Americans Now Need $2.5 Million to Be Considered Wealthy: Charles Schwab Survey

People walk through a shopping area in Manhattan, New York City, on June 7, 2021. Angela Weiss/AFP via Getty Images

The amount of money required to be seen as rich has risen over the past years amid inflation, with younger people having a lower wealth benchmark, according to a recent survey by financial services company Charles Schwab.

“Americans now think it takes an average of $2.5 million to be considered wealthy—which is up slightly from 2023 and 2022 ($2.2 million),” reads an Aug. 21 statement by the company.

“By generation, Boomers have the highest threshold of what it takes to be considered wealthy, at $2.8 million, while the younger generations, Millennials and Gen Z, have lower thresholds of what is considered wealthy” at only $1.2 million, it adds.

California had the highest wealth expectations, with respondents from San Francisco saying it takes $4.4 million to be considered rich. Southern California was at the second spot with $3.4 million. Dallas, Phoenix, and Houston had the lowest thresholds at $2.2 million to $2.3 million.

The jump in the level of what is considered wealthy has happened amid a period of surging inflation, which has raised the overall cost of living. As living expenses rise, so does people’s estimate of how much money is required to live a wealthy life.

The survey’s $2.5 million wealth threshold is nearly 14 percent higher than the 2022 level. During this period, the cost of living rose by more than 11 percent, according to data from the St. Louis Fed.

Despite facing the challenge of high inflation, more than one in five Americans said they were “on track to be wealthy,” with optimism highest among Generation Z and lowest among baby boomers, according to the statement.

Moreover, nearly a third of respondents said they were on track to be in control of their finances, with millennials and Gen Z more optimistic in this regard.

“Wealth means different things to different people, whether it’s financial freedom, enriching experiences with friends and family, or a certain dollar amount,” Rob Williams, managing director of financial planning at Charles Schwab, said in the statement.

“Our survey reinforces that people with a written financial plan are more confident about achieving their personal financial goals. Financial planning helps people understand where they are today and create a roadmap to get where they want to be.”

Inflation Eroding Wealth

The Schwab survey comes amid concerns about rising prices negatively affecting people’s lifestyles.

In May, the Federal Reserve published its report on the state of finances in U.S. households in 2023, finding that nearly two-thirds of Americans felt they were financially worse off than the previous year due to “changes in the prices they paid.” This included “19 percent who said price changes had made their financial situation much worse.”

The report points out that “inflation continued to be the top financial concern, despite the inflation rate falling over the prior year.”

Increasing costs not only affects the current financial situation but future planning as well. A May survey by asset management firm Schroders found that the possibility of rising prices lowering the value of savings was “weighing heavily on the minds of retirees.”

Less than half of Americans in retirement believed they had saved enough, with a significant share convinced they did not accumulate necessary savings. Almost 90 percent expressed worries about inflation reducing the value of their assets, according to the survey.

“Whether it’s a trip to the gas station, grocery store, or pharmacy, prices in the U.S. have increased noticeably in recent years, and that is particularly challenging for retirees living on fixed income sources,” Deb Boyden, head of U.S. defined contribution at Schroders, said in a statement.

However, higher inflation does not always translate into eroding asset values all the time. The effect on investments is largely dependent on the type of assets an individual owns, notes financial services firm Western & Southern Financial Group.

For instance, investments with a fixed return, such as certain bonds or certificates of deposits, usually are a bad choice. The fixed interest amount received annually would be worth less and less with each passing year as inflation erodes the value of cash.

When it comes to stocks, the effect can be mixed, depending on the nature of the business.

“Value stocks (companies that investors think are undervalued by the market) tend to perform better than growth stocks when inflation is high,” a post by U.S. Bank states.

Investments in commodities such as oil, precious metals, or agricultural goods do well during periods of high inflation, according to Western & Southern Financial Group.