Question: Is $250,000 rich?
Bundles of newly printed twenty dollar bills are prepared for distribution to financial institutions at the Department of the Treasury Bureau of Engraving and Printing in Washington, D.C.
TEXT OF INTERVIEW
TESS VIGELAND: Now let's clarify a couple of things. First, when politicians bat around the $250,000 figure in talking about the tax cuts, they're talking about what's left after taxes and deductions.
Second, we're not talking about money and happiness here. Just money. And how much of it makes you wealthy.
Of course by using that word, I'm throwing a wrench in things. Because there's well-off, there's wealthy, and then there's rich.
Ted Klontz: Ben Franklin said, he asked the question who is rich? And he answered that by saying he who is content. And then he asked the question, who's that? And he said nobody.
That's Ted Klontz. He's a financial psychologist and author of "Mind Over Money." Through today's show we'll be hearing from him and from Robert Frank, who writes the wealth report blog for the Wall Street Journal.
We started with Frank and the question: Is $250,000 rich?
ROBERT FRANK: No, if you look at the statistics in America, it would make them rich on a national basis, but relative to peer groups, relative to what true wealth is in America, no.
VIGELAND: Ted Klonz?
KLONZ: Well I think if people measure their wealth in terms of dollars probably not, and they probably will never have enough dollars.
VIGELAND: Well, let's get to the question of relativity, which Mr. Frank you brought up, and this really is a question of perception I think. According to census data in 2008, and I'm going to credit Dan Gross over at Slate for compiling this, median household income nationwide was just over $50,000. And as he pointed out even in the wealthiest areas of the country -- San Francisco at $74,000 median income, New York metro $61,000 -- $250,000 is way above all of those. How does anyone argue that $250,000 a year is somehow middle-class, Mr. Frank?
FRANK: I think it really depends on what kinds of things you want to buy and what kind of lifestyle you want to have to be "comfortable" or to be wealthy. In New York City, if you want to send your kids to private school, if you want to own a car, if you want to own an apartment larger than 400 sq. ft. All of those things require income probably in the $500,000 or more category. Now if you lived in Omaha, Neb., or South Dakota, $250,000, $300,000 is very comfortable and probably wealthy. So it's not so much relative to peers but relative to the cost of where you live.
KLONZ: This is Ted, and one of the concepts that we talk about is something we call "relative deprivation." It's a sense that people have a judgment of whether they are wealthy or poor based on who they hang around. There was a Harvard study not too long ago where students were asked would you rather make $50,000 while your peers make $25,000 or $100,000 while your peers made $200,000 and the majority of the students choose $50,000.
VIGELAND: But when we are talking about government policy, which is really why we wanted to discuss this, where the Obama administration is setting a lot of policies based on whether you are above or below $250,000, why should those kinds of external influences -- 'I don't feel rich' -- play a part in that? Shouldn't that be very dispassionate and realistic based on the numbers?
FRANK: One of the pitfalls of what's happened with the discussion of wealth in America today is that it's becomes very politicized, and I think misrepresented by both the left and right. Look, the government needs money right now for lots of things: for health care, for the deficit, the states need money. Rather than say 'we are going to raise taxes on everyone making $200,000 or more, or $250,000 or more' -- which they need to do -- they've labeled them as wealthy or rich. Much easier to sell that to voters if you're saying -- and the media repeats -- "we are taxing the wealthy." That's a very easy shorthand, like the death tax, which is the estate tax. Very easy to sell that to voters. So I think the term "rich." the term "wealthy," has been applied with numbers really to make it politically sellable to voters. And I think that's really distorted the debate.