How wealthy do you feel? (And what to do if you don’t feel rich)
Feeling wealthy and being wealthy can be a matter of perspective. And carelessly chasing that feeling of wealth satisfaction can cause financial mistakes. A recent study says working with a financial advisor can help.
DEPUTY HEAD OF BEHAVIOURAL FINANCE, TD WEALTH
“Do you feel wealthy?”
Whenever I ask this question, the unlucky person I happen to be talking to pauses, thinks for a bit and tentatively answers, “sort of?”
Most Canadians should feel wealthy considering it takes a total of $10,879 to be wealthier than 3.8 billion people or roughly half the global population. 1 I’m personally surprised by the number of people who don’t feel wealthy given these stats. What’s more, even the richest 1% don’t think of themselves as wealthy.2 In fact, only 13% of American millionaires think of themselves as rich, according to a study by financial services firm Ameriprise Financial.3 Few of us admit to feeling affluent — regardless of our level of wealth — and that suggests that there is a difference between how wealthy we feel and how wealthy we actually are.
As a behavioural economist, part of my job is to understand how and why our emotions play such a large role in the complex and technical world of investing and wealth management. The gap between how wealthy people objectively are and how wealthy people think they are is a topic that required further investigation. It’s the subject of a new industry report by TD Wealth that can be found here. As part of our study, we surveyed more than 2,000 affluent Canadians to investigate how and why this gap exists. 4
Why study this gap between wealth perception and wealth reality? If most of us never feel well-off regardless of our wealth situation, we may try to make ourselves feel wealthy, which may lead to outcomes that make us worse off. For example, feeling insecure about money can lead some people to being too conservative with their investments because they fear the idea of their portfolio declining in value. Conversely, it can lead others to take on excessive risk that they can’t afford.
What does it mean to feel wealthy?
The ability to buy exotic cars, designer handbags and mansions is what many people may picture when it comes to feeling wealthy, even if some of us regard these things as merely a superficial display of wealth. Others may perceive wealth as the ability to pay bills and provide for a family. Neither of these ideas is wrong, but they do not get at the more fundamental, emotional aspects of feeling wealthy.
Our research shows that deeper satisfaction around being wealthy comes from a desire for well-being, and that there are three attributes of well-being that influence how wealthy we feel:
- the stability that comes from knowing you are on the right path to reach your financial goals
- the feeling your wealth is equal to or greater than that of your peers
- our overall life satisfaction
These attributes help measure the feeling of being wealthy, and together, we call them Wealth Confidence™.
What can I do to increase my Wealth Confidence™?
You might be thinking that there is an obvious answer to this question: Make more money. And while you’d be mostly right, it’s a little more complicated than that. We’ve learned from our study that when an individual’s assets reach $3.5 million, more money doesn’t lead to greater Wealth Confidence™. There are a few reasons why this could be the case, but the most plausible is that once people reach this level of wealth, their lifestyle significantly changes and the people they compare themselves to also significantly changes. You are now keeping up with considerably richer Joneses.
There is no easy or quick way to increase Wealth Confidence™, but there is an easy first step and that is to find a financial advisor. Our findings indicate that people with an advisor are twice as likely to have higher Wealth Confidence™ than those without one. This makes sense for several reasons.
The first is an advisor can create a financial plan that identifies the steps you need to help reach your financial goals. They lay out a path and give you feedback on how you’re progressing and whether you’re on track. The feeling of making progress helps promote behaviours or traits that lead to positive change.
The second is advisors can help people find other behaviours that lead to feeling more financially secure: Donating to philanthropic causes and having a financial plan that includes a Will, for example, can increase your confidence.
Who we are is how we feel
While actions like working with a financial advisor or making more money may lead us to having greater Wealth Confidence™, who we are as individuals — our behaviours — plays a large part in shaping the perception of our financial reality.
Aspects of our personality may predispose us to feeling more confident about our wealth. Our research indicates that having high conscientiousness (being on time for appointments and following rules), high extraversion (being talkative and sociable) and low reactiveness (being calm and unemotional) are also associated with having high Wealth Confidence™. These traits are related to more positive emotions, sociability, a strong sense of purpose, and collectively, are the largest predictors of Wealth Confidence™ out of the dozens of variables we studied.
So, ask yourself, how wealthy do you feel? If you don’t like the answer, you may want to consider working with a financial advisor. Not only can a specialist offer advice on the practicalities of building wealth, but they can also positively influence how you feel. And that can set you on the path to feeling more confident about your wealth.
Anthony Damtsis is Deputy Head of Behavioural Finance at TD Wealth. He has worked in the field of behavioural finance in the U.S. and Canada and holds graduate degrees in both economics and behavioural science.
- Global Wealth Databook 2022, Credit Suisse Research Institute, (2022), accessed June 5, 2023, https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-databook-2022.pdf World Population Day, United Nations, accessed June 5, 2023, https://www.un.org/en/observances/world-population-day ↩
- Global Wealth Databook 2022, Credit Suisse Research Institute, (2022), accessed June 5, 2023, https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/global-wealth-databook-2022.pdf ↩
- Majority of Investors with $1 Million or More in Assets do not Consider Themselves Wealthy, Ameriprise Financial, July 17, 2019, accessed June 5, 2023. https://ir.ameriprise.com/news-events/news-releases/press-release/2019/Majority-of-Investors-with-1-Million-or-More-in-Assets-do-not-Consider-Themselves-Wealthy-According-to-Ameriprise-Study/ ↩
- Canadians with more than $100,000 in investable assets. ↩