Monday, February 11, 2008

6 Degrees of Wealth

How close are you to wealth? I was inspired to think about this question by English Major's post about her aunt, who she describes as "... rich. Like, rich rich. Like, lives off her investment income rich."
I thought, wow, I know some people who are well-off but I don't think there is anyone like that in my immediate circle these days. My family are mostly in various tiers of the middle class, and their income comes from working, or their own retirement savings. I can't think of many family members who are likely to have more than 5 figure incomes except one cousin who is a lawyer, one uncle who is successfully self-employed, and the husband of a cousin, who works in the insurance industry. I also have family members who are pretty working class and probably earn well below the US median income (which I believe is around $48,000). If I expand the circle to include friends as well as family, there are a few more lawyers, a Silicon Valley project manager, and a couple other people in the business world who do pretty well, but also a number of people who work in non-profit fields, or low-paying industries like my own.
If I broaden the circle even more, to college acquaintances who aren't really friends any more, then we'd have some bigger money. A bunch of Wall Streeters, one or two people born into wealthy families, a minor TV star, and a few very successful artists and writers. And I'm sure some of them are rubbing elbows on a regular basis with people whose wealth puts them in the stratospheric upper levels of richness. I know for a fact that one person I used to sit next to sometimes in a college class is now married to a celebrity whose earnings are in the millions. Which just seems really weird.
Many personal finance writers talk about how your friends can influence your spending habits. Does having or not having wealthy people around you influence your attitudes about your own wealth? Do you have a financially diverse group of relatives and friends, or is everyone more or less at the same level?


Unknown said...
This comment has been removed by the author.
Anonymous said...

The richest person in my circle is my aunt. I don't think of her as really rich, but when her husband was alive and working, they used to fly first class on vacations, had a live-in maid and two chauffeurs (granted, this is in an Asian country where labor is cheaper, not in the US). Now, many years after my uncle first retired, then passed away, she still lives comfortably with one live-in maid and one chauffeur (and labor costs in said Asian country went up quite a bit since). Having this aunt affects my attitude somewhat in that I think it'd be nice to save up enough money so that I have the option to live like her in retirement. She is in frail health now and having the maid and chauffeur allows her to live independently on her own, without being a burden on her kids or having to move to a retirement community. On the other hand, one of her kids lives in the US with a middle class income and many kids, and admitted to me that not being able to maintain the standard of living they were used to has been very hard on them.

My group of friends is pretty homogeneous financially, but generally a little better off than I am. This definitely affects me as I find myself having to remember to spend less than they do. And whenever I'm tempted to give up my high-pay high-stress job, I hesitate because I know it'll be hard not being to go out to the same restaurants or enjoy the same vacations as my friends.

Andrew Stevens said...

$48,000 is the median household income. The median personal income for people over 25 is about $32,140. A person who makes $48,000 per year is easily in the top half of the country (that's about the median salary for people age 25+ with bachelor's degrees or higher, though that goes up to $56,000 if we only count those who work full-time rather than all those with earnings).

Ms. M&P said...

I have a group of friends with a pretty wide variety of incomes. I actually have some friends who grew up so poor they were homeless for periods of time and other friends whose families have major foundations (just a little intimidating!). I find that we all live at similar levels, but our savings and net worths are probably really, really different. I don't notice for the most part, but I did have one friend recently declare bankruptcy, while another friend is searching for a home in the $3 mil range. That's crazy now that I think about it.

Noel Larson said...

At this job it is pretty varied. At my last one my group were all Directors that became VPs so we were all withing $20K of each other. My mentor made twice what I did, but he was a top-earner for the industry.

It actually help being with those who are making less as it is easier while I pay off debt.

Anonymous said...

I'm in the arts, so some of my friends make very little, and some, who have "hit it big," make what to me would be a lot. I have one student whose family is quite wealthy from investments, and I'm a little envous of all the great things they are able to do with their money, but they don't make a big deal about it. And then there are the benefactors, who are sometimes extraordinarily wealthy, but I find that they don't live ostentatiously, either -- everything is the best, their homes are beautiful, and they aren't afraid to spend money to do something worthwhile, but they know the value of money, and they don't waste it. They don't make you feel bad because you don't have their kind of money.

Doesn't mean, though, that I dont' wish I did!

Anonymous said...

My parents have money. (Notice I'm uncomfortable using the word "rich.") They're the classic "Millionaire Next Door" couple - they drive basic (but newer) cars, live in a nice but not ostentatious home, etc. You'd never suspect they live off their investments and won't ever have to worry about money.

They've been extremely generous with me over the last few years in particular, and have given me a number of large gifts which I've either saved or used to buy my first house (I'm in my second now) - but other than that I definitely think of it as their money, not mine. I have no expectations about inheriting much of it, and since it's likely my parents will both live to be old (thank god) I won't see that money until I'm old myself.

My mom and I have talked about the fact that there will likely be enough when I'm old to afford a nice retirement home, but beyond that I expect them to give much of their wealth away over the years (they've already started doing so in relatively small chunks) and that I'll need to earn my own money and build my own retirement, just like I always have.

So it's nice to know I won't be living on cat food in my old age, but I still have to figure out how to make my way in the world without much help from my parents. It's a healthy combo. I became a full-time writer last year - finally ditched the business consulting that has always supported me - and am planning a move to NYC this summer, so my financial situation is about to take a nose dive, big time. But that's okay. I'm a hard worker - a lesson I learned from my parents - and am willing to do whatever it takes to make my dreams happen (in the legal realm, natch).

I feel like I have a safety net in them if something truly drastic were to happen, but mostly my life is unaffected by their wealth.

Little Miss Moneybags said...

My maternal grandmother is rich-rich. My grandfather started a garbage collection business in a suburb of Detroit in the late 40s and sold it in the 70s for, well, lots of money. He also invested almost everything he ever earned into real estate (business and residential) and made a bundle that way as well.

For about ten years before he died, my grandparents would fly first class to Las Vegas every six weeks or so, often taking family members with them. They owned many antique dolls and cars (Model Ts, Model As, Packards, etc) as well as some very nice late model cars. For the most part, they fulfilled the Millionaire Next Door rule--you'd never guess to look at them how well off they were. My grandfather worked until he died, wearing an old stained shirt and pants with holes in the knees. After he died, my grandmother was offended that her accountant, in response to her concern about money, said incredulously, "You don't need to worry about money! Do you know how much you're worth?!"

Their wealth has caused problems in my family. Lots of long-lost relatives turned up when my grandfather died, trying to get some money out of my newly widowed grandmother (knowing that my gruff grandpa would no longer be there to tell them no). Some close relatives started asking for certain items, favors (like buying a house) or even amounts of cash (!) as an advance on their inheritance. My grandmother doesn't trust a lot of people anymore, and it breaks her heart that some of my cousins have been mean to her because she wouldn't buy them a car/trip to spring break/whatever.

I'm glad that my grandmother is able to live securely in her old age. They worked hard for their money (she used to drive the three-stick garbage trucks sitting on a stack of phone books when they started the business). I'm glad that she doesn't have to worry about money for prescriptions or housing, and has enough to be generous or even frivolous when she wants to be. I don't see the fact that I have a rich grandma to give me an inherent right to any of her money--I didn't work for it, I didn't earn it. I'm glad that I know that hard work provided what she has--it's encouragement to me to go out and make my own way. Do I really have a millionaire in my inner circle? Yes. Does it make a difference in my life or in our relationship? No.

Anonymous said...

My friend's grandparents sponsor a gallery that houses the picassos in a major US art museum. Another friend's grandparents have buildings named after them in the business school at the local university. Both of these friends are really down to earth.

The first is a PhD student, as is her husband. They have an infant and live in a 1 bdrm rental with 1 old, janky car. I don't think they get much help from their parents (but I'm sure they're glad knowing that they'd never be out on the street). They live really well on grad student stipends, and the wealthy grandparents take all the grand kids, kids, and great-grand kids on a crazy vacation every year. Since I've known them they've gone to Croatia, a cruise on the Baltic, a barge cruise through France and Belgium and somewhere else in Europe. I think these trips, as one gets old, must be the greatest way to spend ones money, assuming one likes their family. Very inspiring.
The second had a huge wedding with filet and lobster at the Pebble Beach country club. Not as inspiring as the trips, but definite demonstration of wealth.
Also both friends are great examples of how lots of money doesn't have to mean spoiled, rotten children.

Anonymous said...

Not to be nit-picky, but I don't see your industry (publishing) as "low-paying" ... perhaps its just me, but your salary is pretty decent ... even if you are in the top tier.

BTW ... I'm working the same industry, although not in NYC.

Madame X said...

Wow, great stories everyone!

Anon 10:41: publishing may not be low-paying compared to many other industries, and my own salary is decent, but I think it's pretty generally accepted that people with equivalent educational backgrounds and skills could be making more money in other fields. But it's all relative...

Anonymous said...

I have friends in a wide variety of income brackets. I lived in Africa for awhile, so some of my best friends make less than $1 a day (and they somehow still afford to be in touch), but I went to a prestigious college where I befriended several wealthy trust babies among others.

Today, my best friends and family still represent a wide variety of professions, industries, and income levels. What I've found is that that's helped me avoid "keeping up with the Joneses." It's easy to fall into the trap of comparing yourself to the rich in your life and think you've settled for less than you deserve, regardless of how well-off or comfortable you are (ahem, publishing). The people I know who complain about not being able to afford what they want are those who typically earn (and save) a lot more than those who don't.

I like being surrounded by varied sorts because I think it helps me keep perspective on my own situation and judge myself by my own ruler only.

frugal zeitgeist said...

I guess my folks fall into the category of being wealthy, not because they have the big bucks but because they have never in 17 years touched their retirement savings: they live frugally but comfortably off of my dad's pension and even save from it. I do know two couples who make astounding incomes, even by New York standards, and who have a much, much higher standard of living than I do. (Well, most college kids have a higher standard of living than I do in many ways, so maybe that's not a valid comparison.)

Anonymous said...

It annoys me when people who have a BA or Master's complain about their incomes when they are making much more than someone with a PhD typically makes -- try being in school for 10 years and trying to pay off your loans on a beginning professor's salary (~60K). I'm in my late 30s and just started earning money and contributing to a 403(B). According to a recent Newsweek article, you are in the top 5% if your *household* income is 160K or more, so I think the people who read and contribute to this blog have a skewed view of the income spectrum and what they "should" be making. Do you know what a miniscule percentage of people even know what "net worth" is or worry about it?!

Shuchong said...

My friends definitely dictate the amount of money I spend, which in turn dictates how I think about my own wealth (or lack thereof).

The best thing I ever did for my finances was to take my current job, not because I make a lot of money (I don't), but because my age, interests, and location mean that most of my friends are grad students in the humanities. They're living on stipends with the prospect of a tight job market and years of adjunct-hood when they finish their degrees. I have almost zero latte factor, because the lifestyles of my friends mean that I don't have to spend money to be social.

When I lived in NYC, it was definitely not the same. Quite a few of my friends were I-bankers, and socializing with them meant going to expensive restaurants (at really late hours in the evening, because they all worked when normal people ate). I feel richer, and spend less, because I don't spend a lot of money to socialize anymore.

The funny thing is, I'm less than two years out of college, and almost all my friends are graduates of (or grad students at) my alma mater. How wealthy our families were never mattered in college. How much money we have now ends up mattering a lot more, simply because of the expenses involved in socializing.

MEG said...

Interesting topic - I have SUCH a variety of people in my immediate circle that I constantly notice and think about that influence.

For instance 2 of my best friends are typical recent college grads working decent jobs but struggling to get by. Neither of their parents have much (at least not enough to help them out).

But my other best friend (also a recent college grad) is the only daughter of an apparently wealthy man who still subsidizes her income and probably always will. She wears designer clothes, eats out wherever and whenever, and plans to have a $150K+ wedding.

And, well, I'm in between. I move in both circles though, which is totally weird and fascinating. The other night I was hanging out with a guy whose prominant father has billions (yes, billions) of dollars (he was actually pretty normal, if anyone cares). Some of my clients have tens of millions (of course the flashiest ones have much much less).

I constantly feel poor compared to my rich friends and rich compared to my poor friends. I can afford to do so much more than friends a and b, but so much less than the others.

Andrew Stevens said...

Anon 10:41: publishing may not be low-paying compared to many other industries, and my own salary is decent, but I think it's pretty generally accepted that people with equivalent educational backgrounds and skills could be making more money in other fields. But it's all relative...

Is that true? I thought there were reasons why people were warned against becoming English majors if they wanted to make a lot of money. On the bright side, an English degree is one of the most flexible, but it's not clear that people with equivalent educational background and skills do any better outside of publishing.

Anonymous said...

Think most people commented so far agrees that the circle of friends they travel w/ can influence their attitude about wealth. I tend to notice that things can get a bit strange too especially if the circle of friends are of the same income/wealth level.. and all of a sudden one of them breaks out of the level.. depending on the type of people, this usually create some weird/awkward results...

Anonymous said...

I was the poor kid at boarding school when I was in high school, so a lot of my former high school friends are quite well-off, owing more to their parents than to any work that they themselves had done. My family is solidly middle class, but my parents both grew up in working-class homes, so they're very responsible when it comes to money. I don't see these people very often anymore, but it is kind of hard to see them driving brand new cars purchased by their parents (even though we're all in our early 20's now) and talking about expensive clothing and vacations, when I'm struggling to make the payments on my Pontiac Sunfire, and borrowing money to finance a summer study abroad program. It does effect my spending habits, especially if we meet up to go shopping - when they are dropping $500 on mommy's credit card, I have a hard time trying not to do the same, on my own card. Then I remember, when the bills come through, I actually have to pay mine, and I usually snap back to frugality... lol.

Luckily, I'm in grad school at the moment, and most of my friends here are as broke as I am, so no bad financial influences there - we're all living off of student loans/savings/scholarships, so there's no temptation to be big spenders from one another.

Madame X said...

Andrew- I wouldn't think of publishing as just an English's major field. I didn't major in English, nor did a lot of other people in this business. I think if you compare it to other businesses involving the marketing and selling of a consumer product, it pays badly, I suppose because a lot more people buy things like toothbrushes than books, or because working with books might be considered more interesting or fulfilling than working with toothbrushes. But I don't think the skills or education needed to be a marketing manager for Colgate vs. for a book publisher are all that different, and I think the person at Colgate probably makes more.

Kady said...

My husband and I come from completely different backgrounds and it makes things confusing.

My family is multi-generationally dirt poor. We are first-generation immigrants from a newly developed Asian country where my father spent his childhood begging on the streets. My parents immigrated with two children, exactly $50,000 (a lot in the 70s, but it was mostly spent on housing) and a job that ended up disappearing 2 years later. My parents had to deal with the debt caused by unemployment and a ultimately fatal illness, and it wasn't until I was well into college that my family was in the "black".

My husband comes from an "established" family. His grandfather was a well-to-do and connected business man in New York. He raised his family in rather the lap of luxury. When he passed away, his money was put into trusts for all of his grand-children and paid for their (private) school and college educations. But at this point, the money is gone, spent by his children.

My husband and I have almost diametrically opposite approaches toward money. Because I had such a difficult time growing up poor in a very wealthy community (we were there for the school system), I am hugely insecure when around people who are wealthier than myself. And even though, at this point, I am part of that top earning bracket, I don't like my job, I want to leave it to do something that I enjoy and am passionate about. But I feel like I can only do that if I live in an environment where I'm among my economic peers. Which just won't happen in Boston or New York.

My husband is one of those academics who schooled for over a decade (thanks to his grandparent's generosity) and is now in a position where he is unlikely to ever break the $60k barrier. But he has no problem being friends with the i-bankers, lawyers and inter-genrational wealthy that he has befriended after his many many years in wealthy educational institutions.

So, for us, apparently it's not about what you currently have compared to those around you, but some sort of internalized reaction to what you once had compared to those around you.

Needless to say, this has been the cause of much friction in our marriage. They aren't kidding when they say that one of the biggest causes of marriage dissolution is money.

Andrew Stevens said...

Now that might be true. I probably was focusing too much on the editing and not enough on marketing and distribution. I don't know whether the marketers make more or less in publishing than in other fields so I'll take your word for it. My guess would be that disparities are indeed based on breadth of sales. I.e. very few books advertise on television, for example, while toothpaste routinely does. Moreover, books probably aren't as sensitive to marketing efforts. Good books (or well-known authors) will sell well, poor books won't, and there's not much a marketer can do about it. (But then, it's always seemed to me that publishers don't do nearly as much in the way of marketing as they probably could and should. But I don't know anything about the industry.)

I'm also sure that management and accounting still needs its fair share of quantitative people and, if you're right, they probably could be doing better elsewhere as well.

I'll bet the folks at Scholastic Press did pretty well for themselves over the last ten years, though.

FranticWoman said...

"Does having or not having wealthy people around you influence your attitudes about your own wealth? Do you have a financially diverse group of relatives and friends, or is everyone more or less at the same level?"

If I'm around the truly wealthy I feel very poor. They laugh at me because I budget and say things like "I cant afford that". I drove a beater car for years by choice, and they would laugh at me (although I didnt care). I have some side jobs with wealthy families, so I am also an employee, which might be part of it. (sidenote: for the wealthy ppl I work for, I am treated like trash; for those well off that work for their money treat me v. well)

As far as diverse with my friends and relatives: I am the poorest of all my friends in some ways. Most have a huge amt of debt, I dont, but own homes and make a big income. I've been saving for retirement for 20 years, the richer ones have just started.

Among my friends - the more they make, the more they claim to be poor and have much more debt (staggering amts to me anyway). They also seem less happy with their household income and what it buys. No matter how much I seem to have or not have though, it has never been an issue with our friendship since I'm so cool to hang out with.

Many of my relatives are poor and/or on public assistance. They've never elevated themselves, even though they were born with opportunity (well off parents). I feel guilty when I hang with them because I will blow $12 on lunch easily, reapply my $17 lipstick while they say "With that, I could feed my kids for a week." I'm very generous with them though - and treat when we eat or I take their kids for activities. Since I've known my relatives since birth, differences don't matter.

I'm an English major too - read the above notes. I do health system finance. Figure that one out tee-hee.

Roo said...

48K is a median income for someone with a college degree? Which you're saying is 56K for someone working full-time. Which is 70K for someone living in my COLA area.

Most people I know are making 6 figures, in dual-income families, and started younger. I spent too long pursuing academia before deciding to make real money, and now I feel I'm in a tenuous field. So, the insecurity level is still high. Even though on a per capita basis my income is comparable (friends have children, I don't) and due to get better, I have 3-years-income of net worth including a healthy retirement fund, I feel far "behind". I don't spend discretionary income the way they do, partly out of habit. And I know I'm on a tighter leash if I do manage to have a family...