big.
Key take-out: Younger millionaires are more likely to own vacation homes, while also spending money on country club memberships, foreign vacations and first class flights.
Key beneficiaries: General investors. Category: Strategy.

Is the ongoing US government turmoil hitting the economy? Apparently not – or at least not affecting the wealthiest Americans, who have opened up the taps, regardless of what is going on down in Washington D.C.

At least that’s our interpretation of the various surveys we rounded-up to take the pulse of the most affluent folks in the nation. The findings indicate that well-to-do Americans have resumed pre-crisis spending levels and are optimistic about the future.

The wealthiest Americans are flush with cash and spending. A study conducted by BMO Private Bank tried to drill down the essential question, “Now that we’re five years out of the financial crisis, where do wealthy individuals see themselves financially?” They found that 61% of those surveyed – folks with investible assets in excess of $1 million – felt better-off today than they did before the recession.
Graph for Rich let rip

By and large, wealthy consumers are exceeding or at least matching pre-recession peaks: 86% are spending more or the same amount on entertainment and leisure; 83% are doing the same on travel and vacations; 81% with club memberships; 80% with collections and hobbies; and 77% with clothing and accessories. BMO reminded us these budgetary items are the first to go when a recession hits.

BMO’s executives were “cautiously optimistic” this could be indicative of broader economic growth. “We still need to see more interest among average consumers, but it’s certainly a good start,” says Terry Jenkins, head of US operations at BMO Private Bank.

The American Dream is alive and well. A subset of US Trust’s “Insights on Wealth and Worth” survey found that 209 high net worth business owners were feeling fine and very upbeat about their economic prospects. Respondents thought business owners were more likely than non-business owners to “be fulfilled in their work” (72%), create significant wealth (67%), provide financial security for their families (66%) and create opportunities for others (58%).

Though they fretted over the timeless concerns of the bottom-line – higher taxes and the impact of Obamacare are the current worries – 60% still believe that business ownership empowers them to control their own destiny. Government intervention hasn’t shaken that deep-seated American optimism.

Another interesting nugget: a vast majority of baby boomers, 82%, have no intention of passing their business to the next generation. As US Trust’s chief fiduciary officer Chris Heilmann points out, three-quarters of these wealthy entrepreneurs started their own business and “believe their adult children should be left to their own devices since they themselves made it on their own.”

The “Next Generation” is a harbinger of growth. Fidelity’s 6th annual “Millionaire Outlook” study found that Gen X/Y millionaires gave the highest rating ever recorded to the current financial outlook. The Gen X/Y millionaires scored a 51 points on the economy, compared to -7 for wealthy baby boomers, on a scale of -100 to 100. They’re also trading on that confidence: Gen X/Y millionaires are making 30 trades per month, 10 times the rate of boomers.

Young millionaires are as much big spenders as they are active traders; they are three times more likely than boomers to spend on luxury goods. But Bob Oros, vice president at Fidelity, says their purchases are not frivolous but have a purpose.

“They are very focused on spending that galvanises the family and brings them together,” he says. Which means, these younger millionaires are more likely to own vacation homes, while also spending money on country club memberships, foreign vacations and first class flights.

Where did they get their lucre? One-third of their wealth is inherited, according to Fidelity. But 95% of the Gen X/Y millionaires surveyed are employed and have an average annual income of $677,000. It would be nice to know what percentage of them are picking up these fat salaries via the family business or through trust funds, versus how many have earned their paycheques through the sweat of their labour in the outside world. If you add in the sentiments expressed in the US Trust survey, it’s wise to surmise a high percentage of the young are earning their salaries the hard way.

Either way you cut it: America’s wealthy are spending and content; newspaper headlines be damned.

This article was first printed in Barron’s, and is reproduced with permission.

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