You Are Rich
It might not feel like it, but there’s a good chance you are richer than 99% of the world.
The hedonic adaptation theory suggests that humans quickly revert to a stable level of happiness after any positive or negative life changes. For example, you might be pleased with a raise for a while, but it will soon become the new norm, wiping away any gains in happiness¹. While generally comparing yourself to others is a bad idea, it’s a great way to put your financial well-being into perspective. So, how rich are you really?
Merriam-Webster defines rich as “having abundant possessions and especially material wealth.” It’s a good dictionary definition, but it’s somewhat lacking in specificity. The trouble is, specific definitions are pretty hard to come by.
As a way around this, we could say that being rich means not being extremely poor. World Bank’s international poverty line is $1.90/day in 2011 dollars. It’s a pretty terrible definition of rich, and yet even that is too steep for 736M people (10% of the world’s population).
Of course, poverty varies significantly across countries. For example, based on a national definition, 82.3% of South Sudan’s population is extremely poor (i.e., lives on less than $1/day). In the US, the official poverty line is 12.3% and corresponds to a yearly income of $12,488 for a single individual. In the UK, 19% of population is considered poor (£192/week, or around $12,000/year). Lithuania defines two poverty lines, with 11% of the population living in extreme poverty (under €245/month, or around $3,200/year), and another 12% at risk (under €345/month or $4,600/year).
The middle class
We could take the definition a step further and say that being rich means being richer than the middle class. Now this is where things gets tricky, as there is no universally (and often even nationally) accepted middle class definition. The Brookings Institution has a beautiful interactive summary of “expert definitions” of the American middle class:
In short, it’s a fascinating mess. They’ve chosen to simplify things by defining middle class as “the middle 60 percent of households on the national income distribution”. One consequence of this definition is that middle class cannot grow or shrink over time, something that doesn’t make much sense to me². Instead, I went with Pew Research Center’s “67% to 200% (two-thirds to double) of the overall median household income, after incomes have been adjusted for household size.”
According to this definition, 52% of Americans live in middle-class households. In 2014, the annual income range for a middle-class household was $41,869 to $125,609³. In fact, if you were single, you would only have to earn $73,300/year (after tax) to fall outside of this definition⁴.
So… are you still rich?
There’s a good chance that your answer is yes. But do you feel rich? According to Robert Frank, the author of 📘 Richistan, you might not: “people’s definition of ‘rich’ is subjective and is usually twice their current net worth.” Well then, let me give you a definition that should do away with this tension between being rich yet not feeling like it.
The people who drive Lamborghinis (though I’ve always dreamt of owning a 1969 Ford Mustang) and generally lead glamorous, carefree lives. The Gatsbys. To be the 1% in the US, you need to make $421,926 a year⁵.
Whew, that should be good enough! We finally got to a definition that feels right. You know, allows us to grumble about having to save and not being able to afford stuff once in a while… But wait, I have one last question.
How much would you have to earn to be among the richest 1% in the world? In the US, $53,000/year⁶.
$53,000/year makes you richer than 99% of the world’s population. $16,500/year makes you richer than 90% of the world’s population.
I am the 1%. What about you?
I’ve always known I was rich.
I grew up in a middle-class family in Lithuania. I’m old enough to have memories of the Soviet economic blockade (no hot water) and Lithuania’s rise from the economic dumpster. I mostly wore second-hand clothes, but I never felt the least bit poor. In fact, I was the first in my class to have a computer at home.
I left home to study in Riga, Latvia. My parents supported me the best they could, and I also did quite a bit of freelancing to make ends meet (I’d take anything; I’ve spent hours translating terribly boring documents from Lithuanian to English). I lived in an ancient attic notorious for its too many inhabitants, intermittent heating, intermittent electricity, and a caved-in ceiling. But I always had what to eat, I was getting a world-class education, and I could hop on a bus and be home in two hours. I wasn’t poor. Things were a bit tight, that’s it. I was smart enough to juggle studies and side gigs, and I was confident I’d get a good job once I graduated.
4 years ago, I got an offer from Google. That’s the day I become rich. The recruiter called me to give me the good news and go over the finer contract details. That conversation left me in awe. Before that call, I didn’t even know earning so much was possible.
I still feel that way sometimes. But now I want to take this a step further. I enjoy privileges vast majority of the world cannot even imagine. The question is, what will I do with those privileges? This blog is my attempt to answer that.
¹ Mike Fishbein offers a set of tactics that can help break the vicious cycle:
The Happiness Trap: Why You’re Never Satisfied and How to Break the Cycle
You keep working and working — slogging through the doldrums of day-to-day life, repressing your desires for pleasure —…
² Another — more practical — consideration is the ease with which you can get your hands on the relevant data. In this case, figuring out the actual dollar values for the definition turned out to be anything but simple.
³ The ranges haven’t chanced much since then. According to the Census Bureau report on income and poverty in the US, in 2017 annual median income for all households was $61,371. Using Pew Research Center’s middle-class definition of “two-thirds to double”, this would correspond to a range of $40,914 to $122,742 a year.
⁵ It’s much easier to enter the 1% ranks in the UK, where £162,000 a year (just under $200,000, or $130,000 after tax) will guarantee you a spot among the wealthiest. Data for Lithuania is slightly more difficult to come by, but it seems that around €3,000/month (around $40,000/year, or $24,000 after tax) would do the trick.
⁶ This is income after taxes, and is probably not the most reliable number in this post. Global Rich List puts this at $32,400, but I’m rather skeptical given that the World Bank estimate was $34,000 back in 2012. Wealth estimates appear more trustworthy. Credit Suisse, for example, calculates that you need net assets of $93,170 to be among the world’s wealthiest 10%, and $871,320 to be among the top 1%.