Why You Should Reject the Inheritance Theory of Wealth
So, if you haven't gathered by now, one of our long term goals is to become wealthy. For us, this means that we we'd like to have $4,000,000 in assets when we turn 65. Sometimes, when we tell our friends about this, some don't believe it can be done. They'll nod or smile or just flat out say it won't happen. A lot of times people come back with some silly figure that 80% of millionaires got that way because of inheritance, or you have to come from money to get rich.
This is what I call the inheritance theory of wealth. This is the idea that most wealth in America is created by rich families and then passed down. There are several reasons why, if you're interested in building wealth, you should decisively reject this philosophy.
1) Its not true. The facts suggest that inheritance isn't that important for building wealth.
If you look at the Forbes 400 (e.g. the world's richest people), America's wealthiest man, Bill Gates, got his start in his garage (clicky). Also, according to Capgemini, the main source of wealth for high net worth individuals (HWIs) in America is actually business and earned income. Inheritance was the major source of income for only 21% of America's millionaires. (here).
2) It Doesn't Serve You. Lets face it, most American's aren't going to receive an inheritance. But, most of us are interested in financial security - you are, otherwise you wouldn't be reading this blog. The reason why subscribing to the inheritance theory of wealth doesn't serve you is the following: it causes you to believe that you cannot achieve financial security. Financial security for most people invariably means higher income and better networth. If you subscribe to a philosophy that says you need an inheritance to achieve this, you're mentally handcuffing yourself. Instead, you should rely on your own belief in yourself, cleverness and discipline to achieve financial security.
Finally, I recognize that it doesn't hurt to come from a family that is wealthy and financially savvy, but to assume that you need the right family background is both factually incorrect and psychologically hamstringing. In short, you should stay focused on what works in building wealth and not buy into common, but false notions about money in America.
Thanks,
James
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5 comments:
To say that Bill Gates got his start in a garage is ludicrous. He got his start at a high-end Seattle prep school, and was the child of a wealthy and prominent lawyer.
In any case, the wealthy help their kids a little bit along the way, which vastly alters their trajectory for wealth. The kid who graduates college with no debt and a gift of a house down payment is on a wealth fast track, unlike a kid who graduates with student loans and who will pay rent for years.
Some of the most successful people in their 20s and 30s are those who could take huge risks, knowing that there was the First Bank of Dad to fall back on. People without that safety net can't take the same risks, and therefore don't have the same opportunities to grow wealth.
The comment by anonymous is just stinkin' thinkin' and unfortunately all too common.
The truth of the matter is that anyone who has a passion can take big risks. I didn't come from a wealthy family by any means; I worked my way through college and put myself through law school with a combination of loans and grants.
I've been hugely successful - started my own law firm before I was 30 and broke the million dollar mark last year.
Anyone can do what I've done with enough passion and "stick to-it-ness."
In fact, it's my experience that people who don't have a lot to fall back on are likely to become more successful and follow their passion, precisely because they don't have anything to fall back on.
Alexis
Alexis Neely
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Although the Anonymous poster raises some points, Alexis raises better points I think.
If you assume the world is against you, simply by thinking so, you create a reality where the world IS against you.
If you assume that you will become a multi-millionaire, and have a detailed path set out to achieve that goal, it will become more and more of reality as you knock down the mini-goals along the way.
I admire your goal of reaching the 4 million dollar mark and I say you can possibly set your sights higher than that once you achieve that goal.
I, too, admire your setting of goals, and believe that with careful money management, you can reach them.
I think anonymous is undeniably correct when s/he points out that a financially secure background is an enormous advantage in your future financial endeavors, and to overlook the education and other advantages that Bill Gates (or, say, Warren Buffet, son of a Congressman and graduate of Wharton & Columbia Business School) received is willful blindness. "It doesn't serve you" is not a good reason to refuse to believe something. "It isn't true," however, is. And while it's not true that the absence of a wealthy family dooms one to insolvency, to insist that family money is no advantage at all because the belief gives one a psychological boost is pure wishful thinking.
I used to teach at Vanderbilt, and virtually every one of my 19-22 year-old students seemed to believe that he or she was self-made.
The upper classes in America DO work hard (most of them); that's quite an improvement over, say, the Habsburg monarchy. But to pretend that most people who make it big in America start at the same position as most people who don't is to ignore all the evidence.
Incidentally, the first "anonymous" started with Bill Gates (a multi-multi-billionaire), and lex disputed anon's points by naming himself-- a low-end millionaire. Not to be invidious, but a low-end millionaire is NOT the same thing as a billionaire. lex may have started in a garage or the equivalent, but Bill Gates sure didn't. Was Gates (or his partner) paying his own way through Harvard?
And lex's comments about taking "big risks" ignores that some of the very routine steps along the way to upper middle class achievement don't strike most who take them as "risks". Specifically, I mean the unpaid internship, which is de rigeur in several professions now. Numerous kids of the upper middle class simply take these internships without any hesitation; children of the lower middle class and working class don't pass them up because they lack passion, but because working full-time for no money isn't an option for them.
I think if pushed, "anonymous" wouldn't claim that no single example of a person without a "safety net" has EVER achieved financial greatness. But then the gist of his/ her point doesn't depend on that. The broad numbers are very clear: the vast majority of Americans in fact stay within the same social class into which they're born. As one would expect.
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