Let me tell you about the very rich. They are different from you and me.
-- F. Scott Fitzgerald
The current crisis has proven many apparent truisms wrong.
Among other things, we've learned that there are few, if any, industries, including health care and consumer staples, that are truly recession-proof.
We've seen how closely tied the rest of the world is -- up until now, at least -- to economic circumstances in the United States, despite the assertions of the decoupling-ists.
We've also discovered that, contrary to popular belief, the rich are not immune to the pressures of a broad-based economic downturn.
Indeed, in "How the Wealthy are Spending Their Money This Year," the Luxist blog reveals just how much the attitudes of those who still have the cash and those who don't have converged.
Last week, I sat down with representatives from American Express Publishing and Harrison Group to see a presentation and discuss a question which is on many of our minds: How are the wealthy reacting to the recession?
Well, to start with, more than half (53%) are worried they could run out of money. Dr. Jim Taylor, vice chairman of Harrison Group, and Cara David, senior vice president of corporate marketing and integrated media of American Express Publishing spent approximately an hour display charts that showed the results of countless hours spent crunching the first-quarter responses of 1,300 Americans with discretionary incomes over $100,000 (that means income after tax, mortgage, home maintenance, and child education costs are subtracted).
This year there are 120,000 fewer households that fit in that range. The number of households with a discretionary income over $500,000 went from approximately 118,000 to 92,000 -- the first drop since 1997.
Of these 1,300 moderately-to-very wealthy Americans, 70% believe that the recession will last longer than a year, and 35% think this could be a long term depression. 78% report that the crisis has affected their sense of financial security.
So how does the spending look? "Luxury is not dead, there's simply a filter on risk," says Taylor. 77% said they are buying fewer "big ticket items" this year -- so it's a safe bet that they're buying brands they trust. There seems to be a trend among the wealthy of pride in their willingness to not buy things. This goes beyond the usual chatter of talking about great bargains you got; people are actually feeling an increase in their self-esteem related to their ability to take control of their own lives. Believe it or not, spending less is making people happier. People checking the "Very Happy" box went from 58% last year to 66% this year -- women up 10%, men up 4%.
That doesn't mean they're not spending big, though. People are willing to pay a lot of money for bells and whistles right now. "The angel is in the details," as they say, and people are less likely to expect a discount on an item they perceive as having "high performance details." This can mean anything from TVs with exceptional sound systems to designer handbags with specially designed features.
Many of the luxury brands we know today, like Louis Vuitton, first "exploded" in America during The Great Depression. "People look to brands in times of trouble to protect them from risk," says Jim.
In the art market, buyers for an artist's best pieces are up, where as buyers for lesser works are down -- collectors take note: it's a good time to buy the ugly ones.
So how are the wealthy spending their money this year? Very carefully. People are being wary of risk and waiting to buy; they're even booking vacations closer to the wire to "get a good deal." Still, a high percentage of respondents agreed -- "A few luxuries are important in tough times."