Wednesday, April 10, 2013

The Excuses of Low Net Worth Individuals

Long time readers of this blog know that I like to read websites like The Atlantic and Slate, both of which have markedly biased opinion writers when it comes to topics like politics and finance. When they write articles highlighting the wealth gap between the richest and the poorest Americans and using that as a justification for their advocacy of programs that redistribute wealth and income from high net worth individuals to lower income households, it infuriates me.

Being the glutton for punishment that I am, I usually leave a comment along the lines of:
This is not a tale of corporations and the rich versus everybody else. It's a tale of financial literacy of the few, who are rich precisely because they're the ones saving and investing while everybody else is making excuses on why they can't save and invest.
Regular workers can invest in deferred-tax accounts (which have contribution limits). Their wage income is taxed at lower rates than the vast majority of high earners. And the barriers to retail investing have never been lower.
The two most common replies look like:
  1. We don't save money because we have no money to save.
  2. Wall Street is just a casino. It's not investing; it's gambling.
 But when you decode these responses into what they're actually saying, it reads more like:
  1. I don't make enough money to save AND support the lifestyle I am accustomed to.
  2. I don't know jack shit about investing.
Nobody really wants to learn how finance actually works. Using rhetoric to uphold convictions feels good, but it just perpetuates the state of finance ignorance that most people live in. Because if you don't learn about finance, you will never be able to become rich (unless you found a start-up business which takes off, although that is a form of savings/investment).

And the reason why nobody wants to learn about finance is because everybody is too busy spending money. And it's understandable. Spending money is awesome. Exchanging bits of paper or zeros and ones for tangible goods and services is so satisfying. And immediately gratifying. We don't show off how awesome we are by some numerical representation of our wealth. We do it by buying flashy clothes, cars, jewelry, and houses. We don't have fun by looking at a numerical representation of our wealth. We do it by attending concerts, sporting events, bars and clubs, and movies.

Consequently, most of us aren't wealthy because we've all succumbed to our baser instincts. Which is, paraphrasing Chris Rock, to spend money (intangible, dubious value) like we think the shit's going to rot if we don't buy goods and services (tangible, "real" value). The few individuals who have suspended or tamed that baser instinct (often by channeling another base instinct: avarice) are the ones who become rich.

That old saying, "a penny saved is a penny earned" did us a great disfavor. Because nothing could be further from the truth. A penny earned is a penny earned. Because even profligate spenders earn money. They just don't save it. They earn the money and then they go out and spend it. That is the entire difference between the rich and everybody else.

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