February 24, 2007

Conspicuous Consumption: I-Banker Style

The most popular article from the online version of Friday's Wall Street Journal was "The Wealth Report" piece (paid log-in may be required) about a survey conducted on how 200 investment bankers who received bonuses of $2 million or more spent their recently-announced record bonuses. For most bankers and particularly even more so for senior bankers, the vast majority of compensation comes from their bonus, with just a small fraction coming in salary. So, what is a banker to do when he or she has slogged away for 364 days out of the year on just merely a salary (these "mere" salaries still dwarf salary and wages in almost any other industry or service field) and on that 365th day a windfall falls in their lap? According to the survey in the WSJ article, bankers did some of the following with their bonuses:
  • 16.5% was put into savings or investments
  • 16.1% was spent on real estate
  • 11.9% was spent on art
  • 11.2% was spent on jewelry or watches
  • 4.2% was spent on charity
  • 3.4% was spent on debt reduction (hey, even a banker has to keep up with the Joneses down the (Wall) Street - get it? Ok, that was corny)
  • 2.8% was spent on luxury cars
No huge surprises here. What people choose to do with their money is very personal by nature, and the Honchos are completely neutral as to what others want to do with their coin. We'll leave the arguments over optimal saving vs. consumption arguments up to the eggheads in the ivory towers. Given that little caveat, we're not surprised that those with greater means to save more choose to spend (although, we should point out that the 16.5% put into savings is higher than the negative personal savings rate of Americans). The 16.1% (or $322k of a $2m bonus) on real estate is a little surprising in that we would have thought that number would be a little higher, particularly given the high cost of real estate in Manhattan. But, overall, just an interesting snapshot on what those top 1 percenters in the income world choose to do with their money.

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