Redeem now - Americans who are high earners, not rich yet, known as HENRYs, aren't doing so hot.
- Their wage and job growth is slower than lower earners, they're piling on debt, and childcare costs are soaring.
- They're turning to cheaper brands, and they may not feel financially well-off.
It's a bad time to be almost rich — no, really.
That's because the rollercoaster recovery from the pandemic-induced recession has left people who are high-earning, but not rich yet — known as HENRYs — with higher costs and slower wage growth, compared with their lower-income peers.
Plus, HENRYs are more likely to be in the industries affected by a spate of layoffs, and labor market softening has left higher earners more vulnerable. At the same time, there's still a red-hot labor market for hourly roles, and blue-collar jobs are booming.
Aaron Terrazas, chief economist at Glassdoor, told Insider the economy is entering "the anti-2000s."
"If the early 2000s were this economy where there were booming white-collar jobs and a lot of headwinds to blue-collar jobs, it feels like all of those wins have almost reversed, and we're seeing the opposite of what we saw in the early 2000s," he said.
In response to recession fears and inflation, HENRYs are adjusting their overall spending habits. They have substantial discretionary income, but feel financially insecure, with many living below their means to ensure future financial independence.
Spending less and staying in more
The pandemic led to something surprising: Wages for the country's lowest-paid workers began to grow.
As researchers at MIT and the University of Massachusetts Amherst found in a working National Bureau of Economic Research paper, rapidly growing wages during the pandemic helped reverse a chunk of wage inequality, making a dent in closing the wage gap between college or high school graduates and those without degrees. Workers with earnings in the bottom 10% of wages saw higher wage gains than those in the top 10%.
While wage gains have stabilized a bit, the bottom half of workers are still notching greater gains than those at the top. And even as hiring cools for workers in professional and business services — which, according to the Bureau of Labor Statistics' latest accounting, has seen "little net change" in employment over the past year — leisure and hospitality are adding an average of 51,000 jobs monthly.
At the same time, even as inflation cools, costs are high for many. And while some inflationary pressures fall disproportionately on lower-earning Americans, one key cost is particularly weighing on America's HENRYs: Childcare.
Research from the Bank of America Institute found that childcare costs have risen by over 30% since 2019 — and families that earn between $100,000 and $250,000 have seen the biggest increase in cost. In 2023 alone, that means an around 8% increase since 2022 for those earning between $150,000 and $250,000. Meanwhile, the already rich — those who make over $250,000 — only saw their childcare costs increase by about 4%.
High inflation has also led to a shift in spending habits as more individuals with higher incomes are trading down when it comes to their needs. These wealthier consumers have turned to places like dollar stores for shopping, primarily driven by reduced spending on non-essential items and a focus on essentials.
This trend has been seen across industries, including affordable restaurants like Applebee's, IHOP, and Chipotle reporting increased sales from higher-income patrons in 2022. What's more, Walmart credited a substantial portion of its market-share gains in the post-pandemic world to customers with annual household incomes of $100,000 or more.
This shift has affected fast-food chains like McDonald's as well, as it has seen lower-income customers dwindle due to rising prices, while sales gains were driven by an increase in middle- and higher-income consumers trading down from more expensive restaurants. These dynamics reflect changing consumer preferences and priorities in the face of economic challenges and the pressure of inflation.
Wealth isn't what it seems
The Survey of Consumer Finances from the Federal Reserve indicates that Americans have generally seen an increase in their net worth, and one of the biggest factors has been the rise in home prices and the subsequent spike in home equity for owners.
The Fed's data shows that between 2019 and 2022, average net worth for Americans surged by 37%, more than double the next-largest increase since the Fed began its survey in 1989. Median net worth, adjusted for inflation, reached $192,000, with the Fed noting substantial gains in the 80th to 90th income percentiles.
On paper, people seem better off due to increased home equity, but this doesn't necessarily translate to a feeling of financial well-being. The Fed's "higher-for-longer" plan for interest rates, teamed with many HENRYs having most of their net worth in housing, can limit the ability to tap into this newfound wealth since they are less likely to move, and home equity lines of credit are now more expensive.
Meanwhile, research has shown that higher earners are often tasked with working longer hours, adding to the stress for this segment of the workforce.
Priya Malani, founder and CEO at Stash Wealth, a financial planning firm that focuses on advising HENRYs, recently told Insider that some HENRYs might over-save for retirement, compromising their present lifestyle. Concerns such as supporting aging parents, managing daily expenses, starting a family, and saving for retirement or loan repayments weigh heavily on them.
Goldman Sachs recently noted that people struggle to balance multiple financial goals with limited financial resources. Money that would go to retirement savings is also being tugged into what they called the "financial vortex" by things like credit card debt, student loans, care for children and older adults, and financial hardships.
Nevertheless, despite these worries, some still allocate funds for travel, prioritizing experiences over material possessions. This adaptation in spending reflects a blend of caution and selective indulgence among HENRYs in the currently fragile economy. But even those indulgences are adding up — funflation is raging across the economy, making things like going out or seeing a movie much more expensive.
Of course, high earners are still doing well. But they're also facing the brunt of a changing economy that stands in stark contrast to the pre-2020 era. It all means they might remain high earners, but not rich yet for longer than they'd like. As the labor market continues to slow, and childcare costs on the rise with the end of pandemic-era subsidies, it might continue to be a bad time to be a HENRY.
Are you a HENRY feeling the economic pinch? Contact these reporters at jkaplan@businessinsider.com and cgaines@businessinsider.com.
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