Sam Uretsky

Mass Affluents

The hot term in marketing seems to be “mass affluent”, even if nobody quite knows what it means. Basically, “mass affluent” refers to people who have accumulated a modest amount of investable assets — money held in bank accounts, stocks or bonds. That’s different from income, or even wealth, since wealth would include real estate and collectibles, which can’t be turned into cash quickly.

The definitions of mass affluent vary depend on who is doing the defining. The low figure seems to be a range of $100,000 to $1,000,000 while the high end is $500,000 to $2,500,000. This is money in investment and retirement accounts, life savings, without debts or anticipated expenses like college loans and mortgages to pay.

The majority of people in this group are fiscally responsible Baby Boomers, who were, until recently, ignored by industry. Banks didn’t want to deal with them because they paid off credit cards rather than accumulated interest charges and penalty fees Nobody else cared because everybody knows that all purchases are made by people between the ages of 18 and 35, and after that the only things people older than 35 buy are AARP insurance and Depends. Now, conditions changed, not because Boomers are more attractive, but because what’s at the bottom of the barrel is better than an empty barrel.

People who fall into the mass affluent sector have been suddenly discovered as potential buyers of “affordable luxuries.” A boomer with a fat retirement fund may be a better prospect for a luxury car than somebody younger with a higher income, but the prospect of putting kids through college, years left on the mortgage, and an underfunded 401(k). According to Investment News, this focus on the mass affluent is the cause for increased hiring in the finance industry, with J.P. Morgan Chase hiring 125 new advisers for accounts as low as $500,000. Charles Schwab, one of the original discount brokers, is looking for more accounts of $100,000 or more. And that is a national problem. With real wealth concentrated in increasingly fewer hands, there aren’t enough high end accounts to support the industry.

The trouble is, while the mass affluent are far from rich, there still aren’t that many people in the category. Of JP Morgan Chase’ 20 million customers, only 8% are considered affluent, including the mass affluent. Other estimates put the mass affluent at 10% to 12% of families. The problem for economic recovery is that, to a large extent, the mass affluent have replaced the middle class as the engine of prosperity. Add the 12% mass affluent to the 2% that are rich and you have too small a group to support the economy. The New York Times’ columnist Bob Herbert summed it up: “Ordinary American families no longer have the purchasing power to build a strong recovery and keep it going.” “The richest one-tenth of 1%, representing 130,000 households, took in more than 11% of total income in 2007.” In contrast, 44 million people were below the poverty line in 2009. Nearly 40 million American were on food stamps.

The limitation of supply side economics is that even if some of the money makes its way down, it won’t spread out. There’s plenty of money out there, but if it’s too concentrated it won’t generate sales volume which is the key to employment. Every lost job means a lost customer, and there’s a point where there aren’t enough left of either one. NASCAR is blaming the television networks for the decline in attendance, but it may also be that fewer fans can afford tickets. Summer movie attendance dropped to the lowest level since 1997. Restaurant sales continue to contract.

The answer is no secret — stimulus projects to put money in the hands of the unemployed and underemployed, tax policies that favor bringing jobs back from overseas, higher taxes for the truly rich — and lessons in macroeconomics to explain the need for these steps. It’s like poker — when one player has all the chips, the game is over.

The way things look now, a Republican win in November will seal the deal. With more tax cuts for the rich, and an end to stimulus programs and extended unemployment benefits, resources will become so concentrated that there will be more layoffs and more poverty. The first sign of the apocalypse will be a Republican Congress that doesn’t believe in stimulus; the second will be radio stations playing standards of the ’50s and ’60s. The only consolation is that after two Andy Williams recordings, you won’t feel anything else.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@mail.com.

From The Progressive Populist, November 1, 2010