Wealthy remain cautious in spending and risk-taking

There’s been a lot of talk these days about whether tax cuts for the wealthy should be preserved to help stimulate the economy.

Ron Kurtz

Ron Kurtz

Turns out, it may not make much of a difference — especially in the short run — because the wealthy are not in a spending or risk-taking mood.

I sat down with Ron Kurtz, president of the American Affluence Research Center, based in Alpharetta. Kurtz has been conducting detailed economic surveys of the top 10 percent of American households twice a year since 2002. And right now — tax cuts or no tax cuts — the wealthy are cautious.

“This is a group that will say ‘show me’ before they start spending,” Kurtz said. “It’s got to get better before they’re really going to spend … and that goes for creating jobs, as well.”

Kurtz’s fall survey of the top 10 percent showed that they regard current business conditions as poor. The average on a 0-200 point scale was only 41. That was up from a dismal 11 in the spring of last year, but well below the 127 registered in the spring of 2007.

Before we go further, here’s who the survey attempts to gauge — 11.4 million households that account for nearly half of all consumer spending. Their average income is $256,000 and their average net worth is $3.1 million. The net worth of the top 10 percent accounts for 70 percent of the U.S. total.

“These people are so important to the overall economy,” Kurtz said. “It’s a small number of people with lots of power.”

As for their outlook about the future, the scores are better than their assessment of current conditions. But they’re far from upbeat.

When three results are combined about how they think the financial situation will look in 12 months — regarding business conditions, the stock market and personal income — the score is 97 out of 200. That’s up from 90 in the spring of 2009.

“They’re not expecting a big improvement. They’re not good numbers,” Kurtz said.

That’s reflected in their investment strategy, which is quite defensive.

Forty-six percent of the survey participants said their primary goal was to preserve capital. That compared to 33 percent who are looking for appreciation. While these numbers are a little less conservative than they were in spring 2009, they still indicate a cautious approach favoring Treasuries, certificates of deposits and other fixed-income plays.

On the spending front, 41 percent said they will make a conscious effort to reduce expenditures over the next year. That’s an improvement from the 60 percent who said that in the spring of last year.

As for the holidays, the wealthy said they will cut back this year. Participants said they will spend an average of $2,305 — 3.9 percent less than last year. Kurtz, however, believes that consumers generally spend a little more than they think they will. If he’s right, he thinks spending will be flat to up around 1 percent.

Unlike what some people think, Kurtz said, the wealthy are generally not conspicuous consumers. Most come from the middle-class and have retained those values.

“They’re aggressive savers and careful spenders,” Kurtz said. “They live within their means. The recession has made [that idea] even more important to them.”

To the not so wealthy, too.

- Henry Unger, The Biz Beat

For instant updates, follow me on Twitter.

10 comments Add your comment

TnGelding

December 7th, 2010
8:21 am

The average means nothing because of the tremendous wealth at the very top. I’d like to see some figures when you eliminate them. They have more than they or their heirs will ever be able to spend or invest for the good of the country. If only they would buy U.S. Bonds instead of munies. Many of them are “cautious” because they don’t want to do anything to make Obama look better. They’ve taken their marbles and gone home. When they get off the sidelines the recovery can begin in earnest.

TnGelding

December 7th, 2010
9:28 am

Revision: If only they would buy U.S. Bonds as eagerly as they do munies.

Gordon

December 7th, 2010
9:42 am

“Many of them are “cautious” because they don’t want to do anything to make Obama look better.”

Where do you come up with such nonsense, TnGelding? The rich didn’t get that way by thinking like that, or by taking advice from you.

TnGelding

December 7th, 2010
9:56 am

Gordon

December 7th, 2010
9:42 am

From their own comments on other blogs.

shadow7071

December 7th, 2010
9:59 am

TnGelding….

“The average means nothing because of the tremendous wealth at the very top.”

This Index is very important because it tells how the people with a lot of purchasing power view the economy. If I’m a retailer, manufacturer, builder etc. I’m very interested in what this group thinks. Likewise, the government, led by Obama, should be very concerned with what this group thinks.

And I endorse Gordon’s comment to you… “”Where do you come up with such nonsense, TnGelding? The rich didn’t get that way by thinking like that, or by taking advice from you.

Joyful

December 7th, 2010
10:49 am

The trickle-down effect of the money from the top has rarely been seen or even obviously notice, even when tarp funds were given out most middle class people didn’t see a dime of that, so I don’t know why this makes such a difference. Give the wealthy their tax cuts sooner or later they will spend money just like anyone else.

Logical

December 7th, 2010
11:38 am

I’ve never been employed by a poor person.

TnGelding

December 7th, 2010
10:55 pm

shadow7071

December 7th, 2010
9:59 am

I guess you missed my short reply.

Logical

December 7th, 2010
11:38 am

“Poor” people own a lot of stock in companies that employ tens of millions and are the customers for small business as well as big.

TnGelding

December 8th, 2010
4:44 am

We need to start taxing Muni Bonds or eliminate the tax on U.S. Treasuries. With the huge budget deficit, which would you recommend?

[...]   Wealthy remain cautious in spending and risk-taking | The Biz Beat. [...]