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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.

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It was frustrating to listen to the show about whether 250K was "rich" as the most relevant question should be what are you doing to earn the money. As a physician I earn slightly less than 250,000 a year but take great issue with the sentiment that I should be taxed more as I am "wealthy". After 4 years of college,4 years of medical school, and 3 to 5 years of residency training after that and more than 100,000 dollars of debt on average to get there I hardly feel overprivileged. Tess Vigeland seemed amazed last week when a mother called asking about loaning her son money for medical school by the amount of debt being amassed. Maybe we should be discussing the what you have to do to earn 250K?

All of the stories from this weekend's show were premised on a false equivalency: wealth and income are not the same thing. Wealth is money or assets on hand. Income is cash flow over time. Income that is saved is converted into wealth, but simply because your tax returns show a certain amount of income, doesn't mean you are wealthy.

In our social and political conversation, the two terms are often used interchangably. The result is a misdirected focus on cash flow rather than assets. At a minimum, I believe that this creates confusion in the political debate, and prevents a unified understanding of the messages and arguments made by politicians and policy advisors. Perhaps this confusion is also a symptom of the cultural transition toward greater consumption, as the distinction is blurred.

I have to wonder how someone who is making more than 98% of American wage earners can justify saying they are not wealthy.

Me thinks someone is a little self-centered!

In the context of this debate over the impact of expiring tax cuts for those earning $250,000+, let's remember that someone earing $250,001 would only pay 3 cents more in taxes. It's only earnings above that amount that receive an increase in taxes, for most earning up to $500,000 we are talking a few hundred dollars.

Anyone complaining cost of living in expensive area is still enjoying luxury of living in the place.
They could easily move out the area and live better.
I am making a little less than 250k but I agree increasing tax for higher income as long as lower bracket tax is lowered.

So you're only rich with $250K if it's relative wealth? That's rich [hah!]. In many jobs like mine [government employee] there is a uniform income nationwide for the same job; it doesn't change based on location. So someone who does my job in Manhattan can't afford to LIVE in Manhattan, but would end up living in the Bronx or somewhere similar. That's one of the things that lets this exclusivity not only continue, but proliferate. Nothing is worth more than someone is willing to pay for it; unfortunately, that means that too many people in the US are willing too pay way more for virtually the same thing the rest of us get for less.

I live in Iowa City, and work in Iowa County (won't say what state I am from).
Out here we can get by quite well on $125k. Our Public Schools are at a high standard, no need for private ones other than the local church schools. A Mini van or cheap SUV gets the kids to soccer, or church events.

You are rich when you have everything you need, and most of what you want. If you are there, and remain unhappy more money will not help. And for Pete's sake, quite encouraging people to compare themselves with others. This will only make us unhappy. Also, at a certain stage we all should quite looking at what the world is going to give us, and look at what we can do to give back and support those coming behind us. How did Americans get so selfish? We are just making ourselves into sad little piggies.

Thank you for clarifying the fact that politicians are referring to that $250k figure after taxes and deductions! I had already thought that *gross income* of $250k or higher was an incredibly large amount of money to earn in one year. Now I understand we're talking about people earning lots more than that but "only" having $250k a year to spend! Good grief -- they are very well-off, well-situated, but I don't know about using the words rich or wealthy because no one has defined exactly what they mean by those words. I must say, I don't give a hoot about whether those people feel rich or not -- they are in the top 2% -- they bring home tons more money than most of us -- and if they don't realize how damned lucky they are they need to go get reality counseling!

250,000 means i am probably generating millions of dollars of wealth for employees and vendors. Screw with my paycheck to much and i'll close up shop- downsize my lifestyle and fire all the employees. Americans that are wealthy are skilled at creating wealth for the economy- government can only steal and destroy wealth, much like the glass shop's boy with a bb gun.

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