Welcome back to the Noyac Expert series.
I am your host today, Anna.
And today we’re joined by Shawn Tully of Veteran Business Journal and longtime Fortune writer.
His reporting demystifies how money really moves from taxes to inflation, markets, balance sheets.
He’s really been ahead of the curve with this cohort that we called Henry.
And we talk about these people a lot at Noyac. It’s one of our main objectives.
And that’s high earners who aren’t rich yet.
So today we’re going to unpack who Henrys are, why grouping them matters, and what this segment is telling us about wealth building right now.
Shawn, thank you so much for being here today.
Shawn: Oh, my pleasure, Anna, thank you.
Anna: Yeah, I guess my first question before we really dig into it, is how did this come up?
Where did the idea of writing about Henrys appear?
How did the term originate in your work?
Where did it come from to begin with?
Shawn: It came up about 20 years ago when I was doing an article about the alternative minimum tax, which due to tax changes and reforms has pretty much gone away.
But it was one of the big burdens that a lot of high earners would kind of backed into by mistake because it was just this extra tax that was layered onto the regular income taxes if you got over certain income limits.
And because of tax reform over the years, it’s been pretty much a non-entity.
But in looking at the people who were hit by the alternative minimum tax, and of course have been mischaracterized so dramatically, I invented the term Henrys and I don’t remember how I did it.
It just kind of flashed across my brain.
Winston Churchill used to say lightning across the brain, and it just was.
I snapped my fingers and it just came along.
And it’s been out there in the public discourse ever since, even though some people who use it don’t cite me or decline to cite me.
But I did invent it all those years ago to define a demographic that really had not been defined in effect before that.
Anna: Yeah. Why was it important to be able to define that demographic when doing this story about the alternative minimum tax and other subsequent stories about high earners?
Shawn: It was about how the best and the brightest of America, kind of the intellectual class, the workmanlike class of America, what their lives are really like.
And we’re talking about the doctors, the lawyers, the treasurers, corporate treasurers, computer programmers who are making very good incomes, and often these are two family earners.
So you have a highly paid nurse and a doctor or you have two lawyers and their incomes are very high.
And the reason I got on this subject, I wanted to correct the public discourse because these people, when I started, they were probably making 250 to 400,000 a year. You’d have to bump that up to probably 350 to 600 today, just adjusted for inflation.
But they were always being characterized as the rich and the discourse in Washington was always the rich are not paying their fair share.
OK, but these are the people who don’t have any tax shelters at all, unlike people who are self-employed, for example, or people get a lot of their income in cash or whatever it happens to be.
They file W-2 forms. There’s no getting away from any kind of tax benefits that they have.
They’re not benefiting from any of the famous deductions that you could get if you’re self-employed, for example, although they need medical practices perhaps, but that’s about it.
They’re mainly working for big companies. They’re very highly paid, but they’re not rich.
And my conclusion from these stories, analyzing and of course I interviewed many of them for the stories because I did two or three subsequent Henrys stories, the first story didn’t have the headline of Henry. The term kind of came out late in the story.
And then I realized that it was really catching on, and I piled in and did several stories specifically about this demographic.
But what really got it going was the observation that they would never be rich, right? Because it’s not your income, it’s your net worth.
So would these people who are making, say today it’s 400,000 a year combined or 500,000 a year, even with sounds like gigantic amounts, would they have the savings over time to ever have the kind of several million dollars at least net worth that you would need in retirement to be considered rich?
Although that definition certainly has bounced around a lot, but my conclusion was no.
And the reason was their expenses in addition are very high and they start with the tax rates because they tend to live in high tax jurisdictions. Now in Florida, which has become a business capital and I’ve been studying quite a bit recently, that has changed.
For example, there’s no income tax in Florida, for example, or Texas, but they weren’t nearly as popular sites, locales for these kind of high earners to live 20 years ago and 15 years ago as they are today.
But still, most of these high earners live on the coasts and they face very high both corporate income tax rates, but also state tax rates, probably an extra 10%, could be 12% in some states, in New Jersey, for example.
So they’re in very high tax areas. They no longer get the deduction on the state taxes. State and local taxes are now capped.
So they will never be rich.
Another reason is that they tend to want to save up front to send their kids to private colleges and the cost of college education, even when I first did these stories, had gone up much faster than inflation, probably twice the pace of inflation.
Then they tend to live in areas where the supply of new housing is very constrained and they have very little additions to the existing housing stock, very tight zoning standards.
So any increase in demand in these areas just drives the price up, right, because there’s no new supply coming. There hasn’t been any new supply in the California coastal areas in 30 years, hasn’t been any new supply in New Jersey suburbs in 30 or 40 years, right?
So these prices just keep going up much faster than inflation and not offset by any supply to speak of. Most of it’s in the Sunbelt right now.
They face very high housing costs.
So when you put it all together, they’re never going to have a lot of savings.
Now this has changed though, because a certain generation that probably came up in the last 15 years maybe in a different situation because the value of their homes, just the phenomenon I was talking about, even though they started off buying what looked like a really expensive home, it’s probably tripled or doubled in most of these coastal areas.
So they have more savings in their homes than they did.
In addition, if their 401Ks are invested in the stock market, they have, we’ve been through this historical boom in stock prices.
So there’s a possibility that this generation that’s come up in the last 20 years to their high earning periods from ages say 40 to 60 or 45 to 65 may have accumulated much better savings and might even be qualified as rich.
I have not studied all the numbers, but that’s a possibility.
Now the problem is the people who are in that category today are entering that category. The newly minted Henrys have exactly the opposite problem because they’re buying into houses that are outrageously expensive.
A, they’re paying really high mortgage rates on those houses.
B and C, they’re buying in. No one wants to talk about what the real PE on the S&P is, but based on GAAP trailing earnings, it’s 31. It’s only been 31 effectively once in history and that was during 1998 to 2001, when no one had made any money after that was over for 13 or 15 years, right?
So the chances of high appreciation in stock prices when you’re buying in at a PE that high, stocks have been on this continuous momentum-driven role of really having huge stock returns going forward, is much less than they would have been unless you’re very sophisticated about investing and you get into international markets that are much undervalued relative to the US and go very sophisticated by going into emerging markets and European stocks or whatever that have been beaten down, which most people don’t. They really just diversify mainly. They’re in the US big caps. Now that’s the main destination and source of investments for the Henrys and for most of the world.
So we think that now the newly minted Henrys are in for a very tough fight to ever get rich. It’s like the French. You might start calling them the HENRIs, right?
Anna: Yeah. High earners, not rich indefinitely. And they might as well be wearing berets at this point.
Yeah. One of the things culturally that’s added to this issue for these, as you called them, newly minted Henrys, over the years is the financial education aspect of it.
There’s like a gap for younger people who are just getting into these new jobs with the financial education.
A lot of it is either super high jargon, goes over a lot of these, like because like a lot of these people, some are in finance, a lot of them aren’t though.
So a lot of these terms just sort of fly over their head.
And then everything else that exists just dumbs it down a little bit too much.
So one of the other issues in addition to the mortgage rates and the stock market and all of these things that kind of are accumulating is just a lack of overall financial education tailored towards this group.
That’s something that over at Noyac we try to do a lot with our newsletter and podcasts like this episode that you’re on right now. Thank you again for joining us.
But we try to take those higher-level financial pieces that Henrys definitely need to have a grasp of in order to get rich, but we explain it with a little bit less of the jargon.
And I think being able to find resources like that is also key when it comes to trying to not become a French Henry with the beret, which we don’t want.
Shawn: Yeah. Well, what you’re talking about, the educational aspects are absolutely crucial, especially for the people who aren’t in the field.
And a lot of the sophisticated people in the field are too sophisticated to bother with increasing their savings or basic household kind of rules that will make them over time, just the compounding rate of additional savings is so powerful.
Or education in you want to be diversified out of US stocks, say, and what a portfolio might look like.
Or even telling them now, for example, I just did an article very recently with the head, Chief Investment Officer and president of Vanguard, which is mainly, they are an index fund company and the fees are really low.
Well, just being in index funds as opposed to having a financial advisor who’s taking 1% every year, you’re better off in index funds, right?
And here’s what he was talking about, is that look how great bonds look now.
Bonds have been terrible for a long time.
But if you can lock in or you can be in a money market and get 4%, it’s pretty good.
Or you can go into a blend of corporate bonds that are very safe and get 6, 7, 8% potentially.
The bonds are looking much better and they’ve been out of the picture for a very long time.
And I think people can grasp that, right?
You can’t go wrong on a five-year Treasury. And even if rates go up, you’re still going to get your money back in five years, right?
And you’re getting 4.5% now. It’s pretty good. Not on a five year less, but yeah.
And the 10-year, you’re getting over 4. It’s looking a lot better.
And you’re getting that on a money market and taking no risk.
Anna: So yeah, when it comes to trying to balance all of this and build your net worth, what are some of the most important things in your opinion that Henrys should pay attention to or put more of their effort in?
Shawn: Well, I think just additional savings because you cut out one expensive restaurant meal a month, say, or you don’t need the third car, or you know, a lot of these very basic things.
Because I think that they tend to, because their take-home pay is very high, they tend to spend it all.
And other than what’s going into their 401K, which is anything that’s an automatic deduction is healthy, right?
So the more you can put into your 401K and the more you can get to the match. So some people don’t even bother with the match. It seems incredible, but you put together the company match and your own, max out your 401K contribution, absolutely.
And I think a lot of people do that, but I think a lot of people don’t do that.
So that you don’t even think about that money. That money is just being deducted from your paycheck and any other savings plans your company may have where you have an automatic deduction and you don’t think of it anymore as being part of the money that gets deposited in your bank account every two weeks that you can spend is very valuable.
Or anything you can set up that just as kind of an automatic deduction into savings compounds over time and you can’t believe how much it’s worth years later, right, or 20 years later.
Anna: So it’s also with that automatic aspect of it, is important psychologically when the money just automatically goes and what you see that you get, it’s different.
So you’re going to treat it a little bit differently. You’re not going to be able to spend it all because you’re not seeing it all there.
And that can kind of hardwire your brain to start thinking a little bit differently about your money, how much money you have, what you can do with it versus what you want to do with it and so on and so forth.
Shawn: Yes, and this is something that the Henrys are used to doing in some ways because they do set that money aside religiously for their children’s college accounts.
You’re talking about if you have three kids going to colleges that cost whatever, in total, all in, $80,000 a year. It’s crazy, it’s nuts.
And you think of the present value of what you have to put in today that compounds maybe at 4% or something. You could be putting in $100,000 a year easy into those accounts, easily 20 years in advance.
So they do that already, right? And because of the just the emotional tie to their children and the importance that they put on private education, they are doing that.
But they should do more just for their retirement, for reasons of retirement, so that they are really loaded when they retire and they can travel wherever they want. They can take wonderful vacations in the South of France.
They’re going to live from age 62 or 65 when they retire now to 85 or 90. That’s a lot of time and you want to have plenty of resources to enjoy anything you want to do.
When these are the hardest working people in America, they’re not the trust fund babies, they’re not the hedge fund billionaires who got lucky. They’re really going at it, right?
If you’re a corporate treasurer or you’re a computer programmer or you’re a nurse or your physician, these are tough jobs.
So they deserve to spoil themselves in retirement and they don’t want to be strapped in any way.
They want to join a country club, they want to go to Wimbledon, they want to visit every top golf tournament around the world, every major, every major tennis tournament. Go to Australia, go to the UK, go to France. They should be able to do it, but that takes savings.
Yes, and if they spend absolutely everything except for their 401K, the 401K is not going to do so well the next 20 years for the reasons I just mentioned, because stocks are really expensive.
Though if you get into a 401K, you started contributing in 2008 or 7 or 9, right? And you had all those beaten-down years after the global financial crisis and then you were buying in really cheap. Everything just exploded after that, right?
So you have a really big base of investments from 2009 when stocks were really cheap, all the way up to say 2015 or something, then it took off. Or the same thing if you bought in after the tech bubble, right?
So the timing was, but now the timing is terrible. Frankly, you’ll do OK, but you’re not going to get these kind of double-digit gains again. It’s not going to happen.
Anna: When you first started, not even just started writing about Henrys, but came up with the term and the demographic of Henrys, when that first came to your mind, did you think it would be as discussed now as it is?
Shawn: Oh, I didn’t. I thought the name was really clever, great name. But I had no idea it would catch on the way it catches on.
And then I see all these articles in the New York Post and the Wall Street Journal and the Financial Times referring to Henry as kind of a generic term that’s been out there all the time and they cite me.
Sometimes they cite only Fortune, sometimes they get the date of the original story wrong and cite a later one, or don’t cite the correct time that I coined it, which is fine.
But what I don’t like is when they just consider it so generic they don’t have to cite me at all, because what they then do is, and the Wall Street Journal does this, frankly, is they claim that it’s so generic they don’t have to credit Fortune.
And then they use all the thinking that I put into it to define the group and expropriate my IP, so to speak.
Anna: Yeah. Yeah. I love the Wall Street Journal. It’s my favorite paper, but I wish that they would credit you especially.
Shawn: Yeah, when it comes to especially given my age and my era of dignity. I wish that they would credit me for inventing the term.
Anna: Yeah. When it comes to where we’re now, gosh, 20, 20 years ago, something like that?
Shawn: Yeah, so come 20-something years since this term was invented, it’s being talked about far more than you could have ever imagined. Are Henrys in the place that you expected them to be, or is that a completely different piece of it?
Well, I think they face the same challenges in terms of their cost of living, if not, but it depends on again the timing of when you became a Henry.
I think the ones who are topping out now are the luckiest bunch of Henrys of all time because of the increase in the price of their house and their 401Ks that probably appreciated at 12 or 13% a year for 10 or 12 years, right?
So they just did great relative. The ones before that didn’t do great savings. The ones after that aren’t going to do even worse.
So it depends on the timing, the conditions. The tax conditions are just as bad, the college costs are even worse.
The one big change though is, as I mentioned, America fortunately is a very competitive country for tax policy, right?
So there are certain parts of this country that have tremendously benefited from keeping their spending down and not having either high or in many cases, in a few cases, no state income tax.
And they have attracted a tremendous number of these Henrys. There are a lot more of them are living in Texas now and living in Nevada, in Las Vegas, for example, or living in Phoenix, Arizona, because they either have low or no state income taxes in part.
Well, it goes both ways, right? The jobs, the companies went there because they had low corporate taxes, very business-friendly regulatory environment.
Anna: We did an episode with Mark Zandi, and we were talking about a very similar phenomena, the movement to these cities that aren’t necessarily on the East Coast but are more scattered throughout the country.
Shawn: Yeah, the great Mark Zandi. And I did a story predicting the real estate crash of 2005 based on the multiple of rents that these prices were. It was like the PE of the S&P being 100, right?
These people were spending so much more on a house than the cost to rent it.
So anyway, we predicted the whole thing market by market, in fact. So Mark and I, I have to credit him with another great success.
We had a cover of a house falling off a cliff just before the crash happened. And Mark and I did that story together.
But yeah, I, yeah, absolutely.
These, for example, I’m doing a story now on Miami as a business capital. Never was a business capital. Now Citadel is huge there and McKinsey has big offices there and a lot of private equity firms have moved there. Starwood is there big time.
Even some of the legendary older guys like Carl Icahn, Nelson Peltz are there. And it’s going to continue, right?
But talking about the old guys, they haven’t been Henrys for decades, but a lot of these youngsters who are joining a Citadel or a Starwood or whatever, they’re going to be better off, right?
They’re going to have more savings just simply because their take-home pay will be better.
And if they’re disciplined, because they’re going to get the same pay rates as they get in New York, now they’re going to do better than the folks in New York unless the folks in New York show even greater discipline.
Anna: As we come to a close on our time today, I have one last question for you, and that is if you could sit in a room with one of these newly minted Henrys that are coming in, in this quite interesting financial, economic, housing, cost of living situation, what advice would you give to them?
Shawn: I think I would encourage them just to save more, you know, and look at their budgets, you know, do spreadsheets. I mean that sounds, do some accounting, right?
And look at some of the extravagance that they have. Can they eliminate it? Do they need to have eight streaming channels, right? Have they cut the cord? There’s lots of little things like that that can be very helpful to having larger savings later on. Certainly that’s one of them.
I certainly wouldn’t say moved to Florida, but traffic is moving in that direction in any case.
In terms of real estate, there’s really not much you can do, but do you need a house when you’re moving up in the real estate market? Do you really need a 6,000-square-foot house? Maybe 4,000 is plenty.
Maybe you’re going to buy 6,000 because your third kid is 16. Well, your third kid is going to be going to college next year or the year after. You don’t need 6,000. You’re not going to retire in 6,000, right?
So maybe you don’t need the move-up house that’s so expensive where now your mortgage is at 6.5% and you’re in the Jersey suburbs of Mass and it’s going to cost you three and a half million. Maybe you can have a great house for 2.5.
And in terms of commuting costs, that’s a big deal. Yeah. You have people in the suburbs who have very high commuting costs. Oh yeah.
And I don’t know what you would do on that score. I don’t think really there’s too much you can do.
But how many cars do you need, right? Do you need, a lot of people have a Tesla or an electric car as a status symbol to cruise around town once a week and then they take the big SUV to Vermont for the weekend, right?
Yeah. Do you need the status symbol EV? You probably don’t.
Anna: The thing one thing that people forget about a lot is yes, there’s all of these more complicated, high-level financial things you can be doing, but these smaller, more everyday moves can also make a huge difference when it comes to your net worth overall.
Shawn: Yeah, yeah, absolutely.
Do you need to have a wine cellar? Do you need to buy $100 bottles of wine? Do a little shopping. You can. These people are wine crazy, right? These Henrys.
They want to be wine experts. They want to have wine cellars. They want to talk to their buddies about wine. They want to go to the vineyards of the Loire Valley. They want to go to Sonoma, they want to go to Napa, right?
They love wines and that’s, I love wines too, but do they need to have a wine cellar where the average cost of the bottle is $100? Do a little shopping and you can find bargains at $50 that are great, right?
I’m making these up, but they’re all relevant.
But you have to put a sharp pencil on the extravagances and make them less extravagant again, because they’re not rich. They got to face up to it.
And spending all your income with just a 401K when you’re buying it at very expensive stock prices means you’re, especially now, it means you need to have extra, be extra careful and have extra savings to do anything like as well as the last 10 years’ Henrys have really done who are now getting out, right?
They’ve started off, well, again, these Henrys only, they only hit their peak years for 20 years, right?
So we’re talking ages 40 to 65 at the most, maybe more like 45 to 65 if they go that long.
And so the last crop did great. This crop has got to be much more careful to build up anything resembling a really great net worth that enables them to do anything they want pretty much vacation-wise, given that they already have, they own their house.
And people now, these Henrys stay in their house. Most of them, it used to be that you retire and buy a condo, but a lot of people just want to stay in the big house and have kids there for Thanksgiving and their families and grandkids and tennis court or whatever.
Anna: So, well, thank you so much for coming on today. This is actually our 100th edition of our newsletter, and we’re rebranding over to Your Wealth Blueprint.
So anyone who’s listening to this or watching this, go check out our latest edition. It’s all about how your wealth and your net worth are not the same thing at all.
That was such an honor to have Shawn Tully on for this very special edition of our newsletter. Thank you so much for being here.
Shawn: I owe everything to the Henrys, Anna, so it’s a total pleasure to address them and to thank them for helping me to coin what is now a famous phrase and that I’m very flattered to see referred to anywhere, credited or not.
