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Affluent Market Tracking Study #27, Fall 2015 Survey of the Wealthiest 10% of US Households

Affluent Market Tracking Study #27, Fall 2015 Survey of the Wealthiest 10% of US Households
  • Oct 15, 2015
  • 63 pages
  • American Affluence Research Center
The assessment of current business conditions (index of 100) is a nice improvement from the Fall 2014 survey (88) and indicates a slightly more positive view of the current economy, especially given the volatility in the stock market and the political and economic uncertainty around the world at the time of this survey. Of course there were some similar conditions in existence at the time of the Fall 2014 survey also.

The index for future business conditions (105) declined a modest 2 points from the Fall 2014 survey. The index for change in the stock market (100) is 2 points above the Fall 2014 index. While remaining near or slightly above neutral territory, these indexes suggest some comfort among the millionaires about general economic conditions and a somewhat positive outlook about the next 12 months.

The index for expected change in after-tax personal income (97) was up 4 points from the Fall 2014 survey. This index is now approaching positive territory for the first time since Spring 2008.

The composite ACE 12-month Economic Outlook Index (which is the average of the 12- month outlook for business conditions, the stock market, and household income) rose a modest 2 points from the Fall 2014 survey and at 101 is in positive territory.
The general public seems to be even a bit more positive about the economy given the September Consumer Confidence Index (103) reported by The Conference Board. On the other hand, Spectrem Group’s Millionaire Household Outlook fell to an 18-month low in September.

Over a third (35%) expect their net worth (index of 119) to be higher in September 2016. The outlook for personal net worth and income is a positive factor for potential increases in spending.

The indexes for the change in spending for the 17 products and services tracked by these surveys are about the same as the prior two surveys in most cases. There was a modest increase (from 1 to 8 points) from Fall 2014 in 11 of the 17 categories, with domestic vacation travel, entertainment, and home entertainment equipment showing the largest increases. Dining in family/casual restaurants was unchanged. A decline of only one to three points was experienced by the remaining five categories.

Almost half (46%) of the respondents plan to acquire one or more of the 8 major items, which is a 2 point increase over Fall 2014. A substantial amount of additional potential purchases of the 8 major items are represented by the consumers that have yet to decide about a new auto, a cruise, a remodeling project, and the acquisition of a primary or vacation home (both of which showed some strength relative to Fall 2014).

Expectations regarding future income and net worth influence and/or correlate with spending plans. For example, the average index for changes in spending plans is 14 points higher (93 versus 79) for those expecting an increase or no change in their income versus those expecting a decline in income. The difference is 10 points (91 versus 81) based on net worth expectations.

With about a third (32%) of the affluent planning to defer or reduce expenditures during the next 12 months, this represents a small improvement of 1 point from Fall 2014 and a record low for this reading.

While the mood and spending plans of millionaires may have been negatively influenced in September by the increasing global tensions and the volatility and declines in the stock market, the recovery of the stock market during October would be a positive influence.

Some of the highlights of the special topics covered in this survey include: 97% of the millionaire households are forecast to spend an average of $2,773 for December holiday gifts, which is about a 7.7% increase over 2014 and represents a total of about $33 billion.

On average about 81% of the affluent say they will spend more or the same on holiday gifts this year versus 2014 and 20% say they will spend less. With the potential changes in spending estimated by those planning to spend more and those planning to spend less, the average spent on holiday gifts could decline 1.3% from 2014 spending. However, it appears the affluent spent in 2014 almost 3% more than they had anticipated in the Fall 2014 survey, thus supporting the premise that people, especially the affluent, often tend to spend more for gifts than they had planned.
The gift expenditure per millionaire household is about four times that of all households as estimated by the National Retail Federation (NRF) which has forecast a 3.7% increase in total retail holiday gift sales for this year. Deloitte has forecast a 3.5% to 4% rise in total holiday gift expenditures.

NRF research indicates gift cards have been the most requested gift item for eight years in a row. Almost 80% of the millionaires in this survey reported spending an average of $450 on holiday gift cards in 2014. This represents a $5.6 billion market (about 18% of NRF’s estimate of total gift card sales of almost $32 billion).

The millionaires in this survey also indicated giving about $19 billion in cash and checks as holiday gifts. It appears much of this gift “currency” could be converted to gift card sales if retailers offered a personal bonus reward for the purchase of gift cards. Over 90% of the millionaires expect to spend more in 2015 for gift cards and gift “currency”. About half of the respondents indicated they purchase gift cards online.

Another special topic in this survey was about awareness of, prior purchases from, and willingness to consider for a future purchase a list of 18 fine jewelry brands. Awareness ranged from a low of about 20% (Graff and Buccellati) to a high of 98% (Tiffany and Cartier). About a quarter of the millionaires were aware of only nine or fewer brands, and the average number of brands recognized was just under twelve.

Prior purchases of the brand ranged from a low of zero for Graff to a high of 50% for Tiffany. Only four brands were named by 20% to 27% of the millionaires (Chanel, David Yurman, Kay, and Cartier). All others were named by less than 20% of the millionaires.

Among the brands of which the respondent was aware, the brands that would definitely or possibly be considered for a future purchase ranged from a low of 14% (Graff) to a high of 50% (Tiffany). Of the remaining brands, the top three were David Yurman (49%) and Chanel and Cartier (both at 35%).

It appears that retailers and brands have a large untapped market opportunity for selling more gift cards by creating compelling reasons why people should give gift cards rather than “currency”. In addition, many of the fine jewelry brands have an opportunity to substantially increase awareness and thus sales potential among millionaires.

Affluent and Luxury Consumers are Often Very Different

Given all the discussion of the top 1% and income inequality, when considered in the context of the media focus on extravagant and ostentatious spending by a small number of the wealthy, it would be easy to lose sight of the true profile, values, and motivations of the wealthiest 10% of U.S. households, which new Federal Reserve Board research shows to be approximately 12 million households with a minimum $1 million net worth.

In 1995 Dr. Thomas Stanley began to share his years of research among millionaires with his book "The Millionaire Next Door". In early 2009 he updated his research with the book "Stop Acting Rich...and Start Living Like a Real Millionaire". The new research was pretty consistent with what Dr. Stanley had found in his earlier research. In other words, over 35+ years of research, millionaires continued to display the same profile, values, and motivations.

In Dr. Stanley's research, and in our own research over the past 13 years, we have found there are certain important attributes that most millionaires share. These attributes include:
1. live within their means
2. careful shoppers who look for good quality and value
3. aggressive savers
4. limited experience with true luxury retailers and brands

Our new Millionaire Monitor is report #27 in the original and only continuous tracking study of the mood and spending PLANS (not the past) of the wealthiest 10% of U.S. households, based on net worth, which account for almost half of all consumer spending.
Net worth has been shown to be a more stable indicator of wealth than income in research by the Federal Reserve Board and the Internal Revenue Service. There is more turnover among the people in the highest percentiles of income than among the people in the highest percentiles of net worth.
These surveys focus on the future, what the affluent PLAN to do and spend and not what they have done in the past.
In this new Millionaire Monitor report, you will learn how many and which of the affluent:

• Have a positive outlook for the economy and their personal wealth for the next 12 months.
• Expect to acquire one of 8 major items during the next 12 months.
• Plan to maintain or increase their spending for 17 different products and services.
• Are spending on your products and which are still reducing/deferring expenses.
• Plan a general effort to reduce or defer expenditures and which will continue to spend.
• Will spend the most for December holiday gifts
• Spent in total and online for holiday gift cards and the opportunity to convert check and cash gifts to gift cards
• Showed awareness of, prior purchases from, and consideration for future purchases of 18 fine jewelry brands

Graphic elements, plus the executive summary and highlights sections, facilitate a quick read of a report rich with data.

Our reports always provide data for market segments defined by age, gender, income, and, most importantly, net worth. Historic comparisons for many of the metrics are also included.

Top 4 Ways to Use and Benefit from This Research

If your perceptions of today's luxury and affluent consumers (who are often very different) are largely derived from what you read in the media and online, you are probably creating your marketing strategies and plans based on false premises. To stay ahead of your
competitors, you need AARC's new research report to understand today's luxury and affluent consumers and how to market to them.

These reports will help you to:

1) Develop an understanding of the general mood of the affluent and their expectations for business conditions and personal income over the next 12 months. Gives you a basic perspective on general market conditions that will determine marketing opportunities and challenges

2) Identify changes in the spending plans of the affluent for your specific product category during the next 12 months. Shows you how potential sales of your product category compare to prior years and indicates what competitive pressures may result in your industry

3) Learn which segments of the affluent market represent the best sales potential for you during the next 12 months. Identifies the market segments that are cutting back on spending and those that are continuing to spend for your product category.

4) Create your marketing and sales plans with data based on the future intentions of the affluent. Unlike many other surveys of the affluent, this is not an extrapolation of past actions that they have been asked to remember and reconstruct. And it is based on a mail survey and not an online panel.

Research Methodology and Sample Composition

Unlike other affluent and luxury market research that is based on online surveys of panels of people who are compensated for participating in regular and frequent surveys, our unique direct mail surveys are based on projectable national samples drawn at random to be representative of the precisely defined population of affluent households, consistent with the research of the Federal Reserve Board. Confident of their anonymity, the respondents to our surveys are typically more affluent and more open in providing confidential information.

Surveys were mailed to a randomly selected, national sample of 4,500 men and women in households that, based on their income and ownership of certain assets, were expected to meet the minimum net worth requirement of $1 million. The overall survey response rate was 10.6 percent, thus showing the importance of this survey to the respondents, who have been a leading indicator of economic conditions, as when they called the recession in our March 2008 survey (well ahead of everyone else).

This report is based on the responses from 346 men and women who promptly responded and met the minimum net worth requirement of $1 million. Their households have an average annual income of $291,000, an average net worth of $4.1 million, average investable assets of $2.5 million, and an average primary residence value of $1.4 million.

The survey respondents represent 32 states. Eighty-four (84) percent are married. The average age is 60.9 years. Forty-six (46) percent are men and fifty-four (54) percent are women.

The maximum margin of error of this survey, at 95% confidence, is five percentage points.

Index values range from 0 to 200 and are compiled by subtracting negative responses from positive responses. The value of a neutral response is 100. An index value of 100 means equal positive and negative responses.

This survey is more informative than others for several reasons. Unlike some other surveys of the affluent, this is not an extrapolation of past spending that they have been asked to remember and reconstruct. It is designed to identify future spending plans and intentions.
Unlike most other surveys of the affluent, this survey of people does not include respondents who do not qualify to be among the wealthiest 10% of US households, based on net worth. Research by the Federal Reserve Board and the IRS shows that net worth is a more stable indicator of wealth than is income.
Unlike other types of surveys where the respondents cannot be confident of their anonymity, the respondents to our surveys are typically more affluent and more open in providing confidential information
Table of Contents
Executive Summary 4-5 -
Introduction: Background, Methodology, Respondent Profile, Historical Background, Index Explanation 6-9 -
Survey Highlights 10-17 -
Respondent Profile 18-19 1-2
Assessment of Current Business Conditions 20 3
Affluent Consumer Expectations (ACE) for Economy, Stock Market, and Household Income 21-22 -
Future Business Conditions 21 4
Expectations for Stock Market and Household Income 21 5-6
Affluent Consumer Expectations (ACE) Economic Indexes by Selected Demographic Segments 22 7
Historic Affluent Consumer Expectations (ACE): Stock Market, Net Worth, Household Income Indexes 23-25 8-10
Outlook for Changes in Savings/Investments 26-27 -
Expectation of Changes in Household Savings in 2012 and Index for Change in Savings 26 11-12
Historical Index for Change in Savings 27 13
Primary Investment Objectives and Net Worth Expectations 28-30 14-16
Plans to Purchase 8 Major Items in Next 12 Months by Demographics and Historic Intentions 31-33 17-19
Expected Changes in Spending for 17 Products and Services 34-42 -
Expected Changes in Spending During Next 12 Months 34 20
Historic Indexes for Expected Changes in Spending 35-40 21-26
Change in Spending Indexes for 17 Products and Services by Selected Demographic Segments 41 27
Historic Spending Indexes for Home Durables, Leisure, and Vacation Travel 42 28
Impact of Economic Conditions on Spending by the Affluent 43-46 -
Actions Taken (or Not) to Reduce Household Expenditures by Selected Demographic Segments 43 29
Historic Actions Taken (or Not) to Reduce or Defer Expenditures 44 30
Major Expenditures in Next 12 Months 45 31
Indexes for Expected Changes in Spending During Next 12 Months for 17 Products and Services 46 32
Expected Spending for Holiday Gifts 47-52 33-38
Gift Card and Cash Gifts 53-58 39-44
Awareness and Purchases from 18 Fine Jewelry Brands 59-64 45-50
About The American Affluence Research Center 65 -
Mailing Lists of the Affluent
List of Figures
List of Tables
Companies Covered