Why millionaires don't "feel" rich

We're wealthier than ever - so why don't we feel like it?

Australia has gone almost three decades without recession. The stock market recently hit a record high. Our wages are record highs. Home loan rates are at record lows. We live in one of the richest countries in the world at the richest point in history. So what's wrong?

Comparison

Wealth is relative. So what do we compare to?

Where we expect to be?

"When your wages growth is only 2 or 3 per cent, you don't feel as well-off as when it's going up 10 per cent. That's that nominal distortion that people often suffer from", says economist Shane Oliver, and that "expectations have grown a lot faster than reality."

We're earning more than last year, but we want even more. So compared to our imaginary situation, we see ourselves as worse off.

What we see around us?

Shane Oliver again. "If you think about it - Australians today are a lot wealthier. They're living far richer and longer lives than their parents did but they don't recognise that. They judge everything by what they see around them and if ... someone has got two cars and you've only got one, you feel worse off.

These observations were part of a report on ABC's 7.30. Two households were interviewed and their stories were classic examples of these two harmful comparisons.

Slumming it in a private school

The Lobasso family have four children, a very nice home, the luxury of being able to choose for one parent to stay at home, and send all their kids to a private (Catholic) school. To most people that would sound fairly privileged but they still consider themselves to be struggling.

To me this is pure expectation. Two-thirds of Australian kids go to government schools, but this family seems to have the built-in expectation that their kids need something more expensive.

They said they started the kids in an independent private school, but couldn't "justify that expense". It's a bit like complaining about having to downgrade from a Porsche to an Audi because times are tough.

We don't feel like millionaires

The average Australian household is now worth a million dollars but self-funded retirees Anne and Tim Sandler don't feel like millionaires because they "perceive wealth as people who can basically do what they want to do when they want to do it".

In reality only 28% of retirees are rich enough to be self-funded. The rest rely on a full or part-pension. The Sandlers are wealthier than at least 72% of their fellow retirees - most likely even more. At worst they're in the richest 28% of retirees, but don't consider themselves wealthy.

Sometimes it seems that whatever amount of money we have, we think we need even more money. More on that another time.

Interest rates

Earlier I mentioned Australia's record low interest rates. Supposedly they help people pay off their homes quicker, but in a get-more culture they just lure us into getting bigger and bigger houses and spending more money (often borrowed) for things we don't need and don't make us happy.

Shane Oliver says "We get the instant impact ... that boost to our happiness when we get the gadget home. We've got it but then we're left with the debt and have got to pay it off and that sort of drags our happiness back down again".

I'll write more about possessions and happiness in an upcoming article but today my point is that the endless pursuit of more stuff makes it harder to have enough money to feel comfortable.

I also wonder if friends and family of the Lobasso family see the size of their home and their enormous TV, assume they are wealthier than they are and suggest they send their kids to a private school. Many of our decisions are made to keep up with social expectations and the appearance of wealth simply raises those expectations.

So what can we do

Sometimes a different comparison can be helpful. Global Rich List can give you a sense of where you rank in the world. That's quite a mind-adjustment.

Also we can try to extract ourselves from the more-more-more culture. The Lobasso parents recognise this. Kathrine says "I don't really care if people are driving around in BMWs at 17-years-old. I think the most important thing for our children is that we raise them in a healthy way". Tony says that wealth is the family unit and spending time together.

Hopefully they can put those thoughts into practice. It can be tough in a consumerist culture - but culture is just the total of our individual attitudes. We can turn it around.

There's a lot of truth in the old saying "The richest person is not the one who has the most, but the one who needs the least".