Economic statistic of the week: do you know how well off you are compared to others?

The higher your personal income, the more likely you are to under-estimate how well off you are compared to other people in Britain.

That was one of the findings in a piece of MORI research from 2008 which looked at people’s actual level of personal income and how they thought that level of income compared to everyone else.

Of people who were in the richest 10%, nearly four out of five (79%) thought they were less well off than that and were not actually amongst the richest 10%. Only a fifth (21%) got their place in the richest 10% correct.

However, of people in the next band down – in the top 25% but not in the top  10% – it was two-thirds (65%) who under-estimated where they fell compared to other people, and that figure fell again to just under four in ten (38%) for those in the top 50% but not in the top 25%.

In other words, the higher up the income spectrum people were, the more likely they were to wrongly think they were not as rich compared to others as they actually were.

Overall the figures were:

Top 10%: 79% under-estimated, 21% correct
Next 15%: 65% under-estimated, 31% correct, 4% over-estimated
Next 25%: 38% under-estimated, 41% correct, 21% over-estimated

Note: due to the small sample size for the richest 1%, I have combined the richest 1% with the next richest band in MORI’s raw data. People were asked whether they fell into the bottom 50%, between 50% and 75%, between 75% and 90%, between 90% and 99% or in the top 1%.

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10 Comments

  • Sorry Mark but this is a flawed article – base don flawed research. Income is not the same as wealth. Niether does a higher household income make you “richer” than someone else.

    At a very basic level – lots of households with higher incomes spend substantial sums in housing costs – whereas lots of households with lower incomes have lower housing costs.

    The pension couple who own their £600,000 house in Surrey may have a lower income than their neighbours who have three kids and who can only rent, but who is the richer ?

    Similarly, even at the bottom of the income scale – we know that a lot of people on benefits are financially better off than those in work – despite having a nominally lower income.

  • It is an interesting piece of research, and there is something in this. But this seems to look at income – there are much wider issues here, not least the way the boomer generation and BTL ‘landlords’ have priced three subsequent generations out of housing. Property differentials in particular are important.

  • Chris Keating 25th Mar '11 - 11:25am

    If you’re asking people “How many people do you think earn more or less than you do?” then obviously income is the right thing to look at. Though I hazard a guess that if you asked a similar question about wealth you’d get a similar trend in the answers – the psychology of this is quite well understood.

    People form their expectations and attitudes based on their own social world, not on objective reality. If you earn £50,000 you are objectively very high on the income scale. But if you work in an occupation where £30,000 is a starting salary and your aspiration is £100,000+, and all of your friends and most of your family do likewise, then the fact the vast bulk of the population has a far lower income doesn’t feature in your perceptions. When asked, you will place yourself in the wrong place and assume the rest of the population has a higher income than it actually does…

  • That will probably explain all those people in the Daily Telegraph and rich Tory supporters in general moaning about UK tax levels being too high when they are not. It is just rich people who think they are too high, because they believe they are just regular middle income earners.

    Also, there is probably a major geographical element to this. If you live in a wealthy part of London, which will be the case for many of the top 10%, then a household income of £80,000-plus will be quite common.

  • This is a well-known finding, that has been replicated over the years. I think partly it comes from the fact that rich people often live in affluent areas, where other people are rich as well, and so they perceive that the average is much richer than it is. It does not hold in the US, where far more than 10% of people think that they are in the top 10% – which is one reason why tax cuts for the rich are popular there.

    Test for LDV readers: Estimate where you think you are in the income distribution. Then click here and the IFS will tell you: http://www.ifs.org.uk/wheredoyoufitin/.

  • Isn’t there a certain statistical probability of this anyway. Those in the top 10% can’t overestimate (there isn’t higher) so the distribution is almost certainly going to lead to more of them underestimating as they can’t overestimate.

    Also the numbers in each section are pretty low. Only a hundred for instance in the top 10%.

  • This also fails to take into account income/cost of living disparities between different areas of the country – if I’m earning £30k in central London, and a friend is doing the same job for £27k in Bristol, on this table I’m viewed as being “better off”, but in reality (and my perception when asked the question this study asks) my friend is better off, and will have a higher disposable income, due to a drastically lower cost of living (mainly through housing, but also costs of social life).

  • There is a lot of misconceptions about what is a good salary, particularly in London. I have read that the average gross salary in London is £34k and that people who earn more than £55k are in the top 5% of earners (can’t remember sources, sorry), but a lot of people in London are surprised by that.

    The IFS tool would be better if it allowed you to put in at least housing costs as well as council tax. Housing costs are fairly constant and can make a massive difference to your quality of life.

    According to their tool, I’m fairly well-off but I would challenge anyone to say that the amount I’m left with after paying housing costs (mortgage and service charges), utility bills, food and transport is a lot. I have to watch every penny to keep out of debt.

  • The point about income distribution depending a bit on costs, the most important being dependents (normally children but could be elderly parents), is important but I doubt it would change these findings much.

    I’ve never been particularly convinced by Rebecca’s point. Rent in London is higher because living in London is “better”. One caveat might be if ‘better access to jobs’ is a lot of that “better”, as obviously someone with the same job elsewhere has the same job. But I think it’s probably only part of the story, and in fact you could argue that perso has a better job.

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