What Percentage Of People Are Rich? By Emlyn Scott At Isnare.com Ezine Articles

The 5% club:

The Capgemini and Merrill Lynch 2006 World Wealth Report found there were 8.7 million millionaires in the world—2.9 million in America, 2.8 million in Europe, 2.4 million in Asia, 300,000 in both the Middle East and Latin America, and 100,000 in Africa. Given there are 114 million households in America then according to Capgemini and Merrill Lynch approximately 2.5%, or one in every 40 households, is a millionaire household.

However, according to the Spectrum Group and TNS Financial Services the number of millionaire households in America in 2005 was actually 8.3 million and 8.9 million respectively. This means that approximately 7 percent to 8 percent, or one in every 12 to 14 households, is a millionaire household. So why the difference?

The difference is to do with the definition of wealth. Capgemini and Merrill Lynch define wealth in terms of a household’s investable assets, while the Spectrum Group and TNS Financial Services define wealth in terms of net worth.

Investable assets is a very restricted definition and includes only a household’s assets that the owner can readily move about and invest (such as stocks and bonds). It doesn’t include items like your home equity, vacation home, 401(k), stock options, real estate investments, annuities, private stock holdings at market value, consumables, collectibles, etc.

Net worth is simply calculated by taking all your assets and deducting your liabilities, often excluding your principle residence, which is how the Spectrum Group and TNS Financial Services calculate your wealth.

So which definition of wealth is best? Probably somewhere in the middle. The Spectrum Group and TNS Financial Services definition includes many items that don’t add to your wealth such as your vacation home and consumables. Further, it doesn’t examine how many millionaires are a slave to exuberant lifestyles and are not “wealthy” at all.

Similarly, defining wealth just in terms of investable assets overlooks many assets that add to your wealth such as your 401(k), stock options, real estate investments, annuities, private stock holdings at market value, etc.

If we take the midpoint we arrive at 5.7 million, or 5% of American households, with a true effective wealth of $1 million or more.

Although $1 million in net assets is certainly a milestone and something to aspire to, it won't provide for a truly wealthy retirement. However, those with this sort of net worth enjoy a level of financial independence and could probably survive just off their wealth if they were very careful, especially if the vast majority was invested in assets rather than non-income producing items or services such as their principle home, cars, vacation home, etc.

The 1% club:

The 5% club includes every household that is worth $1 million or more. Thus it includes those that are worth "just" $1 million and have financial independence and those that are worth significantly more and are truly wealthy.

Those that are worth $5 million or more are generally considered to be wealthy. They are financially free and can relax and enjoy a wealthy lifestyle, living of the income from their assets.

The Spectrum Group's research found that the number of American households with a net worth of $5 million or more was 930,000 in 2005. Thus, approximately 11% of millionaires are worth more than $5 million. That's approximately 1% of American households. Thus, only 1%, or 1 in every 100 people, is wealthy.

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