Wealthy Americans Underestimate Their Financial Status Due to Social Media

Wealth perception among Americans is becoming increasingly distorted, with many affluent individuals failing to recognize their own financial status. This disconnect between reality and perception is exacerbated by social media, which often portrays an idealized version of wealth that many people compare themselves to, leading to a sense of disadvantage. Paul Donovan, chief economist at UBS, highlighted this issue during a recent roundtable discussion, noting that many wealthy Americans do not consider themselves as such, despite owning assets that would classify them as millionaires. For instance, owning a two-bedroom apartment in Manhattan would typically qualify someone as a millionaire, yet many individuals in this situation do not perceive themselves as wealthy.

This phenomenon is not limited to the United States. In China, for example, there has been a rise in "luxury shame," where individuals feel embarrassed to display their wealth openly. This trend was first observed during the 2008 financial crisis when the ostentatious display of wealth was seen as inappropriate given the economic hardships faced by many. Claudia D’Arpizio, an author of a report on the luxury sector by Bain & Co, explained that during this period, luxury stores began using plain white paper bags to conceal purchases, as consumers did not want to be seen with designer carrier bags. This trend is now resurfacing, driven by governmental policies aimed at reducing social tension by discouraging the display of wealth.

The luxury sector is feeling the impact of this shift in consumer behavior. The personal goods business within the luxury industry has seen a contraction, as consumers become more cautious about their visible status purchases. D’Arpizio suggests that luxury brands need to adapt by focusing less on elitism and more on being seen as bastions of culture and innovation. This shift is necessary to align with the changing social pressures and the evolving perceptions of wealth.

Despite the changing attitudes towards wealth, the engines driving the accumulation of assets among the wealthy continue to operate at full capacity. Donovan noted that there are two independent drivers influencing the wealthy's approach to consumption: economic nationalism and a shift in focus from goods to experiences. Economic nationalism, prevalent in nations like the United States and China, often leads to hostility towards foreign brands and companies. Additionally, the wealthy are increasingly prioritizing experiences over material possessions, such as foreign travel, dining out, and attending concerts, which they can share on social media platforms like Instagram. This shift in consumption patterns can give the appearance of "luxury shame," but it is more accurately a reflection of changing preferences rather than a genuine sense of embarrassment about wealth.