Americans Need $2.5 Million to Be Wealthy.

Is inflation eroding wealth?

A recent poll by financial services firm Charles Schwab found that Americans need $2.5 million to be wealthy, which is to me CRAY! The wealth benchmark has been shifting, with younger generations having a lower standard, as a result of inflation.

Respondents from San Francisco said that $4.4 million is the threshold for being affluent, putting California at the top of the wealth expectations list. Second place went to Southern California, with $3.4 million. At $2.2–$2.3 million, the lowest criteria were in Dallas, Phoenix, and Houston.

California is pricing itself out. No wonder a lot of erstwhile residents migrated to Texas and Florida.

The general cost of living has increased due to the surge in inflation at the same time as the amount of wealth deemed wealthy has jumped. Individuals’ expectations of what it takes to be wealthy are directly proportional to the increased cost of living.

The poll raises the wealth criterion from $2.5 million in 2022 to a level that is roughly 14% higher.

Statistics from the St. Louis Fed show that over this time, the cost of living increased by almost 11%.

More than 20% of Americans expressed optimism about their financial future, with millennials and Generation Z being the most optimistic and baby boomers the least, even though high inflation was a challenge.

In addition, 31% of people polled felt they had a good grasp on their financial situation, with millennials and Gen Zers being the most hopeful.

People are worried that their lifestyles may suffer as a result of price increases, which prompted the Schwab survey.

Americans need millions to be wealthy according to the Federal Reserve

The Federal Reserve released its report on U.S. family finances in 2023 in May. It found that over two-thirds of Americans believed their financial situation was worse than the previous year because of “changes in the prices they paid.” Part of such a group consisted of “19 percent who stated price fluctuations had made their financial condition substantially worse.”

“Inflation continues to be the top financial concern, despite the inflation rate dropping during the past year,” the report notes.

Rising expenses have an impact on both the present and future budgets. Schroders, an asset management firm, conducted a poll in May and discovered that retirees were “weighing heavily” about the prospect of price increases diminishing the value of their assets.

Fewer than half of retirees in the US felt they had saved enough, while a sizeable minority were certain they had not saved enough. Inflation eroding asset values was a concern for nearly 90% of respondents, the survey found.

Wait, there is more…

Higher inflation does not necessarily cause asset values to decline, though. According to Western & Southern Financial Group, a financial services organization, the impact on investments is highly conditional on the nature of an individual’s holdings.

Investments with a set rate of return, like some bonds or CDs, are often not a good idea. As the value of cash decreases due to inflation, the set amount of interest collected each year becomes increasingly worthless over time.

The impact on equities might be either positive or negative, depending on the industry.

An article from U.S. Bank claims that when inflation is high, “value stocks” (i.e., companies that investors believe are undervalued) do better than growth stocks.

When inflation is strong, Western & Southern Financial Group says that commodities like oil, precious metals, and agricultural items are solid investments. Do Americans need $2.5 million to be wealthy?

Let me know in the comments. 🤷🏿‍♂️