Broker Check
What is a Richcession? And Are We on the Cusp of One?

What is a Richcession? And Are We on the Cusp of One?

March 03, 2023
Share |

Most people are familiar with recessions and how one might affect them personally. But what about a richcession? No, that’s not a typo. A richcession is a newer term and concept that high-income individuals should familiarize themselves with because the U.S. may very well be heading into one – and it may very well impact them. This article will examine what a richcession is, the reasons why one might occur, and if the wealthy should indeed brace themselves for one. Keep reading to find out more about this new economic phenomenon.  

What Exactly is a Richcession?

Recently coined by journalist Justin Lahart of The Wall Street Journal, a richcession is a new economic buzzword that describes an economic downturn that impacts the wealthy more than the lower or middle class. It’s typically characterized as a recession that begins with stock market volatility, a currency crisis, or other money issues that disproportionately affect high-income individuals, reducing their disposable income, while the rest of the population faces little to no impact. Fewer luxury purchases are made during a richcession while everyday items like food and basic commodities remain largely unaffected.

Is a Richcession on the Horizon? If so, Why?

Some experts believe that if the U.S. heads into a recession in 2023, which is currently expected by many, it might actually be more of a richcession. In other words, it may noticeably impact the upper class – who typically ride out most recessions relatively unscathed – rather than the lower or middle classes.

There are several reasons for this. First, more than 1,000 tech companies laid off employees in 2022 alone, and this trend has continued into 2023. The tech workers being dismissed are, in general, white collar employees who had earned high incomes. Although many of these folks have transferable skills that may enable them to move into other jobs, the wealthy will likely still feel the reverberations of these layoffs.

Another reason why an upcoming recession might affect the rich more than blue collar workers is because the stock market has dropped. Given that many wealthy individuals hold a good portion of their net worth in the market, this means that they’ll likely feel the hit to their pocketbooks more so than the average person. Combined with the ongoing layoffs, high-net-worth individuals may experience this recession more profoundly than they’ve experienced others in the past.

The Bottom Line

It’s possible that a richcession is on its way, and while the wealthy may be impacted more than others, no one – despite their financial standing – can avoid it altogether. In economic times like these, it’s generally wise for everyone, no matter their net worth, to build up their savings. Additionally, the wealthy can better safeguard themselves if they consult a trusted and qualified financial advisor who can help them make smart financial moves. Taking steps to maintain economic security during a richcession or any economic downturn will likely provide a sense of confidence. Though it may seem challenging to accomplish this during moments of uncertainty, making strategic moves now can certainly pay off in the long run.