In an historically muddled exchange between Hemingway and Fitzgerald the pair were discussing how the rich were different than the rest of us. They settled the question by concluding that the rich were different from the rest of us because they have more money. That flip conclusion, which made its way into Hemingway’s famous novel The Snows of Kilimanjaro, sets the stage for asking the really interesting question which is why the rich have more money?
It’s a relevant question today because the reasons the rich have more money are also the same reasons the middle class is shrinking. The answer is also relevant because it shapes so much of our political spending and social policy. How we address some of the big problems our nation faces, including income inequality, may well depend upon understanding why the rich have more money.
Working for Wages is a Loser
The first key to understanding why the rich have more money is in understanding why they’re not poor or middle class. Only about ten percent of the rich inherited their money, which means the vast majority of the wealthy earned it. They did not earn all that money by working a day job but that’s how the majority of Americans make ends meet. Historically, working for wages is the road to nowhere financially. Productivity keeps rising but the share of the increase flows to fewer hands at the very top.
It’s enlightening to look at the differences between the top ten percent of income earners and the top one percent. To make it to the top ten percent, you have to pull in more than $157,000 a year. To make the top one percent, you have to make three-and-a-half times more, over $423,000 a year. The difference between the top ten percent and the top one percent is the very top earners are more likely to run their own businesses. That entrepreneurial drive is what separates the rich from the rest of us. They have more money because they built a business and can pay themselves more money.
The Rich Work for Assets
Robert Kiyosaki, the author of Rich Dad Poor Dad, explained in a MarketWatch interview that the rich work don’t work for a paycheck, they work for assets. Kiyosaki made his fortune by investing in income producing property. The wealthy are more likely to invest in commercial real estate, income producing machinery and liquid hard assets like gold and silver. That focus on value investing aligns with the entrepreneurial drive that’s common among the nation’s top earners.
Getting Comfortable with Discomfort
While it’s comfortable working a safe day job, that’s not how the rich live their lives. Too many in the middle class mistake being comfortable with being happy. The rich seek out discomfort, they deliberately put themselves in situations where they have to take risks and grow into a tougher, more resilient being. That’s likely why the rich tend to show less prosocial behavior and become mired in an atmosphere of self interest. They made it to the top of the pile by girding their loins and taking chances, and there’s a tendency to want to project that tough love on their fellow citizens.
These aren’t the only differences between the wealthy and middle class but they’re the most significant ones when it comes to money and you can see those factors at play in our national politics. The wealthy are more comfortable running a business, taking chances and have a focus on asset value. The people with the most money have an outsized influence on our political process and you can see that in the policies put forward at the national level.
On an individual level the question becomes: Are you personally are going to be content with being comfortable?