Lifestyles traditionally associated with the comfortably rich are becoming unattainable to anyone but the staggeringly well off. Price inflation for luxury goods is five times higher than for standard products, according to the World Wealth Report by Merrill Lynch and Capgemini.
The figures are based on the cost of living-extremely-well index by Forbes magazine and are broken down into ultra-luxury goods, such as private jets and luxury yachts, and standard luxury goods such as first-class air fares and yachts. Inflation for ultra-luxury goods was 11.3% between 2003 and 2004, while inflation for luxury goods was 6.4%. The average monthly rate of consumer price inflation in the UK last year was 2.2%.
Richard Thornton, consultant for UK financial services at Capgemini, said bonuses did not go as far as they used to. “The cost of being viewed as super-rich and living the lifestyle of the super-rich has gone up considerably. People are finding it harder to fulfil their spending aspirations,” he said.
The report covers three categories: high net worth individuals with between $1m (€800,000) and $5m in disposable assets; mid-tier high net worth people with $5m to $30m in disposable assets; and the ultra high net worth with assets of $30m or more. The number of people with more than $1m in disposable assets rose 7.3% in 2004, to more than 8.3 million globally.
To live the life, Thornton said it helped to be categorised in the upper end of the mid-tier or higher. “We went through a time when the luxury end of the goods market became cheaper and more affordable. But there is now more wealth chasing these luxuries and prices are rising.” He pointed to property prices, school fees and the cost of luxury yachts, which have risen substantially in recent years.
Knight Frank, the UK estate agent, said prices of prime central London properties rose 4.1% in the first six months of the year, compared with a fall of 1.2% for other properties in the city. Liam Bailey, head of residential research, said properties worth 4m (€5.8m) or more were rising fastest: the top end of the market was driven by wealthy bankers and foreign entrepreneurs who did not need mortgages.
The Independent Schools Council’s 2005 census showed that school fees rose 5.8% last year, after a jump of 9.6% in 2003. Yacht manufacturers are less prepared to concede rampant inflation. Hannah Braithwaite-Smith, marketing manager at Sunseeker yachts, said prices rose only marginally last year because of competition from low-cost overseas competitors.
More notable, said Braithwaite-Smith, was the fact that aspirations had risen. She said: “People used to come in at 40ft and work their way up. That doesn’t happen any more. People want larger boats; we’ve noticed an increase in sales of boats of 75ft and above.”
Rising aspirations and falling satisfaction were identified in 2003 by Clive Hamilton, director of the Australia Institute, a think-tank, and author of a book on “affluenza”, or obsession with money. His research found that 40% of Britons with incomes of more than 50,000 believed they could not afford everything they needed and 28% of respondents said they spent all their money on necessities.
Hamilton concluded they were in the grip of luxury fever, resulting from the relentless ratcheting up of standards and attempts to emulate the super-rich. Trendsetters are responsible for some of the ratcheting. Aaron Simpson, chief executive of Quintessentially, a lifestyle management company used by cash-rich, time-poor people, said contemporary lifestyles needed to be international to be truly suggestive of mega-wealth. “This is inherently more expensive,” he said.
Simpson said his banking clients were clubbing together and financing yachts and ski chalets collectively. This was one way for the marginally rich to attain super-rich living standards, he said. NetJets, a company specialising in the shared ownership of aircraft, said 40% of those buying flying time on its planes had a finance background.
Bankers might have to co-finance more frequently. Surveys reveal a growing discrepancy between high and average pay at investment banks. Aidan Kennedy, a partner at Armstrong International, a headhunter, said there was a flight to paying top performers at the expense of the mediocre.
Not all top performers aspire to catch a private jet to their 85ft yacht this summer, however. The head of fixed income capital markets at a London bank said those who did had delusions of grandeur. “More and more people are willing to spend money instead of save,” he said. “They think they can afford these things, but I’m not about to throw my money around on a private jet.”