How does a miser fit into your scheme? How should we think about someone who spends at level 1, but has enough in the bank for level 6 - are they a special case of level 4?
Misers are usually a special case of level 4); occasionally they are in fact a special case of level 6) (they're not saving for A Rainy Day, they're saving because they like to see numbers going up / they define themselves by their behaviour and use their parsimony to feel superior to other people).
It seems we're honing these notions of wealth now, which is helpful. Labels like "rich" and "poor" have the double problem of being both absolutist (if you're not poor, you must be rich, and vice versa) and of being very vague, worse: non-empirical.
I prefer categories of affordability to spending. How wealthy/rich you are during any given period is the level of spending you can afford during that period. You may spend more than you can afford, but this does not make you wealthier. Equally, you may choose a cheaper standard of living, but this does not make you poorer.
These are the categories of affordability I would propose.
Cat 1: Zero-affordability You have insufficient means to afford the basic necessities of life for yourself or your dependents. People in this category cannot afford to secure sustainable access to sufficient food, water, clothing or shelter. Your lack of resources is total: you have no access to credit or reliable charitable provision.
Cat 2: Necessaries You have sufficient means to afford the basics, but
( ... )
I think the main issue is that expenses expand to fill the available income. Which leaves most people feeling like they "need" all the income they have (and could do with more).
I read an interesting piece a few days ago about how buying "status symbol" items like designer clothes and iPhones can be a sensible strategy for people barely able to afford food - because presenting yourself as a well-dressed tech-savy person is something that can *get you things* jobs, charity, credit, help filling benefits forms...
While I think the creation of more categories than simply rich or poor (with rich being people who earn more than me) is helpful, discussions of wealth really need to take into account both assets and income. £60k income if you have huge debts, no savings etc will probably be rather poorer than a person on £30k who owns their house outright, has invested money into renewable energy stuff (so pays no energy bills), owns a holiday timeshare (so doesn't pay for holidays), has a large pension pot etc. Assets do not simply give income (savings in the bank) but also the option to spend more than your income. There is also the tricky to quantify effect of family background. Someone on my salary with no family wealth at all would probably not be able to own their own house (we needed a small inheritance to pay a deposit), and would therefore be paying vastly more rent than we pay on our mortgage. The flip side is, if you come a from a family that has set up educational trusts etc, you may be thinking of sending your kids to private schools,
( ... )
Good point. The BBC came up with 7 new classes in which they observed that traditional working class had low income but high assets, and were therefore substantially better off than "Emergent service workers" who were on the same money, but had come to the party after house prices had sky-rocketed and pensions had plunged.
To add another factor (if you were trying to come up with an equation for defining the borders of your groups), age makes a big difference. People get wealthier as they get older, and they need to to pay for when they stop working. So a £15K job and no assets at 21 is not great but not necessarily poor. A £15K job and no assets (including no pension pot) at 64 and you are poor. And if you have significant assets at the start of life, you have the options of investing to become really wealthy. £200k of assets at 65 isn't much, if we assume you want to own a property and get some income to supplement you state pension. But £200K at 21 is hugely wealthy- and if it is invested in buy to let properties for example could lead to the ability to retire before they are 50.
It's true, wealth makes such a difference alongside income.
One other point about 'richness' that I don't think anyone's discussed yet is that there's a certain point on the scale where wealth reaches a point where the income on your wealth exceeds your ability to spend it. I'm not sure where that point is, but one could probably reasonably put it at earning assets (i.e. not just a single really big house) of £10m (on which you could get an income of £500k-ish) - or at least that order of magnitude.
This represents a discontinuity for several reasons: you no longer have to work, neither do any of your descendants and, in the absence of other factors, you will just continue to get richer and richer. As well as the impact on individual lifestyles, the taxation arguments shift from the whole 'encouraging hard work vs everyone should pay their fair share discussion' to the impact on society, as this is when you start getting an elite non-working class. In the past, inheritance tax was brought in to target this phenomenon,
Neil, Your first paragraph is a bit bizarre: "I understand that rich and poor are relative terms, but I'm just going to ignore that fact and start defining absolute categories anyway". Then you don't really make any absolute definitions for any of the categories. Don't get me wrong - I think absolute definitions would be silly, but I don't really understand how you are framing the problem or what you are aiming to do.
To me the concept of the post makes sense. The fact that perfect categories are impossible doesn't mean it's not worth trying to categorise to some extent to analyse the situation, particularly as Government policies and political debates are often phrased in terms of who's 'rich', 'poor', well-off and so forth.
For example, if you accept the six-point categorisation above as a reasonable framing, which it seems to be, you can observe that higher rate income tax and the cessation of benefits such as child-benefit currently appears to be targeted (imperfectly, of course) at the 3/4 boundary and the 45% rate and inheritance tax at the 4/5 boundary. And that then allows you to more easily discuss whether or not you think that's right.
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I prefer categories of affordability to spending. How wealthy/rich you are during any given period is the level of spending you can afford during that period. You may spend more than you can afford, but this does not make you wealthier. Equally, you may choose a cheaper standard of living, but this does not make you poorer.
These are the categories of affordability I would propose.
Cat 1: Zero-affordability
You have insufficient means to afford the basic necessities of life for yourself or your dependents. People in this category cannot afford to secure sustainable access to sufficient food, water, clothing or shelter. Your lack of resources is total: you have no access to credit or reliable charitable provision.
Cat 2: Necessaries You have sufficient means to afford the basics, but ( ... )
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I read an interesting piece a few days ago about how buying "status symbol" items like designer clothes and iPhones can be a sensible strategy for people barely able to afford food - because presenting yourself as a well-dressed tech-savy person is something that can *get you things* jobs, charity, credit, help filling benefits forms...
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One other point about 'richness' that I don't think anyone's discussed yet is that there's a certain point on the scale where wealth reaches a point where the income on your wealth exceeds your ability to spend it. I'm not sure where that point is, but one could probably reasonably put it at earning assets (i.e. not just a single really big house) of £10m (on which you could get an income of £500k-ish) - or at least that order of magnitude.
This represents a discontinuity for several reasons: you no longer have to work, neither do any of your descendants and, in the absence of other factors, you will just continue to get richer and richer. As well as the impact on individual lifestyles, the taxation arguments shift from the whole 'encouraging hard work vs everyone should pay their fair share discussion' to the impact on society, as this is when you start getting an elite non-working class. In the past, inheritance tax was brought in to target this phenomenon,
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Your first paragraph is a bit bizarre: "I understand that rich and poor are relative terms, but I'm just going to ignore that fact and start defining absolute categories anyway". Then you don't really make any absolute definitions for any of the categories. Don't get me wrong - I think absolute definitions would be silly, but I don't really understand how you are framing the problem or what you are aiming to do.
Reply
For example, if you accept the six-point categorisation above as a reasonable framing, which it seems to be, you can observe that higher rate income tax and the cessation of benefits such as child-benefit currently appears to be targeted (imperfectly, of course) at the 3/4 boundary and the 45% rate and inheritance tax at the 4/5 boundary. And that then allows you to more easily discuss whether or not you think that's right.
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