According to The Survey of Affluence and Wealth in America, presented by American Express Publishing and Harrison Group, more than half (53 percent) of America's wealthy worry that they could run out of money. Almost three out of four (73 percent) believe that the recession will last longer than a year, a 10 percent jump from December 2008 and a 25 percent increase since September 2008. Worse, the same group is deeply concerned that the U.S. could be headed for a depression.
The study, which queried more than 1,500 upper middle-class, affluent, super-affluent and wealthy individuals, probed the impact of the current economic turmoil on financial planning and spending. The respondents have discretionary annual incomes of at least $100,000, ranging up to $5 million. Representative of 10 percent of the American population, this group accounts for half of all retail sales, 70 percent of all profit margins at retail and 80 percent of all non-retirement account assets.
At the same time, the recession continues to bite deeply into purchasing intent. Across the 15 categories measured by the study, the trend line suggests continued, although moderating, declines in purchases of fashion, automobiles, luxuries and jewelry. Spending for travel is the only category that has ceased to erode on a quarter-on-quarter basis.
"Our data suggests that in 2009, we'll see a decline in retail spending among affluent and wealthy consumers," predicts Dr. Jim Taylor, vice chairman of Harrison Group, a Waterbury, CT-based marketing and research consulting firm, and co-authors of the quarterly study. "The negative outlook is, however, modifying. The rate of decline is now in the single-digit range for everything we measure, except private jets and jewelry. This contrasts with rates of decline in excess of 25 percent last year, in luxury categories."
The spending of the top 10 percent has been offset by significant increases in their savings rate— up 12 percent since the first quarter of last year. The wealthy segment, which represents one-half of the top 1 percent of the population, has increased its savings rate by nearly 20 percent. In total, this shift in priorities adds up to $600 billion in American savings accounts; concomitantly, willingness to invest in equity and related markets is off as much as 30 percent.
Optimism in the future continues to track lower. Less than 46 percent of affluent and wealthy households say that they are optimistic about their own future; 78 percent report having experienced significant impact to their long-term financial security; and as many as 52 percent of America's wealthiest households are of the belief that they could lose everything as a result of the current economic volatility.
New family resource management practices are proving to have a silver lining, however. Respondents report an increase in conscientious savings, a new found economic resourcefulness and a surprising enjoyment of life's value-priced "micro-pleasures."
Dramatic Increases in Savings
During the past 12 months, respondents have been saving 16 percent more of their household income and increasing contributions to their retirement plans by 6 percent. At the same time, they've reduced their financial investments by 7 percent. The dramatic shift toward saving vs. spending underscores their belief that the recession will continue for an extended period of time. More than three out of four say that the real estate and banking crisis has negatively affected their sense of financial security.
"These affluent individuals are being very cautious in how they spend and save. They are becoming more responsible and practical in their financial decision-making," said Cara David, co-director of the study and senior vice president of corporate marketing and integrated media of American Express Publishing Corporation. "Yet, despite the real economic hardships brought on by the real estate and banking crises, people are feeling good about how they are managing their finances."
Less than half of the individuals in the survey (46 percent) feel extremely/very optimistic about their future. Even fewer (42 percent) feel extremely/very optimistic about their child's future. However, more than half (66 percent) say they are "very happy." Since the study's inception in 2007, this is the first time results have revealed a clear upturn in American happiness. The decline in optimism appears to have bottomed. The possibility for an upturn in optimism certainly exists.
More than three-quarters of Americans (76 percent) report taking pride in their newfound shopping habits. Additionally, 65 percent now describe themselves as "smarter" shoppers.
"Beginning last Christmas, shoppers—especially women—began to take pleasure in saying no to unexamined consumption. They began to take pride in their ability to resist the urge to buy and started to examine why they needed a new dress, a new fixture, anything really. And then, they derived pride—self-esteem—from their ability to make careful, reasoned purchase decisions," said Dr. Taylor.
David adds: "This new resourcefulness means, however, that as the recession ebbs, merchants cannot expect a return to the sort of 'retail gluttony' that has characterized the last 10 years. Instead, consumers will continue to apply their newfound skills in comparative pricing, needs identification, budget-based and values-based shopping. Brands will have to get in line with the spirit of this 'rational exuberance': the tendency to take pleasure in saying 'no.'"
Greater Role of Women and Children
An overwhelming 88 percent of respondents maintain that they have done a good job of making their household more fiscally responsible. To accomplish this, 61 percent have set a monthly household budget they "try their best" to adhere to.
David comments that resourcefulness is becoming the new moral norm. "Being 'in the black' is the 'new black,'' she observed. "The purchase criterion for the upper middle-class, affluent and the truly wealthy, who account for half of all U.S. consumption, is now, 'What do I really need?"
For example, 80 percent observe that they wait for an item to go on sale before they buy it; and 65 percent shop with coupons "fairly regularly." Additionally, the majority (77 percent) are buying fewer big-ticket items, as compared to a year ago, an increase of 15 percentage points since last December. The same group is carefully reviewing every spending category, to see where they can economize, an increase of 10 percent over the same time period last year.
"When we look at the purchase decisions of this group of individuals, we see that children's opinions are playing a greater role in the family's discretionary spending and that more and more women are driving the financial decision-making process," Taylor points out.
Reflecting a shift in consumer values from "I want" to "we need," the study found that the categories projected to do the best this year over last revolve around family, togetherness, goodness and small pleasures. "This spending forecast suggests that individuals are indulging in micro-pleasures—smaller-scale purchases and experiences—vs. the kinds of grand expenditures they made in times of economic good fortune," said David. "Despite a decrease in extravagant spending, the affluent remain loyal to brands they have used and like. The most prized labels are ones known for craftsmanship, quality and customer service."
More than half of the respondents (57 percent) believe that "a few luxuries are important in tough times," compared to those (54 percent) who feel guilty about purchasing premium priced goods in the current economic climate. The study also found that categories that have seen significant spending reductions, such as weekend getaways, vacations, dining out and fashion accessories, have now begun to show signs of renewal.