You have to have money to spend money.
There are three reasons to acquire wealth in America – to provide financial security, to provide for the next generations in your family, and to spend it on discretionary items.
Spectrem’s study on affluent investors examines how investors employ their money to make more money, looking at their investment choices and decisions to derive some expectations of investors based on age, gender and wealth level.
But Spectrem also asks investors what they are spending their money on once they have covered all of the essentials. Such information can actually be useful to advisors who can sometimes accommodate an investor’s spending habits with advice on spending their discretionary assets wisely.
And guess what? Investors with more money spend more money on discretionary items such as theatre tickets and cleaning ladies.
In Spectrem’s annual report on investor portfolios, investors were asked to consider how much they spent in the previous 12 months on items from approximately a dozen different categories, including household staff, home repair and improvement, entertainment, jewelry, vacations and charities. It is safe to assume those with more money spend more than those with less money in each of those categories, but it is the level of difference that is the story.
There are instances, however, in which the story is how much money is not spent on particular items.
Case in point: household staff. Babysitters, gardeners and lawn maintenance, cleaning ladies – 40 percent of affluent investors do not spend any money in a 12-month period on those types of services. That includes 30 percent of Ultra High Net Worth investors with a net worth between $5million and $25 million, who obviously have the money that would all ow them to hire someone to help with the cleaning.
The Spectrem study split entertainment spending into two categories – The Arts and Sports. While sports spending is dependent on an interest in the games people play, the Arts encompass plays, orchestra performances, and other cultural events, and that tends to spread out over more investors. Ninety percent of UHNW investors spend at least a bit on the Arts, while only 74 percent of mass Affluent investors with a net worth under $1 million do so.
Also everyone with disposable income takes vacations, but there are sizable differences in the amount of money spent based on the net worth of the investor that matters. For example, almost half of UHNW investors spend at least $10,000 on vacations in one year, and 24 percent spend at least $15,000. By comparison, only 12 percent of Mass Affluent investors spend more than $10,000 and only 24 percent of Millionaires do so.
It is in the vacation department that advisors and providers can provide some assistance. Travel agents and travel-related firms often offer providers deals to promote their services with investors, who are attracted to such firms because they offer travel incentives to work with them.
The good news, from a philanthropic standpoint, is that those with money often give it away to deserving causes. Ninety-four percent of UHNW investors gave to charity in the 12 months prior to taking the Spectrem survey, and 23 percent gave at least $10,000, with 14 percent giving at least $15,000. Those with less money gave away less money, but 85 percent of the Mass Affluent donated to charity and 15 percent gave at least $5,000.
Top Takeaways for Advisors
Discretionary spending is the right affluent investors have when they have the money to spend, but advisors can assist investors by offering budgeting plans or information to make sure no investors put themselves in a spending bind. Some advisory services also provide services such as vacation guidance to play a role in the spending habits of investor clients, all with an eye toward saving their hard-earned cash.
©2018 Spectrem Group