How do the wealthy take a hatchet to their personal spending?
A recent survey of millionaires revealed that the wealthy were cutting back on dining out © Getty ImagesSimply sign up to the Cost of living crisis myFT Digest -- delivered directly to your inbox.
Living in south-east London, I find the relatable rich all around me. Neighbourhoods such as Dulwich and Blackheath are full of the well-off middle classes — big mortgages, school fees and skiing holidays, usually made possible by at least one parent working in the City.
But these are also places where being in the top 1 per cent of income earners doesn’t go far — and where mortgage rate rises and inflation can hit hard.
The combination of coming off a fixed-rate mortgage and facing across-the-board price rises can easily add £2,000 to monthly outgoings. UK take-home pay, if you earn £200,000, is approximately £9,500 a month. This can make a huge difference for those at the bottom end of the 1 per cent.
It’s not just the UK either. The Bank of America’s Consumer Checkpoint Survey for October 2023 found that there had been a fall in both necessity and discretionary spending for households earning more than $125,000. (Other lower-earning groups showed rises or stayed more or less flat.)
Indeed, in the US, the term “richcession”, a recession that hits those on six-figure salaries, is being bandied about. So, are the rich having to tighten their belts and, if so, how?
One of the good things about being well off is that there’s more to cut back on. A 2022 CNBC survey of millionaires had respondents saying they were “more price conscious” when shopping — with a third saying they were dining out at restaurants less often. This very much chimes with what I’m seeing. People who used to eat out twice a week are now doing so twice a month.
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Interestingly, struggling one percenters may actually enjoy some of this everyday economising. We’ve all read magazine features where customers who normally shop in high-end supermarkets suddenly discover the joys of the cured-meats selection in their local discounter store, or who start cooking meals that they’d once have ordered in.
Less enjoyable perhaps, but also common, is to rationalise holidays. “We can still go away in the summer and ski, but mini-breaks and autumn holidays are out” is a common refrain. A friend who works in luxury travel tells me he’s seeing fewer of the lower 1 per cent, “but the very rich are spending more than ever”. This, he says, is likely down to the price of airfares, which have remained high and act as a barrier. Thailand for half-term is fast becoming a pre-pandemic memory.
Others are having to go further than holidays. The Financial Times recently reported that, in the UK, there had been a rise in interest in properties near grammar schools and other good state schools. The reason? Well, for many of the struggling 1 per cent, school fees (assuming two or more kids) are the single biggest outgoing. A good state school can cut your outgoings in half.
Just don’t expect any sympathy if you’re moaning about this sort of economising. A woman who went on Mumsnet, the UK online parenting forum, earlier this year to complain that private school fees had increased so much that she was considering home-schooling received short shrift from many commentators and was told to “read the room”. Indeed, it’s probably a good idea generally not to do the “poor little rich person” act on social media, because you’ll always reach someone who makes your predicament look like a joke.
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But enough about the not-quite-rich. What about the really rich, for whom all of this is pocket change? Well, some of them are economising too, even though they don’t need to. Financial psychologist Brad Klontz points out that there are plenty of rich people who have always lived well within their means. For them, comparative frugality is just business as usual — and, as modest people, they’re very unlikely to tell you about it on Instagram.
However, he adds, some of the ostentatious wealthy may be curbing their spending, even if they don’t need to. This, he says, often happens with those who have more diverse social groups — including people who are being forced to economise. “We are tribal creatures,” says Klontz. “Here, economising isn’t virtue signalling, it’s wanting to show you belong to your group.” Thus, the guy worth £200mn flies business class so as not to distance himself from his friend who earns £200,000 a year.
Klontz adds that there are certain groups of wealthy people who find economising harder. “You have high income people who grew up low income. Some of them have made it a life goal not having to economise and they really don’t want to start doing it now.”
However, he adds that the people who find it hardest of all are those who should have started doing it a long time ago when times were better. “There’s a cohort of rich people who are high-income but low-net-worth and who live paycheck to paycheck and may have run up debts to finance their lifestyles.” Until recently, he says, there had been enough money sloshing around to live like this. “But now, for them, the chickens may be coming home to roost.”
Rhymer is reading . . .Radio Iris, by American author Anne-Marie Kinney. Described as The Office meets Kafka, the novel is about a daydreaming receptionist who is unsure what her company actually does. We soon realise the business is falling apart, but so too is reality around it. Eerie and surreal.
Follow Rhymer on X @rhymerrigby
This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment
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