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Fall 2009 Tracking Study of the Affluent Market--#16
American Affluence Research Center, Oct 2009, Pages: 39
As an inexpensive way to conduct research among the affluent, proprietary questions can be purchased in these tracking studies for your exclusive use.
Overview
This new survey provides the answers to 7 important questions and reveals how the affluent expect their spending plans to change over the next 12 months.
With this new report, you will learn:
- What is the prevalence of the concepts of 'stealth wealth' and 'luxury shame'?
- Short answer: Not much. These concepts apparently apply to less than 7% of the affluent.
- What is the 'new normal' and will the affluent return to pre-recession levels of spending?
- Short answer: The 'new normal' is not new to the affluent. Most have been careful spenders and aggressive savers who live within their means. They say they will return to pre-recession levels of spending when the economy has recovered and they have recovered the recent losses in their net worth, which they estimate will take 18 to 24 months.
- Which segments of the affluent have been reducing/deferring expenditures, which segments will do so over the next 12 months, and which segments are not cutting back?
- Short answer: Age and net worth are more important factors than level of income. There is some variation depending on the type of product.
- Which are the spending plans for December holiday gifts?
- Short answer: 9% will spend nothing and among those that will buy gifts, the average expenditure of $2,400 is a 5% decline from 2008.
- Which of 8 major expenditures do the affluent expect to make during the next 12 months?
- Short answer: Only the building of new homes has not risen since the Spring 2009 survey.
- How do the affluent expect to change their spending for 17 products and services during the next 12 months?
- Short answer: The spending indexes for all 17 categories have increased from the Spring 2009 survey.
- What do the affluent expect of the stock market, business conditions, and their personal income during the next 12 months.
- Short answer: They are more positive on all three than in the Spring 2009 survey.
We received a record number of over 865 responses (about 18%), thus showing the importance of this survey to the respondents, who have been a leading indicator of economic conditions, as when they called the recession in our March 2008 survey (well ahead of everyone else).
This survey is more informative than others for several reasons. Unlike most other surveys of the affluent, this is not an extrapolation of past actions that they have been asked to remember and reconstruct. It is also not an online survey of people who are compensated for responding to regular and frequent surveys, nor does it include respondents who do not qualify to be among the wealthiest 10% of US households.
This report is based on the responses from 684 men and women in households with an average annual income of $300,000, an average net worth of $3.1 million, average investable assets of $1.6 million, and an average primary residence value of $1.2 million. This is the 16th in a continuing series of twice-yearly surveys of the wealthiest 10% of U.S. households, based on net worth, as determined by Federal Reserve Board research.
The 684 survey respondents represent 37 states and the District of Columbia. Eighty-eight (88) percent are married. The average age is 56. Fifty-five (55) percent are men and forty-five (45) percent are females.
Background
This is the sixteenth in a continuing series of twice-yearly surveys that focus on the 11.2 million households that represent the wealthiest 10% of all U.S. households, as determined by The Federal Reserve Board, based on net worth.
These surveys measure and track how the affluent assess current business conditions and their 12-month outlook for the economy, the stock market, and their personal household earnings. The surveys also monitor the anticipated changes in spending for a variety of different products and services, changes in expected rates of saving, and primary investment objectives. In addition, each survey contains special questions exploring new topics.
This survey contained questions to help identify which segments of the affluent market are reducing or deferring expenditures (and which are not) due to current economic conditions, why they are reducing their expenditures, and for what types of products and services spending is being cut back. Related to this are questions regarding the existence of and affect on spending of feeling self-conscious about their financial situation being stronger or better than that of their friends and family (i.e. the concepts of “stealth wealth” and “luxury shame” that have been advanced by some retail and luxury consultants).
Also included were questions about spending plans for Christmas and Hanukah gifts, the factors that will influence their return to pre-recession levels of spending (related to the concept of the “new normal”), expected percentage change in 2009 income, percentage of income to be contributed to savings, and estimated time to achieve the end of the recession, an 8% rate of unemployment, the Dow Jones Index at 11,500, and a 20% increase in the value of their savings and their home.
Our unique direct mail surveys are based on samples drawn at random to be representative of the precisely defined population of affluent households, consistent with the research of the Federal Reserve Board. Confident of their anonymity, the respondents to our surveys are typically more affluent and more open in providing confidential information.
Similar to the Consumer Confidence Index of The Conference Board, this survey is based on self-administered questionnaires mailed to a randomly selected, national sample of 5,000 men and women in households that, based on their income and ownership of certain assets, were expected to meet the minimum net worth requirement of $800,000.
The maximum margin of error of this survey, at 95% confidence, is five percentage points.
Index values shown in this report can range from 0 (negative) to 200 (positive), with an index of 100 being a neutral reading.
Major Findings
- The composite ACE 12-Month Economic Outlook Index (which is the average of the 12 month outlook for business conditions, the stock market, and household income) has returned to positive territory (120). The positive outlook for business conditions and the stock market offset the slightly negative outlook for personal household income. This concern about personal income (and the ability to save) is likely to have influenced the future spending plans that are presented in this report.
- Allowing for those who expect no change in their income, the income for the wealthiest 10% of households represented by this survey is estimated to decline by 7.4% in 2009.
- On average, the respondents expect to definitely contribute about 9% of their income over the next year to various savings accounts and investments. A higher savings rate is planned by the younger, higher income, and higher net worth segments.
- Preservation of capital became the primary investment objective, for the first time, in the Spring 2009 survey. This was true of all demographic groups. It is still of particular importance to all but those under 50 years of age and those with an income above $200K.
- The absence of plans for major expenditures in the next 12 months had been relatively stable (43%-46%) prior to the Spring 2008 survey. The Spring and Fall 2008 studies broke that pattern with just over half of the respondents indicating no plans to make any major purchases in the next 12 months. In the current survey, 60% of the respondents have no plans to make any of the major expenditures in the next 12 months. This is a slight improvement from the Spring 2009 survey.
- Acquisition plans for all of the 8 major purchase items, with the exception of building primary and vacation homes, rose slightly from the Spring 2009 survey. Plans for a major home remodeling showed the most substantial increase.
- None of the 17 spending categories are in positive territory (i.e., index over 100); which occurred for the first time in the Spring 2009 survey. All 17 indexes are higher, often by 10 to 15 points, from the Spring 2009 survey.
- In 11 of the 17 categories, 30% or more of the respondents plan to spend less during the next 12 months. In all of the remaining categories, over 20% plan to spend less in the coming 12 months. On the positive side, in 10 of the 17 categories, about two-thirds or more of the respondents plan to spend the same or more as during the prior 12 months.
- Almost one in ten report they do not plan to buy December holiday (Christmas and Hanukah) gifts this year. This is not substantially different from the 3% reported in a 2006 survey.
- Those planning to spend more report an average 12.5% increase in their 2009 expenditures. Those planning to spend less report an average 15.2% decline in their 2009 expenditures. Allowing for those who plan to spend the same, the average holiday gift expenditures will decline 5.4% from 2008 levels. This results in an estimated average 2009 expenditure of $2,370 for holiday gifts.
- Almost 80% of the respondents indicated they had reduced or deferred expenditures in the past 12 months, would make a conscious effort to do so in the next 12 months, or had both done so in the past and would continue to do so in the future. Those age 60+, men, and those in the higher income and net worth segments are somewhat less likely to have made efforts to reduce expenditures in the past 12 months.
- In contrast to those who are reducing expenditures, those who have not and will not reduce expenditures have net worth about 45% higher, have about double the investable assets, and are much more positive about the future (business conditions, the stock market, and personal household income).
- While 41% acknowledged feeling self-conscious about their financial situation being stronger or better than that of their family or friends, a third felt self-conscious about their financial situation being weaker or worse. A total of 11% answered “yes” to both statements. This equals about a quarter of the first group and a third of the latter group that over lapped.
- In total, only 7% of the affluent have taken actions that might be indicative of “stealth wealth” and “luxury shame.”
- About one in five report they have not changed their spending since the recession began. Of the 80% who have changed their spending, about a quarter do not plan to return to pre-recession levels of spending. This equals roughly 20% of the wealthiest 10% of US households. The two major factors that will influence the respondents to return to pre-recession levels of spending are the recovery of their savings/investments (54%) and the recovery of the stock market (49%). These two factors are important across all demographic segments but a bit more important to those age 60+. Certainty of job security and/or compensation is relatively more important to those under age 50 and those in the lower level of net worth.
Note: Price includes Full Report + 292 pages of cross-tabulated data.
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