Life on easy street - wealthy Americans - includes related article on luxury consumption

American Demographics, April, 1997 by Rebecca Piirto Heath

The newest crop of rich Americans fits some old stereotypes. They ski, sail, and go to art auctions. They can afford the finer things in life, so they buy them. Marketers tuned in to the passions of the wealthy find that even the most expensive toys can sell like hotcakes.

The penthouse at the top of the American income pyramid is accepting more newcomers these days. For the growing ranks of tippity-top earners, the American Dream is alive and well. The rich keep getting richer, while the rest of the country gets by on a 1995 median household income of $34,100, down 2 percent from 1990.

The ranks of the rich are swelling as stars in all lines of business, from top CEOs to top basketball players, command salaries skyrocketing into seven and eight figures with no sign of deceleration. The phenomenal success of technology stocks has pushed the value of Netscape chairman Jim Clarks company stock past $1.5 billion. Meanwhile, Michael Jordan took in $65 million last year, according to a special report by People magazine.

Money begets more money for the newly affluent in the entertainment industry. Oprah Winfrey's estimated 1996 earnings were in the $97 million range. Howard Stern reportedly earned $12.5 million in 1995. Paul McCartney's fortune is estimated at $630 million. Tom Cruise reportedly earned $60 million for producing and starring in Mission: Impossible.

"There has been an explosion of wealth in America," says Charlotte Beyer, founder of the Institute for Private Investors in Summit, New Jersey. Institute membership, which is only by referral, has grown from 34 members in 1992 to a very select group of 278 members who typically have $50 million or more in total assets. One-third have $200 million or more.

More Americans are enjoying the good life at the top. In 1996, an estimated, 4.8 million American households had a net worth of at least $1 million, up 118 percent from 1992, according to Payment Systems, Inc. of Tampa, Florida. "There has been a significant growth in the number of U.S. millionaires since 1989," agrees IRS statistician Jon Maiden.

Although the income reported on tax returns may reflect the creativity of accountants more than real income, IRS income data show ongoing expansion in the top ranks. In 1994, 9.6 percent of taxpayers reported adjusted gross incomes of $200,000 or more, compared with 8.4 percent two years earlier. "You can be almost sure that the people in this highest group are millionaires," Maiden says. "If you invest wisely, it doesn't take too long to become a millionaire today."

A conservative estimate by Stanford Bernstein, a Manhattan research firm, shows that at least 3 million Americans had attained millionaire status or beyond as of 1996. "Baby boomers inheriting wealth from their parents, stock options for executives, and the extraordinary appreciation of financial assets have been fueling an explosion in the sheer number of people who have lots of liquidity," says Charlotte Beyer.

The increasing number of wealthy Americans and their particular preferences are having profound but subtle effects on everything from investment strategies to the demand for some very high-priced goods and services.

FROM BARELY THERE TO SUPER-RICH

Most current surveys of the affluent market set the income threshold for entry at $70,000 a year. Twenty percent of all U.S. households in 1995 met this relatively generous criterion, or about 20 million. This broad group encompasses enormous lifestyle and behavioral differences between two-earner households whose combined income barely reaches the $70,000 mark and the super affluent whose existing wealth does all the earning for them.

One long-standing study of upper-income Americans segments the affluent market into several groups. In its 1996 Mendelsohn Affluent Survey, Mendelsohn Media Research, Inc., interviewed 43,000 affluent Americans. The results provide some intriguing insights into the distinct differences between the marginally rich (with household incomes of $70,000 to $99,999 a year) and the super rich (with household incomes of $250,000 or more). The marginary rich are the largest group, making up 57 percent of all affluents. Those in the $100,000-to-$249,999 range make up 38 percent, and those with incomes of $250,000 or more comprise 6 percent.

The marginally rich are a little younger than the super-rich. Median age increases with income, from 42 years for those in the $70,000-to-$99,999 range to 46 years for the $250,000-plus group. Twenty-six percent of the super affluent are aged 55 or older, compared with 16 percent of the marginally rich. Eleven percent of the top group are aged 65 or older, compared with 5 percent of the least affluent group.

Affluent Americans have more education than the general population, and the most affluent are better-educated than the barely affluent. For example, 32 percent of those in the marginally rich group never went to college, compared with 23 percent of the super rich. Twenty percent of the very rich have graduate degrees, compared with 8 percent of the less rich.