What Does It Mean to be Rich?
Ezra Klein posed these questions to his readers and asked for their snap answers:
1) Where in the income distribution do you have fit in order to be called “rich”? I’m looking for a percentile here.
2) What annual income do you have to make in order to be called rich?
Frankly, my off the top of the head answer is simply: that’s not enough information to make a judgment.
To be sure, income certainly plays a role in being “rich”, but it’s not the end-all, be-all. As some of Klein’s commentators pointed out, income versus cost-of-living matters, among other things.
But just looking at income distribution alone simply isn’t enough. In my life, I have met families who make about $50,000 a year who routinely by new cars with cash. On the other end of the spectrum, I know families who make $200,000 a year and yet live paycheck to paycheck as a consequence of debt and/or medical burdens. (Lawyers and doctors, for example, can easily come out of higher education with over $100K in student loan debt–which puts a severe damper in your actual cash on hand.) In addition, the business world (especially the entertainment industry) is filled with people who have millions in income and nevertheless go bankrupt. Are those folks “rich”?
If you were to ask me how to define someone as rich, irrespective of income, my off-the-cuff answer would be that a person is rich if:
(1) At least 20% of one’s monthly after-tax income is directed to savings and investments; and
(2) The value of one’s assets, upon liquidation, would exceed the value of one’s debts by at least 50%.
I am also strongly pondering the addition of a third criteria, which would be: The ability to live for at least one year without any income and without cutting regular living expenses.
I think that these criteria are a stronger indicator of a person’s financial position than simply their income, which by itself doesn’t really tell you if a person is well-off.