The ultra-wealthy are not experiencing a recession and continue to spend lavishly.

The ultra-wealthy are not experiencing a recession and continue to spend lavishly.

The Reality of the “Richcession”: Why the Wealthy Are Thriving and Spending More

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The idea of a “richcession” – a recession that disproportionately impacts the wealthy – has been gaining traction lately. However, experts are debunking this notion and revealing that the super-rich are not only weathering the economic storm but are actually thriving and spending more than ever before.

Moody’s Chief ANBLE, Mark Zandi, dismisses the concept of a richcession, stating that the rich are now wealthier than they were before the pandemic. They have low leverage, minimal debt, and have secured low-interest rates on their loans. Zandi explains, “When people say ‘richcession,’ I just don’t see it.”

Contrary to the belief that the wealthy are cutting back on luxury goods like Rolexes, high-income households have over a trillion dollars in savings according to Zandi. Additionally, the top 1% holds around 30% of all national wealth, making them the wealthiest they’ve been since 1989, as per Federal Reserve data.

So, why the misconception? Well, it turns out that the focus of luxury consumption has shifted. The pandemic has led to a surge in demand for goods, resulting in most Americans “spending up” on these items. However, the wealthy have set their sights on services and experiences instead. They’re indulging in things like expensive Taylor Swift tickets, prioritizing memorable moments over material possessions.

But do not mistake this shift in preferences as a decline in spending. Claudia D’Arpizio, a partner at Bain & Company, notes that the wealthy are actually spending more now than before the pandemic. Luxury spending is highly correlated with the stock market, and as the S&P 500 rebounds, investors are reaping substantial returns. D’Arpizio explains, “There are also psychological reasons, like the feeling that you only live once. The fear of COVID has created a sort of … selfish attitude, and people are more concentrated on feeling good.”

In fact, the luxury goods and services market grew by 20% to $1.5 trillion last year, with luxury hospitality sales more than doubling to $211 billion. Travel demand has been strong, leading to a 34% increase in high-end vacation bookings. These luxury getaways, valued at an average of $35,000, often exceed $400,000, catering to the desire to make up for lost time during the pandemic. From expeditions to the Arctic to private after-hours bookings of the Vatican, the wealthy are investing in unforgettable experiences.

Furthermore, the demand for luxury real estate remains high, with prices rising 5% from the previous year. Even with high mortgage rates, affluent buyers are willing to pay a premium for top-quality living situations. Jennifer Stillman, an agent for Douglas Elliman, attests to the continued interest in “well-priced” properties with lavish amenities.

Luxury car sales broke records in 2022, reaching $627 billion, while private yacht and jet sales grew 18% to $28 billion. These numbers indicate that the wealthy are not shy about splurging on high-priced items even during uncertain times.

In conclusion, the idea of a “richcession” is a misinterpretation of the economic reality. The wealthy continue to amass wealth, spend lavishly, and indulge in luxury experiences. As Moody’s Mark Zandi puts it, “If this is a richcession, the rich are probably saying, bring it on.” The economic impact of the pandemic has brought a shift in spending preferences, without dampening the overall prosperity of the super-rich.