Yeah, That Kind Of Rich: How Misconceptions Of Wealth Hurt The Wealthy

The New York State Lottery runs a television campaign for the Powerball jackpot with a rather smug tagline: “Yeah, that kind of rich.” In one of the ads, a man wanders through an underground parking garage filled with expensive sports cars, pressing the button on his keychain and listening for the response of a beep. Then we see him pull out of the garage, and we suddenly realize that all of those cars are his, because, of course, he is that kind of rich. In another campaign, the lottery asks, “What would you think about if you didn’t have to think about money?” A woman wanders around her manicured estate garden and thinks to herself: “Isn’t it weird that pizzas are round, but the box is square, and the slices are triangles?”

Here’s the pitch: Get rich, buy cars, wander aimlessly, and never think about anything consequential again.

Ads like these exploit some of our basic human emotions. People line up to spend hard-earned money on a 1-in- 175,000,000 chance at fortune, willing to suspend logic for hope. We’re taught to take risks in our quest for wealth, because wealth quells our biggest fears and fulfills our deepest desires. Surely, being that rich (presumably in this case a multi-hundred-million-dollar Powerball winner) can allow for a few sports cars and a more relaxed outlook on financial security. But what does being that kind of rich really mean, and at what point do you—or should you—really stop thinking about money?

Such campaigns represent—and indeed encourage—our societal misinterpretation of wealth and financial security. Many believe that ultra-wealth allows for spending without consequence and the ability to no longer contemplate important financial decisions—or even make them at all. We perceive wealth as limitless, conjuring images of Scrooge McDuck swimming through his piles of gold coins. We often hear things like, “He has more money than God” or “Her money grows on trees.” But the ironic truth is that even the ultra-wealthy are often prone to running the well dry, partially because they sometimes operate based on those same misconceptions. The perception of infinite reserves and the desire for more can enable general apathy, grossly misguided decision-making, or both.


One of the most universal problems we face as consumers is our inherent penchant for spending. We act based on the core of our emotions, constantly seeking explosions of endorphins from what’s shiny and exciting—that new car smell, the new dress, that investment promising 50% returns. And as in lottery ads, consumer media enables us to morph our emotional desires into something logical, retreating from our impulse control and allowing thoughts of: “Go ahead, you deserve it.” Advertising reassures us that our life’s success and happiness hinges on our decision to spend on that new necklace, TV, or truck. How might people think of you if you don’t buy that new suit?

Regardless of wealth level, consumers often tend to spend money based on what they have and what they think they’ll have in the near future. In addition, spending often runs on a sliding scale in parallel with income. That’s why we shouldn’t be so shocked to discover that despite a raise at the beginning of the year, our savings accounts look eerily similar to the prior year.

Think of two players sitting at a blackjack table on a Saturday night. One player is poor, the other a millionaire. The poor player has a stack of one hundred $5 dollar chips in front of him, totaling his weekly earnings. All else being equal, the millionaire might choose a much higher chip denomination— say one hundred $500 chips—to reflect his week’s earnings. Both players have made the same financial choice—to bet against at least a 50% chance of a negative outcome—based on their earnings and what they expect they’ll soon earn. They’re both making an unwise spending decision, and both will end up broke at around the same time if they continue to play (unless they’re excellent blackjack players). Indeed, some of the wealthy rely on future inflows just as much—if not more—than the middle class and poor. In a 2014 Brookings Institution paper, titled “The Wealthy Hand-to- Mouth,” economists Greg Kaplan, Giovanni L. Violante, and Justin Weidner conclude that about 38 million Americans live “paycheck to paycheck,” two-thirds of which are considered wealthy Americans.

Since emergence from the Great Recession, the reliance on future income and success to enable spending has become rampant across each section of the wealth spectrum. Credit card spending on consumer products certainly helps to drive the economy, but can culminate with disastrous consequences on both a micro and macro level. Amid a sense of economic improvement and the assumption that wages will increase, average Americans have driven the household debt total to $11.83 trillion, according to the New York Federal Reserve (as of Dec. 31, 2014). Meanwhile, Oracle CEO Larry Ellison boosted his company credit debt to $9.9 billion last September, much of which he uses on yachts, homes, planes, cars, etc. He pays with credit partially because of his limited liquid assets, as much of his wealth is tied to his approximately 1 billion shares in the company. If his company fell apart or the stock plummeted in value, Ellison might struggle to pay down debt amid the chaos. Former WorldCom CEO Bernie Ebbers famously lost his fortune after borrowing against company shares that subsequently disintegrated amid the bursting of the dotcom bubble. Simply, spending through high debt can prove dangerous among all levels of wealth.

While susceptible to spending beyond their means, the rich also might apply more risk through investment decisions— a loan to a family member starting a restaurant franchise, a foreign mining operation, a large real estate deal in an “up-and-coming” section of the city. Those that come into money quickly—whether through lottery winnings, inheritance, an insurance payout, a signing bonus, or the sale of a large asset or business—face even greater risk for loss. The wealthy sometimes employ these types of atypical investments in their belief that they’ll survive a singular failure, or because of a desire for very high (maybe unrealistic) returns. This might be to compensate for losses from spending, or the simple hope to have more to spend. Either way, it often can compound the damage when the investment fails or an unexpected “Black Swan” event disrupts markets (or both, as would have been the case for a real estate investor with no savings during the Great Recession).

The Lottery ads, like so many individuals that become wealthy, skip the most significant step that might allow for a garage full of sports cars and a sense of financial comfort. While the ad suggests you’ll no longer need to think about money, quite the opposite is true, especially at the onset of wealth creation. To be sure, not every person that creates wealth ends up living paycheck to paycheck or bankrupt. Many thrive, creating and maintaining wealth after defining rules and budgets and establishing comprehensive long-term plans. Planning for the future and defining limits might not seem as cool—it might even mean buying the 2014 instead of 2015 Ferrari—but it will allow for the enjoyment of spending in tandem with security and true peace of mind.

Wealthy individuals can best create a balance in their financial and personal lives by escaping the misconceptions of wealth, resisting the temptations of overspending, and establishing long-term planning based on long-term goals. Those that seek professional guidance for their investing, retirement planning, budgeting, tax liability limitation, insurance, college savings, etc., are most likely to enjoy their wealth for their entire lives. Because, of course, they are that kind of rich.


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