It isn’t just the “Real Housewives” who are over-leveraged and living large. Even after the economic crisis mowed down many of the indebted rich, the wealthy continue to borrow to support their lifestyles.
In a column in the Washington Post, market strategist Barry Ritholtz said many of today’s bankers, lawyers and doctors have become so dependent on their ever-increasing salaries that they become slaves to their jobs.
“The big banks, investment shops, law firms and accountants have learned how profitable it is to have ‘golden handcuffs’ on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.”
He added that “overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.”
This is true to an extent. But the wealthy don’t need their companies to encourage spending—the larger culture of wealth and spending does it for them. According to data from Moody’s Analytics, the top earning 5% of Americans now account for 36% of consumer outlays. More incredible, this group (with an average income of $342,000 in 2008) have the lowest savings rate in the country: 1.4% compared with more than 8% for the rest of the population.
That means that people earning more than $300,000 a year save less than one fifth as much as the bottom 40% of earners.
Yes, there are plenty of thrifty “Millionaires Next Door” among the wealthy and high-earners. But the statistics suggest that the financial crisis and recession has barely effected the highly leveraged lifestyles of the wealthy.
Do you think today’s high-earners use leverage to support their lifestyle?
Who woulda thunk it?