“Even on what looks like a very large salary, it is difficult to put three children through private school and have them board,” says Sophie. “We will probably have to look at flexi-boarding. It still costs a fortune but it could save us a few thousand each term, which makes a real difference.”
Sophie and her husband Jules look every inch the successful couple from south-east England’s wealthy commuter belt. They have a big house with a pool and outbuildings, their own business, a household income comfortably into six figures and children in private schools. Yet they don’t feel rich. Rather, they worry about money frequently and feel stretched financially.
James, a friend of theirs, says: “We could not afford to leave London.” This might seem counter-intuitive, because the UK capital is so expensive, but again the cost of schooling is the key reason. In London, it is common for children at private schools not to board, or live at the school. In the commuter belt, however, boarding is the norm among the “one-percenters” — the richest section of the population — and school fees are typically twice those for day pupils, who live at home. “We couldn’t even consider it,” says James.
These people are still wealthy by any objective measure. They know that with their income, pleading poverty, or at least financial stress, sounds ridiculous. They don’t expect sympathy — except, perhaps, from their peers — and joke about how dreadful it is to complain. But they are indicative of a trend. The global economic and social changes of the past 15 years mean people in this group no longer feel as rich as they once did. They are the “squeezed” 1 per cent — those at the bottom of the top income bracket — and they are starting to feel the tides of income inequality lapping around their ankles.
In the UK, an annual household income of £179,800 would put a couple with two children in the 1 per cent, according to the Institute for Fiscal Studies (IFS), a think-tank. After tax and repayments on a £600,000-£700,000 mortgage, that would leave a net income of about £70,000 (using HM Revenue & Customs and UK Finance Regulated Mortgage Survey figures). As boarding school fees now average £33,684 a year, according to the Independent Schools Council (ISC) — day fees average £14,562 — these would eat up the rest of the family’s income. Many professionals — doctors, lawyers, accountants and so on — are therefore finding boarding school is out of their reach.
This was not always the case. “A consequence of the UK property market, most notably in London and the south-east, and the above-inflation rise in school fees is that individuals who 15 years ago would have felt they could afford most things within reason now find themselves significantly stretched,” says Caroline Burkart, a director of Scorpio Partnership, a strategy consultancy to the wealth management industry.
Over the past 25 years, school fees have risen at more than twice the rate of inflation, according to figures from the ISC. Julian Thomas, the head of Wellington College, a boarding school in south-east England, resigned in January this year, voicing criticism of private schools’ lavish facilities and ever-escalating fees.
Meanwhile, UK house prices rose by 173 per cent in real terms between 1997 and 2017 and by 253 per cent in London, according to the IFS. In once bohemian areas of the city, such as Camden, tenfold price increases have not been unusual.
It is not just a UK phenomenon. Property prices in some cities in North America, such as San Francisco, New York and Vancouver, have become unaffordable not just to the middle classes but also the very affluent middle classes. The National Bank of Canada’s Housing Affordability Monitor in January this year showed that in 2018, people had to save on average for 340 months to afford the down payment on a median-priced home, compared with a long-term average since 2000 of 74 months.
At the same time, those at the top of the 1 per cent have become much richer. The UK’s Chartered Institute of Personnel and Development says the average chief executive of a top 100 company was paid 145 times as much as the average worker in 2017 (the multiple in the US was 312, according to Economic Policy Institute research). People on £250,000 a year might be rich, but they are now much closer in income to the average worker than they are to the heads of their companies.
The result, says Brad Klontz, a financial psychologist in the US who specialises in the wealthy, is that the “merely rich” don’t feel rich any more. “How we define ourselves — as rich or poor — is much more subjective than objective,” he says. As an example, if you earn £200,000 and everyone else earns £180,000, you feel rich. But if you earn £350,000 and everyone else earns £500,000, you feel poor.
“Feelings of ‘relative disadvantage’ occur if [people] are ‘looking up’,” says Katharina Hecht, a researcher at the International Inequalities Institute at the London School of Economics. This, she explains, is “when they engage in economically wide-ranging social comparisons with socially close and distant others, including with colleagues, family and friends as well as with named entrepreneurs, philanthropists, billionaires and sports stars”.
The effect of all this, says Burkart, is that “those fortunate enough to be on a salary of a couple of hundred thousand pounds no longer consider themselves wealthy, ridiculous as this may sound to 99 per cent of the population”.
The obvious solution is not to spend money you don’t have. But Klontz says people feel compelled to spend at the level of their group. This, he argues, goes deeper than just keeping up with the Joneses. Rather, it is hardwired into our brains and is used to help us survive. “You accept the norms of your tribe. Otherwise, the brain that evolved for tribal living tells you that you’ll be kicked out of the tribe and die,” he says.
The 1 per cent tend to stick together. The pricey school and the pricey neighbourhood guarantee more exposure to pricey people. You can move away from both, but it means distancing yourself from the tribe. Klontz notes that, were he to move back to where he grew up in Detroit, he could afford more space than he would know what to do with. But he lives in high-priced Hawaii.
“It is possible to be very fortunate and also genuinely worried about money,” says Chris, a wealthy Londoner. “You know you shouldn’t be, because you have a holiday home. In fact, you feel very guilty and try to treat it all as a kind of ironic social joke that you’re the butt of.”
Technology can also increase people’s anxiety. Social media, especially Instagram, bring the lifestyles of the rich and famous to our phones. “We are inundated with this kind of information,” says Klontz. “We can endlessly see how much fun other people are having. Years ago, you wouldn’t have been exposed to this.” Worse, as those who flaunt their wealth on Instagram self-select, “it is a false narrative about the good life”.
In 2014, David Brooks, The New York Times’ chronicler of the American upper crust, lamented the decline of a responsible and modest elite. “Wealthy people have an obligation to try to follow a code of seemliness,” he wrote. “No luxury cars for college-age kids. No private jet/ski weekends. Live a lifestyle that is more integrated into middle-class America than the one you can actually afford. Strike a blow for social cohesion.”
In some ways, this is just another chapter in 21st century capitalism. In a 2013 column on how the upper middle class were being priced out of Paris, the FT’s Simon Kuper noted: “There’s an iron law of 21st-century life: when something is desirable, the 1 per cent grabs it.” The difference six years makes is that the squeezed 1 per cent can’t grab it any more.
Chris says: “Perhaps when people like teachers were first being priced out of London, we should have realised that a decade or so later these forces would affect us too.” But he questions whether the 1980s and 1990s, when his cohort had it so good, really were a golden past whose norms can be recaptured. Rather, he says, they were probably a transition between the high-tax 1970s and the low-regulation 2000s that happened to work well for his income group. Then he adds: “Really, I’ve got nothing to complain about, compared with most people.”
Significant cuts to school fees or house prices look unlikely, so what should the squeezed 1 per cent do? One piece of advice is that they stop looking upwards. Hecht suggests they familiarise themselves with the distribution of income, their position in it, engage socially with those on lower incomes, and get involved with organisations that tackle inequality.
Klontz says such people should ask themselves if they really need to live in the ultra-wealthy microcultures found in cities such as New York or London. Technology has already loosened the cord between some relatively high-value jobs and location. Moving to peripheral towns such as Margate in the UK or Rochester in upstate New York would mean meeting more people outside their tribe — or even becoming part of a new, more income-diverse tribe. He adds that people should also reflect on the choices they have made — a kind of high net worth mindfulness.
But is the squeeze on the 1 per cent making them change their behaviour? Only to a certain extent. Catherine, another squeezed one-percenter in south-east England, says: “If we couldn’t afford boarding, we’d trim in other areas, or go flexi-boarding, or find a good day school.” If her family couldn’t afford to do that? “We’d move to the catchment area of a good state school. A grammar, perhaps.”
She shrugs, embarrassed. “What you have to remind yourself is that you have choices. You choose to live like this. And if you can’t afford to live like this any longer, you still have choices — and most of them are still pretty good choices.”