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Enter the middle-class millionaire

Is the financially savvy boomer the new face of boating? One Florida lender is betting on it

Is the financially savvy boomer the new face of boating? One Florida lender is betting on it

The chill in the economy hasn’t reached one demographic yet, and that is the “middle-class millionaire,” a consumer who is of growing interest to those who sell boats, engines and related services and accessories.

Key Recreation Lending’s business has increased in the “low double digits” this past year, says John F. Relyea, Key Recreation’s Cleveland-based senior vice president. For the marine industry as a whole, 2006-’07 was sluggish, but Relyea thinks he knows why Key’s numbers were pretty good. It is because its Fort Lauderdale, Fla.-based luxury yacht division lends to a lot of what have been dubbed middle-class millionaires. They are baby boomers who have amassed a net worth of $1 million to $10 million, including their home. And they earned this fortune — they didn’t inherit it — usually in technology, real estate or entrepreneurship. “This is where the clients are,” Relyea says.

Key is bullish on the opportunities in working with this demographic — so much so that it has tapped as a consultant Lewis Schiff, co-author of “The Middle-Class Millionaire: The Rise of the New Rich and How They Are Changing America” (Currency/Doubleday 2008).

Schiff, who spoke with Soundings at the Fort Lauderdale International Boat Show, says these new rich qualify as “middle class” because more than half of them — 67 percent — call themselves upper middle class. (The other 33 percent still say they are middle class.) Schiff says they also tend to be driven by middle-class values. They want social respectability and material wealth, and they value family and education, but they also are different in important ways from the less-affluent middle class. They work much longer hours, focus more on the financial returns of their work, take risks and don’t let failure discourage them — and they network. They are inveterate networkers. That’s what really interests Relyea.

“They are very outgoing,” he says. “They refer clients to people they have had good success with in their business dealings.”

Do a good job for these folks, and you could wind up with 10 of their friends as clients. They also are quick to adopt innovations and lead the way in bringing those innovations to a broader segment of the population. They exert an influence disproportionate to their numbers over their peers and others farther down the income ladder. They have far more influence, Schiff says, than the super-rich, who tend to be secretive and standoffish in both their social and business dealings.

Relyea also is impressed by their numbers. This new generation of millionaires makes up 8.4 million, or 7.6 percent, of American households, and those numbers are expected to increase by half again over the next decade, according to Schiff. “This is a growing group in America,” he says.

Schiff, president of Advanced Planning Group, a team of private wealth experts specializing in advising high-net-worth clients, and co-author Russ Alan Prince, president of Prince & Associates, a private wealth research firm, say these new millionaires are trendsetters in consumer buying and are replacing the middle class in driving today’s economy.

Key Recreation president Grant Skeens says Key remains committed to lending to “the little guy” — who still makes up 85 percent of its yacht-loan customers — and to growing boating at the entry level. But at a time when small boats aren’t selling well, larger boats are a strong market, now and probably for the future, because the demographic that can afford these boats is growing at 15 percent a year. That’s where the growth in boat sales is, says Relyea.

Schiff’s book says income growth among the traditional middle class — the ones who aren’t millionaires — hasn’t kept pace with the more affluent, “thinning the ranks in the middle” and leaving more rich and more poor. “In 1982, the top 1 percent of households accounted for 12.8 percent of national income, while the top 10 percent took home 36 percent of income,” Schiff writes. “In 2005 the top 1 percent collected 21.8 percent of all income, and the total for the top 10 percent had risen to 48.5 percent.” That same year, U.S. income overall rose 9 percent, but that of the bottom 90 percent of those who filed taxes fell 0.6 percent, he says.

He describes today’s economy as a “plutonomy” — “an economy in which the behavior of the wealthiest 10 percent drives economic growth, no matter how rough the economy is for everyone else.”

That’s good news for yacht builders but probably not for those building small boats.