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Your clients are doing well for themselves. The reason is obvious. They have enough assets to have an individual financial advisor. When you look around and see products advertised, many clients cannot afford them! They wonder who are all these people with all this money?
Here are a few examples:
- Barge cruises on French rivers. Recently I received an e-mail about luxury barge cruises. The trips run for six nights, everything is included you assemble your group of eight guests. The cost is about 147,000. That is about $3,000+ per person per day!
- Suit shopping. I stopped in a men’s clothing store in Hudson Yards in New York. I admired a suit. The good news was they had a sale going on. The suit was now only $4,000! (The sales tax would be $355!)
- Lunch in New York. Yes, Manhattan is expense. There is probably lots of business entertaining going on. I had lunch with a friend last Wednesday. At a French bistro, the two course price fixed menu (years ago called the business lunch option) with an inexpensive bottle of wine ran a few cents under $200!
- Drinks in Philadelphia. I visited a nice steakhouse with great service. We were only there for drinks, but I looked over the menu. A nice bottle of wine I recognized and know can be bought retail around $60 was priced at $415. The dinner menu had meatloaf priced at $48.00.
Your client might ask: “How can people afford these things? Where did I go wrong?” Here are a few possible answers to those questions:
1. Business entertaining.
People in sales often buy meals as part of the selling process. The people who are paying these prices might not be spending their own money. Would they dine their if they were spending their own cash? Probably not.
2. The young still get an allowance from their parents.
Research shows 47% of parents are still supporting their grown children.1 They might live on their own, but aren’t self sufficient yet.
3. Consider the process.
People pay by card or auto debit. They settle up at the end of the month. The amount that exceeds their checking account balance comes from a home equity line or stays as a balance on their credit card, costing about 24.72%. (10/11/24)2 They are amassing debt.
4. Assuming the good times will last forever.
After several years of the stock market moving upwards, they assume this is the New Normal. They are forgetting the market and the economy are cyclical.
5. Keeping up with the Jones’s.
An accounting professor used a great expression: People are spending money they don’t have, to but things they don’t need, to impress people they don’t like. They are exercising bad judgment.
6. COVID aftermath.
One of the unintended consequences of the pandemic was some people have decided to live for the moment. They are uncertain about the future, so are spending now.
7. They assume their big annual bonuses will never go away.
This is a variation of “The goof times will last forever.” They go into debt for most of the year, expecting their bonus check will always be there to bail them out. If the economy or the company falters, bonuses will reflect it.
8. Considering your own mortality.
I asked a friend who is a world cruise veteran of many years how some people can book the most expensive cabins for long voyages year after year. He explained some people look at the amount of money they have in the bank and then consider the number of years they might have left on this Earth. The first number is much larger than the second, so they are spending it.
9. TV ads encourage you to spend.
According to CBS, Americans are expected to spend $2,100 this Christmas season.3 That is easy to rationalize. What do you see advertised on TV? Often it is cars and jewelry. Those gifts don’t fit into a $2,100 budget.
Capitalism and free enterprise are wonderful. The simple reason $147,000 barge trips for six nights and $4,000 suits exist is someone’s business model determined there was a market for this product at this price. According to Forbes, there are 2,781 billionaires in the world.4 If the target market buys the product, they were right. If it doesn’t, they have a problem. If they were right, other competitors would enter the market, increasing the supply and driving the price down.
Your client isn’t crazy. They are fiscally prudent. That is a trait that helps them build and preserve wealth. Getting the advice they need to stay on track is another benefit of working with a good financial advisor, accountant or financial planner.
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1.https://www.cbsnews.com/baltimore/news/still-financially-supporting-your-adult-children-a-recent-study-and-tips-on-how-you-can-set-boundaries/#:~:text=A%20recent%20survey%20found%20nearly,assistance%20to%20their%20adult%20children.
2. https://www.lendingtree.com/credit-cards/study/average-credit-card-interest-rate-in-america/
3. https://www.cbsnews.com/news/holiday-spending-forecast/#:~:text=Consumers%20are%20expected%20to%20spend,%242%2C100%2C%20according%20to%20the%20forecast.
4. https://www.forbes.com/billionaires/