By: Roshawn Watson
A recent study highlights how Americans have loss hope for getting rich.
The study was performed for Bankrate.com by Princeton Survey Research Associates International, and their results show that a whopping 70% of respondents think it is more difficult to get rich in America than it use to be. The same question was asked in 1999 and showed 38% of respondents thought that it is more difficult to become rich then.
Of course the obvious offenders are likely the blame for this dramatic shift: decimated real estate values and stock portfolios, high unemployment, and interminable negative media coverage on the economy. There have been some economic hurdles to overcome. If you have indeed sufferred from an income loss, then yes you had to suspend your wealth-building to focus on your income crisis. Additionally, 2008 was a very rough year for most: Americans collectively loss
about 23% of net worth, as the market erased
3 years of economic growth. I still question the veracity of it being
more difficult. Consider the great stock rally of 2009:
S&P soared an impressive 63%. If you invested wisely last year, you would have experienced some real growth. Additionally, even though the recession was very deep, some would argue that at least some of the loss wealth was paper-wealth only. For example, real estate prices were greatly inflated in many areas, so a correction wasn't wholy-unexpected.
Perhaps what's even more interesting is their results from the question: "what is the most likely way for someone in America to get rich? 20% of respondents said the best way to get rich is to start a business, and another 19% said that the best way is to choose a high-paying career. A surprising 15% said the best way was luck (inheritance & lottery), 15% said the best way is savings and frugality, and 12% said investing in stocks & bonds. 8% said investing in real estate.
Come on, for real?People are certainly entitled to their opinions, and that's exactly what this survey reflects: the opinions of the masses about how to get rich. Unfortunately, most of us are not rich, and instead of learning from those who are, 15% of us would rather purchase a lottery ticket or wait for someone rich to kick the bucket (
Sorry, I'll stop with the pessimism henceforth). This certainly doesn't reflect the opinions of the rich. According to the 400 richest Americans (Forbes 400), 75% believe "the best way to build wealth is to become and stay debt-free."
In addition to their answers not being reflective of how millionaires think about becoming rich, their answers reflect a lack of hope. Unfortunately for us, hope is pretty important to financial success. Hope is one of the main reasons people invest and start businesses in the first place. You have to believe that you will get there to not give up, especially during the difficult times.
In fact, this is why there are great wealth transfers during difficult financial times: if you are operating in hope while everyone else is operating in fear, you will find deals for very cheap. For example, this is the premise for how Tepper and Paulson generated billions dollars last year.
They were unwilling to buy at historically high prices and strategically waited until stock and real estate were on sale, against expert counsel. Without hope, people have a disincentive to invest in the future, and it would be completely reasonable to give up, such as the people who believe the lottery will bail them out. People who believe that the lottery is the way to get wealth
can't do math. Additionally, only 1 in 10 millionaires actually become wealthy through inheritance. This line of thinking reflects desperation, and desperation breeds stupid decisions.
Savings and Frugality
Another interesting finding was that 15% thought saving and frugality were keys to becoming rich. Some people do believe savers are losers because inflation erodes the value of those saved dollars. Of course, this is not to say that you shouldn't live on less than you make, just that saving along doesn't generate wealth. It is what you do with those saved dollars that makes the difference. Do you
stuff them under a mattress, or do you invest wisely? This distinction is critical. Investing is clearly very important, yet less attributed wealth to investing than savings. Unless you are investing borrowed money (typically unwise), investing should go hand in hand with frugality and savings. Real estate investing is another solid way to build wealth, despite the devaluation of property around the country. It entirely depends on your real estate investment strategy. For example, do you have the temperment to be a landlord? If so, you may not care as much about appreciation, especially in the short-term, as you would care about cash flow.
Owning A Business & High Paying Jobs
One bright side of this survey is that respondents knew that going into business for oneself is a valid way to become a millionaire. In truth, business owners are five times more likely to become millionaires than most workers. Not only are there tax benefits, but you also control payroll, which means you can appropriately compensate yourself for your efforts. Additionally, you will likely get a better grasp of accounting, which can help you tremendously in wealth-building. Unfortunately, having a high paying job was almost tied with starting a business. While a high income definitely doesn't hurt, there are plenty of people earning high incomes with a very low net worth. Just getting the six figure salary alone doesn't cut it. I recall a conference I attended last year with an entertainment lawyer. He spoke of loss riches, and told many cautionary tales. The problem with some really high-income earners, i.e. surgeons, high-paid entertainers, etc. is that their incomes increase but they never learn how to manage their money properly. As a result, they have relatively few investments or businesses and become accustom to living the high-life. The point is even high income earners can need financial reality checks.
The purpose of this study was not to shed light on how Americans actually get rich but rather our views about becoming rich. Although the results show widespread pessimism. I want our loss in hope to be temporal, as I believe hope will bring our jobs back, restore real estate values, and our net worths. I hope you believe the same.
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