I was surprised at the small but vocal minority who felt my kids should get more from our estate plan.
I’m not going to feed the trolls by responding to their comments, but today I do want to discuss a related topic.
I’m calling it “the gift of the struggle.”
Before we get in too deep, let’s begin by defining the phrase.
What is the Gift of the Struggle?
When I say “the gift of the struggle”, I mean the positive benefits derived from having a tough financial life at a young age. The benefits are gained from living with and working through life challenges caused by having limited resources.
There are a multitude of disadvantages in having little money and many are in a situation where they can’t overcome their poverty no matter what they do.
But for most people in America, there is still opportunity. Not everyone can be Bill Gates, but the vast majority can improve their financial lives. And they can do so substantially over time.
That said, the journey to financial stability is a struggle for someone poor. It takes time and effort to build wealth and progress is difficult to see on a daily basis (which can lead to frustration or even despair). It’s tough work over a long period of time to keep going. And while it’s being worked through, there are serious daily issues like finding food to eat and a safe place to live.
And yet this struggle is not all bad because it helps develop very positive qualities in many people. Characteristics like determination, perseverance, creativity, a strong work ethic, and the like.
It also gives people perspective. They realize that not everyone has an easy life because they themselves haven’t had an easy life. Those born into the Clampett family might think everyone lives in Beverly Hills, but people who have been through tough times know better.
So out of the hardships from a challenging financial life come some benefits that are very positive indeed.
This is the gift of the struggle.
Would You Change Things If You Could?
While not specifically money related, here’s a related example of the gift of the struggle…
Have you ever seen someone interviewed who has had a terrible thing happen in their lives?
It could be an accident, a sickness, the death of a close family member, a crime — whatever. It’s something bad that has altered their lives.
The reporter usually asks them a question similar to, “If you could, what would you go back and change?”
Many times the person will respond with something like, “Even though it was a tough time for me and I felt I would never get above it, I wouldn’t change anything because it has made me the person I am today.”
This is the gift of the struggle.
The person had a bad experience but wouldn’t change it because they got more out of it than it cost. That’s the gift.
Of course many of these aren’t financial struggles specifically, but I think the cause and effect are similar. In the end, a tough experience has ultimately created something that was so positive the person involved wouldn’t change the former because they’d miss the latter.
Lesson from a Shark
I heard something about the gift of the struggle from Shark Tank investor Barbara Corcoran. So I tracked down her thoughts from this piece titled Why Barbara Corcoran Thinks Growing Up Poor Is a Key Ingredient for Success. The highlights:
Corcoran believes that “poor kids have nothing to lose and nowhere to go but up,” she says. “They have no parental pressure to be a somebody when they grow up. They don’t have to succeed, but they have in spades the wonderful trait of being needy. They need to succeed. That’s the magic bottom-line juice I’m looking for, and it’s very hard to have that innately if you’ve grown up with privilege and a high degree of education. It truthfully is. You’re better off being poor.”
While saying that you’re better off being poor might be too far for me, I do think she’s hit on something. It’s the gift of the struggle. Whether we’re talking about entrepreneurship or personal finances, there are benefits of having a hard go of it.
Corcoran elaborates a bit more here:
Rich kids, when starting businesses on “Shark Tank,” the ones I see on “Shark Tank,” typically have gone to the finest schools and what comes with going to the finest schools, especially business schools, what comes is a certain attitude that they know it. That’s a dangerous attribute to have in anything when you’re starting out in anything. But what they do know, is that they know all about business as an observer but they don’t know business as a player.
Whereas poor kids tend to have had hardship. They’ve had to be a player earlier. They’ve had to contribute to the family, they’ve seen their parents struggle. They know the power of a buck. They’ve never gone on a fancy vacation, so they aspire to the vacation. I’m giving you all kinds of s—, right? Okay. But I do believe in it.
Most people think it’s an advantage to grow up rich. In many cases it is. But for creating a business, becoming wealthy, or having a broader world perspective, is it better to grow up rich or poor? I’m not sure…
The Advantages of Being Poor
To find out what others thought, I Googled around a bit and ran into some very interesting conclusions.
We’ll begin with Rich Habits who shared the following:
41% of the 177 self-made millionaires were raised in poor households. Yet, somehow they managed to break out of their poverty as adults.
Ironically, according to my research, being poor actually endows you with certain advantages over the middle-class and the wealthy.
If 41% of millionaires are from the formerly-poor group, that’s probably the largest segment — unless the middle or upper class numbers were extremely low, the numbers almost mandate it.
Very interesting.
Rich Habits lists the advantages of the poor as follows:
- More willing to take risks
- Desire to change is great
- Superior work ethic
- Failure doesn’t scare you as much
- Poverty removes rose-colored lenses
- Comfortable with failure and setbacks
- Accustomed to sacrifice
- Frugality is a habit
I can identify with many of these, especially the desire to change and the work ethic. I was DETERMINED not to live a poor life when I got older and was willing to work as hard as it took to make sure I succeeded. In fact, it was way more than “not live a poor life” — I knew I wanted to be wealthy from a young age.
That’s the gift I received from a tough money life as a child.
Bustle adds to the thoughts above with “nine ways growing up poor makes you so much better at being an adult” including:
1. You’re tough. You know how to survive on very little.
2. You’re a hustler. You can figure out how to get money when you need it.
3. You’re appreciative. You know the value of things.
4. You’re as good as an accountant. You’re good with money.
5. You’re grateful. You understand how lucky you are.
6. You’re patient. You know how to wait for what you want (or need).
7. You’re understanding of other people’s struggles because you know what it’s like
8. You’re resilient. You know how to handle stress.
9. Because of all this, you’re independent.
Again, I can related to many of these.
I think some of them might be a bit over-stated (like 4 and 6) but in general the list has played out in my life as well as the lives of many once-poor people I’ve known.
Finally, Mind Body Green lists “10 reasons I’m grateful I grew up poor and different” including:
1. I grew up really fast.
2. I developed a work ethic.
3. I’m introspective.
4. I appreciate the little things.
5. I’m resourceful.
6. I grew up with discipline.
7. I’m extra motivated.
8. I’ve never fit the mold.
9. I have a deeper empathy and compassion.
10. I have a legacy.
Notice how two things seem to come up again and again (in one way or another): developing a strong work ethic and gaining a broader perspective.
Again, very interesting.
The Gift of My Struggle
I was poor once.
Or at least “American poor”, which is like being rich if I was almost anywhere else in the world.
But for living in the United States, we were at the bottom of the economic barrel for most of my early/middle childhood.
The short story is that my parents were divorced when I was in third grade. I lived with my mom who had a high school education and no work experience. She spent most of my childhood working for a veterinarian cleaning out kennels for minimum wage.
My dad paid a pittance in child support in exchange for him agreeing to fund my entire college bill — which he conveniently reneged on when I got to that point, leaving me in the lurch. That story is probably worth a post some day.
I remember several things related to this lifestyle like:
- Living in places that were less than safe. I remember having to flee our trailer one time because a convict had escaped from the nearby penitentiary. This was the same trailer (in Florida) where fleas would cover our white socks, turning them black, when we walked from the car to the trailer. Oh, and of course, hurricanes/storms and trailers don’t like each other.
- Learning to live with whatever food we had. I had no breakfast, a free lunch at school, and a sandwich and half a container of Kool-Aid for dinner. The second half was for the next day, so I had to learn self-control.
- Coming home to an empty house every day from fourth grade on (I have no siblings). Can you see your nine-year-old coming home and managing himself alone for three hours until you get home?
- Staying home alone while my mom went out on dates, coming home at 3 am or later. This began when I was in fifth grade. We lived on a secluded street which was kind of creepy to begin with. Imagine what it was like at 2 am when a storm was brewing and I was home alone.
- Watching my friends and classmates with their new skateboards, talk about their trips to fun places, getting $10 a week in allowance (a fortune!), and so on.
- Having relatives with outside bathrooms and friends of the family with no hot water.
- Living in a cold house because we could only afford so much heat.
Now that I think about it, maybe we were the Clampetts before they found oil! LOL.
I know we weren’t the worst off by far, but it wasn’t easy.
And this is not to say I hated my childhood, because I didn’t. I loved my mom and we had some great times together. As long as we were together, I knew we’d be all right. Besides, I liked being alone so that part wasn’t very difficult (except during those late nights).
But it was a struggle at times. Things got better when my mom remarried and our economic prospects ticked up a notch, but even then we weren’t living high on the hog.
In the end these experiences helped me become the person I am today, something I’m thankful for — I ultimately received many gifts from the struggles we lived through.
What were these gifts? I learned self-reliance. I became motivated and determined (mostly to have a better life). I worked hard in school and became one of the best students despite there being many smarter kids. I simply out-worked them.
In fact, the tough conditions helped me develop many of the 10 crucial qualities you need to reach financial independence which ultimately helped me become wealthy.
Determined to Become Wealthy
My mom has told me the following story several times…
In high school mom went to a parent/teacher conference. My algebra teacher said she had asked me what I wanted to be when I became an adult. I had told her I wanted to be wealthy.
The teacher added, “And I have no doubt he’ll do it.”
You see, by that time I had almost a decade of struggle under my belt. It had taught me to strive for success, never give up, fight for what I wanted, dream big and work hard for it, and on and on.
Those gifts lasted throughout my lifetime and were some of the main reasons I became wealthy. As you might imagine, they were very helpful in my career.
My wife’s story is similar. Her parents were divorced when she was young (she was the youngest of five kids). She had to struggle as well and while her lessons were different than what I learned, she received gifts too — which worked out quite well for the two of us.
The Gift of the Combined Struggle
When we were married, a whole new struggle was presented.
Here we were, two life-long strugglers starting out with nothing to their names.
We were not wealthy by any means (probably a slightly positive net worth — somewhere near $0), but there was a lot of promise. We were both off to great starts (we both had Master’s degrees and decent jobs), but wealth of any meaningful sort was far out of sight.
From there we progressed bit by bit over the years. Over the next almost three decades we worked together, using the past struggles as gifts that helped us become wealthy.
There was a separate but different gift in this new struggle to become financially independent. It’s something we battled together, experiencing the joys and the challenges, to ultimately accomplish our goal.
As you might imagine, we look back on many of those times quite fondly. The journey to wealth was just as meaningful, if not more so, than reaching a high net worth.
My guess is that many reading this post had similar experiences growing up and raising a family. I bet you know exactly what I’m talking about.
Missing the Gift Once
Now let’s change perspectives for a minute.
If there’s a gift in the struggle, does that mean if you miss the struggle, you miss the gifts?
I think it does. It doesn’t mean you can’t develop the qualities the struggle might have helped you with, but there are some qualities that can only be developed (or developed deeper) by struggling through them.
This could be considered a theoretical question only…until it isn’t.
For instance, who has missed out on the financial struggles of life (and thus the benefits)?
In the abstract, it’s “the kids of the wealthy.”
In the practical, it’s “our kids.”
You see our kids have never known want. They have never had to ration food, live in an unsafe area (or even live in a house less than 3,000 square feet), take on debt, pay for college, and on and on and on.
Their worst financial struggle was probably having to wait to get an iPad or not being able to upgrade their phones every year. Oh the inhumanity!
While my biggest trip as a youth was on a bus from Orlando to Key West, my kids have been on three cruises, numerous flights within the US, and a couple trips to Grand Cayman.
They have been to the Dominican Republic to see how others live, but that was only for a short time. A life of lack and financial hardship has never been their reality.
Since they have never had to struggle financially, have they missed out on the gifts? Probably so…at least in part.
Of course we were happy to provide this lifestyle for our kids and “give them what we never had.” But in giving did we take something as well — or at least not give them the chance to develop it?
Missing the Gift Again
We certainly can’t change the past, so let’s move on and shift focus again — this time looking at the present and future.
In the present, both of our kids are young adults and starting to make their ways in life.
Our son is being trained for a potential missionary career and our daughter is married and working as a freelancer.
They are starting to build their lives. They have significant advantages, many more than others have. We have helped them and will continue to help them. But where does that help become too much that it might limit their potential — and rob them of building their lives on their own?
For instance, let’s say we developed our estate plan to be split between them equally — each getting $2 million.
Would that eliminate the struggle/building their lives themselves (and the advantages that come along with it)? Yep, probably.
Is that a good thing? If you’ve gotten to this point, I don’t see how you think it could be.
My wife and I discussed this issue over many a walk the past year. As a result we wanted to leave our kids enough to give them a leg up but not so much that they don’t get to learn and grow from building their lives on their own.
I’m not sure we’ll ever get it right or that our current plan gets there (you could argue that we are leaving too little or too much to accomplish this). But it’s at least part of the thinking behind what we’ve done so far.
Primarily I wanted to write this post to see if any other high net worth parents were concerned about this issue and if so, how you were addressing it.
Thoughts?
Well written. If the estate is not conveyed until you were old and your kids were in their 60-70 years, I’d leave it all to them ( assuming they are of sound judgment and held good values) in trust with the advice to use it wisely and with good discretion. By that age they likely won’t blow it on matching Ferraris, but rather would steward the funds wisely to needy family members and causes over the rest of their lives.
I absolutely agree with you. I was blessed with the ‘gift of struggle’ when I was forced to become an adult at age 17. Both parents were deceased, and I had just graduated from high school. I worked my way thru college, and having already been taught to work hard to succeed, I did and am very satisfied with the results all these years later, as we prepare for retirement in 5 years.
The problem with so many entitled young people today is that they’ve been given too much by their parents, and they take that for granted. Our son will get a small step up in life when we pass. That is more than enough. He has been taught, like I was, to work hard and stand out from the crowd of apathy in the workforce. THAT will serve him much better than any funds we leave him.
Thank you for sharing your story of struggle and success. You have just outlined why I don’t believe in generational wealth. It is stated that 70% of the second generation lose the wealth of the first generation and following generation lose 90% of the remaining wealth. An attitude of entitlement may develop along with inability to handle stress, disappointment and ownership of mistakes. There is constant need to demonstrate to others personal self-worth by owning expensive ostentatious material things which result in losing money.
I call “the struggle” character building experiences. There is a feeling of personal pride and accomplishment that can’t be described when you have worked hard and sacrificed to reach your goal. I have learn when I make a mistake forgive myself and keep moving. You have lived your life on your own terms good or bad and achieved your definition of success. You don’t feel guilty or evil for having money because you put in the work to earn the money.
Two of my favorite quotes from Jim Rohn 1)“Your personal philosophy is the greatest determining factor in how your life works out.” 2)“Don’t wish it was easier, wish you were better. Don’t wish for less problems, wish for more skills. Don’t wish for less challenge, wish for more wisdom.”
Jim Rohn- awesome man.
Hello,
We are going to leave all our money / goods to our kids to be shared equally.
Here’s the important note – they have no idea how much it will be and they won’t know until the end of our lives.
We want the kids to earn their own way. Two of the three kids are frugal, but our third kid isn’t.
So we still have work to do to teach the youngest kid about the gift of the struggle.
You are so right – the struggle is a gift, and I didn’t learn it until I was in my 40’s.
Thank you for your wonderful article,
Maude
A good book that was made into a movie (true confessions-my wife and I helped back the movie) is The Ultimate Gift by Jim Stovall. Main character (Jason Stevens) receive news of his great uncle’s death with greedy anticipation- along with his other relatives-who can’t wait to divide up his great wealth. One by one the other beneficiaries receive their portion of the multi-billion dollar estate. But when it comes to Jason’s share, he finds quite a different fate in store for him….in order to collect his inheritance, he must embark on a year long quest of discovery of what is really important beyond just receiving money….his Ultimate Gift.
We are very concerned about this. We are in our early 60s and have a net worth of ~$3.5M and my spouse is still employed (his choice). Our assets do not throw off a great stream of income like your real estate does. There will be no pension payments when we are retired but we should get Social Security and we don’t have a particularly high cost of living. I think we will be (more than) okay. We have a 24 year old that is mostly independent and has always had a natural bent to be that way. That being said she is not entrepreneurial nor a great advocate for herself career wise. We do not have an updated estate plan/will. I know we don’t want to leave her our entire estate (should it be left intact) but we have not settled on what to do. Your estate plan post was food for thought. My question is what happens when your son hits age 30, 35, and 40 and you and your wife are (likely) still alive. Are the distributions only made after your deaths?
We too are self made. My husband especially grew up poor. He had to pay all his own expenses and contribute funds to the household starting at age 14. He took a non-traditional path to earn his degrees but it made for experiences that make him able to relate to/advocate for/help others in similar situations, which has helped to advance his career. My parents helped me and my siblings attend state university but after that we were on our own. That was never a hindrance for me or my four siblings. My spouse’s five siblings also did well in life, all making their own way.
I do believe there is value in the struggle, but do worry today that it is harder for many to overcome the hardships than it was in my day.
My wife and I struggle with this as well and how to most responsibly leave a $5M+ estate to our two teen daughters. We finally settled on a trust with increasing distributions at ages 25, 30, 35 and 40. At 25 they receive $50k with the thought that it could be a down payment on a house, pay off car loans, etc. At 30 it’s $250k, at 35 it’s 25% of the estate and at age 40 the remainder.
Hopefully this provides them with Warren Buffett’s elusive “enough to do something but not enough to do nothing “.
We are in our early 60s and have 3 adult children. Our net worth is high enough that each of our children could inherit about 2 million or more. Both my husband and I grew up middle to upper middle class, and our children definitely had more than we did. We do plan on leaving everything to them as 2 are already very established in their careers ( the inherited money will be nice but not a deterrent to their ambitions) and the youngest is getting an advanced degree now, which we are paying for. Hopefully he will have a wonderful financial life as well.
Our dilemma is division of assets- the youngest will have received 9 years of tuition and living expenses from us , while we Spent the least on the oldest child. I almost feel like the youngest should inherit a bit less – but we just updated our estate plan and everything is evenly divided, ( my husband won that argument and he probably is right).I think we are lucky in that our children didn’t have to struggle financially but have still showed a lot of ambition and motivation- they don’t have any idea what we have and we are keeping it that way-
I have told my adult children my assets and my estate plans. I don’t want them to have any major surprises at my death. I plan to help them if necessary while I am alive. If there is any level of appreciation, I will be alive to receive it. I plan to leave money to them and charity. I am in my 60’s and my children are in their 30’s. If i survive to the average life expectancy, they should be established in their careers at my death. I have tried to teach by example. They are educated and resilient. I will not try direct or legislate how they spend any money that they may receive from my estate.
I feel the greatest gift that I can give them is they won’t have to financially take care of me.
Great post as usual! To leave a large inheritance is mostly a personal decision. However, I have read that there are many families that have set up plans or trusts to limit the payout to succeeding generations no matter how much wealth that they have accumulated. Interestingly enough, I believe all of the Vanderbilt’s family wealth was gone after just 5 succeeding generations.
Your description of “the struggle” is an interesting one, in that personal beliefs of consumption, and savings are influenced by the exposure to the situations and learning behaviors of one’s early life. I grew up in a middle class family, and my parents were not rich by any means. They did teach my sibling and me though that work was essential and both my brother and I have been employed since age 15. Our financial habits were learned not from our parents but from experience and exposure to financial situations outside of our family.
I learned about stocks and the financial markets from a co-worker’s father. I continued to educate myself while in college, and enjoyed reading everything I could about business, and the leverage practices of money. Today the FIRE movement seems to have taken this level of learning to what some would call an extreme practice. I disagree with that. Everyone should have personal and financial goals including ones that dictate the preservation of future wealth if that is within their desires and means to facilitate.
My goal is to create some kind of estate plan that will preserve a portion of wealth for all succeeding generations. Personally I think this would make a great subject for you to explore and write about in a future post.
Great piece, thanks for sharing your personal story in such detail. We have four children….one still to get through college, but the other three are done and am proud of their independence. I did not grow up in the circumstances of the author, but there wasn’t tons of money, and we were expected to pay for part of our college and get launched. Extra education was all on me. Working was expected immediately upon turning 16, and there were very few of the extras our kids have enjoyed. (But always love and emotional support, which I never took for granted.) My husband’s family was better off financially, but other circumstances also required him to get launched without a lot of parental involvement.
We’ve paid completely for our kids’ college educations so they could get started without debt. They were welcome to come home and live for a period of time (like a year) to get on their feet if they came back to our metropolitan area. (One of three graduates is with us and will be out in the next few months.) We have also told them we will not pay for advanced degrees. We feel they need to own that if they decide to do it. We are about to go to see our attorney to review our will as we made it when our kids were young and we were worried about guardians, etc. We expect to leave them something, but maybe not all. Feel no obligation.
Hope you will keep periodically writing about this topic!
Interesting post as usual, I enjoy your work. I’m 63 and have seen both sides of the coin. I grew up middle class on a small farm and had to work. I have seen rich kids and poor kids alike both turn out to be pieces of crap as well as others have wonderful lives. There is in my opinion no predictor to be picked out on economic status. It’s between how you are raised and the individuals own mental make up. Personally I think the kids that have the exposure to more upper class type environments in general do better, understand the financial world better and are more in position to have greater financial success. Having said that there is no guarantee they won’t go off the rails. Likewise picking yourself up by your bootstraps and making a success of yourself is very rewarding. In my own case I started out as a carpenter and at 25 started my own business which I still run today. I am a millionaire from it. On the other hand a competitor of mine about my age inherited his business after working in it for ten or more years. Care to guess who had the harder time? I had no mentor and spent years figuring out business while my competitor walked from his office to his dads to get answered.
Anyway why not form a trust and pay the heirs just interest from your estate and set it up to pass along to grandkids next and so on? Maybe they only get 20,000 to 50,000 aa year, do you realize how much that would help out your kids and grandkids? Not passing down your net worth to other generations is to me at least is just not right in my opinion.
ESI, great think-piece. Thank you for sharing this, and specifically articulating a general concept.
‘Being poor’ leads to ‘thinking poor’, and your post here (and Happy1/MI 172’s first post) really point out the way up-and-out is to have pride (which comes from building work ethic), and skills (which lead to greater demand for one’s work. All of us have seen examples of ‘thinking poor’ and life-mistakes that prevent some from living a life free from financial worry.
“Seek wealth, not money or status. Wealth is having assets that earn while you sle is how we transfer time and wealth. Status is your place in the social hierarchy.” – Naval Ravikant This is a quote I wish I had absorbed by age 20. I was ‘thinking poor’ until age 40; what a waste of time! Bottom line, ‘wealth’ is a positive-sum game, while ‘status’ is a zero-sum game.
Proverbs 13:22 New American Standard Bible (NASB)
22 A good man leaves an inheritance to his [a]children’s children,
Meant to put this in my comment above
When you first posted about this, it made me think about changing our will. We are discussing it. Our child will be receiving more. Depending on how long we live, it’s either a bit more than you are doing or way more. And I am very concerned. He is young right now and he will not have the same struggles my husband and I have had. On the other hand, he is a minority. So maybe that struggle will take the place of the monetary struggles we experienced. And the minority issue also makes me wonder if we want him to have access to more in case discrimination continues and then he can use the money to accomplish his goals and thumb his nose at those who discriminate. In the end it very much depends on our success in reaching our goal of raising a moral, empathetic, responsible adult.
Great summary, it sounds like my family story. My mother came from trailers in Florida, parents divorced when I was 5 and I’m not sure if Mom graduated HS. Father was educated and in the military, but also gone… at age 17 I was on my own, paying $75 to live in a step van connected to a friend’s house. Worked in grocery stores and fast food and just hustled my way through, determined to get my GDE, then community college which had a direct-transfer program to state university, and I managed to get into a top-tier MBA program. My wife is from another country and also came from nothing. At 38 I finally had my MBA and between us we had 5 degrees to pay off. And now at 55 I’ve provided my kids the same upbringing you have. I really worry about where their struggle will come from. We did move to a foreign country for 3 years which definitely challenged them, but nothing like my childhood (by design!). I have a cousin who had the father that reneged on college as yours did. Very traumatic for him. He was the success of their family…
I am having my kids read the book that changed my life: Napolean Hill’s “Think and Grow Rich” to help them understand the criticality of a goal, a mission and a white-hot desire to make it happen. Highly recommended. I also put a LOT of emphasis on them being their own person. “Take the pen” and write the story of their life. Let go of worrying about what their parents or relatives think. Don’t wait to be told.
The moment this clicked for me at age 19, everything changed.
Thanks for sharing your story-
I was poor half of my young life, so that gave me a strong urge to overcome that situation, and I’m happy every day at how my life turned out. But I was screwed up for a long time, even suicidal, and overcame many issues before I got control of my life. I’m not so convinced that being poor is such a great thing. I just did the best I could and in the end it worked out well, probably as much from luck as from hard work and smarts. I do agree with many things you say in this blog, I’ve seen one adult who was given so much he never needs to work, and so he plays computer games all the time. On the other hand, some people manage to go far even though they were born into wealth. I read the comments of people who agree with the advantages of the struggle. I’m going to play devil’s advocate and only look at the other side. Your article wasn’t limited to a financial struggle, so I won’t limit my comments either. This has been on my mind since it was brought up in one of your previous articles, so I have a lot to say about it.
1) First, I think most people agree that keeping a positive attitude even when looking back on bad circumstances is a positive character attribute, and one that helps us get through life. The urge to see adversity in a good light is part of that. Failure to do that means looking back with regret, and focusing on regrets is a negative thing and not very helpful for improving our circumstances. So up to a point, ‘the act of seeing adversity as a positive thing’ is itself a positive thing. But I think a line has to be drawn on how far you go in saying adversity itself is good. If you truly embrace that idea, then that opens all kinds of doors we probably don’t want opened.
— Is your kid TOO healthy? Maybe he needs to be blinded or crippled, so he can experience and overcome adversity.
— What about those adults who molest or hurt kids? Instead of criminalizing that behavior, maybe this should be a valid career path, because they’re providing a beneficial service. Look at all the people who overcame those experiences and became stronger because of it.
It gets ugly real fast when you say the bad things are “good”.
2) Considering 41% (72.57) out of 177 millionaires started out poor. That’s a small sampling. What if you instead look at millions of poor adults, I bet a very high percentage of them started out poor too. The “benefits” of growing up poor didn’t seem to help them. If being poor was truly a blessing and the key to becoming wealthy, then I’d expect to see those numbers reversed, where a handful remain poor but the overwhelming majority end up rich. But that obviously doesn’t happen.
3) Considering adults who overcame something terrible, and they say they don’t wish it never happened because it made them who they are today. I suggest that’s their answer because they only know one outcome. But suppose we were gifted to be able to look at all the other possible outcomes that could have happened if things had been different. Suppose we could see where we would be now if that crippling accident didn’t happen. Suppose we could examine all the other possible lives we could have had; lives that didn’t involve severe pain and horrible scars (physical or mental). I submit there’s a good chance that at least one of the alternative paths would look more appealing. I think few people would state positively that the life they led was the absolute best one that was possible.
4) Never mind the horrible accident scenario. How much better could things have gone had you started out rich? You were poor yet managed to work hard and be a top student. I did the same. I was a top student, athletic, and musically inclined. I had so much potential, but in a poor family with five kids, my parents were just happy that I didn’t cause too much trouble. But I often wonder how I could have developed if I’d had tutors to help develop that potential. Look at other countries, where extensive effort goes into developing the potential of the number one son. One great example is Damash Koudaibergen from Kazakhstan (shameless plug for my favorite singer!) At age five his grandparents moved in with the family and devoted their time to helping him develop his musical abilities. Now at 25 he’s one of the best vocalists in the world. Without the training, he would have grown up as the guy who has a good voice, but he never would have reached the level that he’s at now. What could you have done if you’d had dedicated training at a young age?
5) Why do your readers feel so strongly that your wealth should go to your offspring instead of charities? I think one reason is the purpose of life itself. Nature builds every living thing with the primary purpose of reproducing, to pass on the genes to the next generation. Humans may override that impulse, but I think most would agree that living things are built to reproduce. Many creatures die in the act of reproducing, even so far as having the offspring eat the parents’ bodies. Many creatures take extreme measures to help their offspring get a good start in life.
In Europe, some wealthy families pass on huge fortunes to their children, and the children are raised knowing they will be trustees of the fortune, which is to be continually passed on from generation to generation, and increased. The term ‘old money’ comes to mind. Thus their family line (their genes) will have a huge advantage over others, and the odds of success of their line is greatly improved. It’s been mentioned that inherited fortunes are often squandered, but I suggest that indicates a lack of proper education on that matter.
I’m sure if I took the time to research the subject, there would be a lot more to say, but that’s all I have.
“What about those adults who molest or hurt kids? Instead of criminalizing that behavior, maybe this should be a valid career path…”
It’s called “show business.”
Not recommending the movie, but if you watch “Joker” knowing that this is the entire subject, subtext, and theme (including soundtrack artists and songwriters), you can’t unsee it.
I haven’t seen it yet, but that sounds quite disturbing. Don’t get me started on what I see as a movement to destroy our country.
Great post. My family struggled when I was growing up in a typical lower class city in New England. I was fortunate to get out with and education and make the multi-million dollar mark by 40. I attribute all the hard work to the fact that I saw lots of people struggle and knew that I had to get out of that myself. I have a daughter that is 9 years old. She knows the value of money and is not wanting much physical things, yet. I will keep her guessing on how well off we are as much as possible. She is already hearing from other students bragging about how well off their parents are. She asks “how come we are poor?” I just say you have nothing to worry about. I think the reason she asks this question is because we live a very frugal life with no special items, like Tesla’s or 4000 sq ft house, etc. We do not show off our wealth. I actually hate it when others do it but am happy to think that they are in debt, which they probably are based on readings online. We have no debt. She will inherit everything at one point and no money will be given to charity or other organization. My goal is to make sure she is well off and independent on a man in life. I will put guardrails on this as she grows up.
It’s so interesting that your 9 year old daughter has no idea how well off you are. I’m a single mom by choice with a 5 year old son. At 52, I own my house, have no debt and have 2 million in savings/retirement. Very few know these facts. I always tell my son we’re on a budget, because we are. Because I want to retire early. “No we can’t buy extra treats or a toy, etc. because we’re on a budget.” He has no problem with hand me downs and shopping at thrift stores and wants for nothing. He has too many toys because he’s the youngest of 8 cousins and gets all the hand me downs. Not sure how this will change when he gets older. He does want an iPad and I continually say no or we can check one out of the library, a good part of that reason is because he’s only 5 and there’s no need for extra screen time at this age. He doesn’t notice any difference between us and others. But I always find it so odd to tell him we’re on a budget etc., given our economic situation. Would love to know if anyone recommends any good kid books to discuss budgets and saving with young kids.
Great question about books. My teenagers and now young adults never seemed interested in learning about ‘money’. I’d suggest trying first to talk to your son. 5 is very young so maybe keep it super simple? Best of luck.
Great article!
However, I am not sure if growing up poor or rich matters that much. My parents, who were successful first-generation immigrants, provided me with way too much. For example, they paid for my college education, my 1st car, and a down payment for my first home. I believe my parents were trying to guarantee my success as I believe they felt that if their kids were successful then they had truly made it in America. While I was extremely grateful, I also knew that many others were not as fortunate and to be honest, I always felt guilty when these advantages were bestowed upon me. However, in my early 20s, I read The Millionaire Next Door, which motivated me to study personal finance in-depth and learn the secrets of compounding. Applying this knowledge and leveraging the advantages of a great education, allowed me to earn, save, and invest better than most, and I achieved FI independence a few years ago in my early 40s. Despite this success, I continue to work hard as I believe I owe a bit more to society given the exceptional advantages that have been given to me (and I get some satisfaction from hard work).
Had I grown up poor, achieving FI would have taken a bit longer, but, I would have still achieved FI as long as my financial education was sound early in life. So in my opinion, providing financial education to your kids is far more important than their environment of growing up poor or rich. That being said, I don’t have much data to support these ideas, other than the anecdotal data in my own life. But your article has been fairly thought-provoking and I’m sure I will do some more research on the subject soon.
This is how I’m addressing the issue of how much money YOU’RE leaving YOUR kids. Haha. Just kidding.
First off, based on mine and my wife’s good health, and the fact that I’m “only” 23 years older than my son, my goal has been to help him save and be as successful as possible NOW. I mean, if I lived to 85 or so, and my wife somewhere around that… our son is going to be in his mid to late 60’s at that point. That would be a pretty lame life to a dead beat until your mid to late 60’s. At that age, it wouldn’t even matter if he inherited millions… he’d be too old to do anything too crazy. So my goal is that he have at least two to three million of his own by then.
That said, and I’ve mentioned it before, I do feel I own my son something, because I haven’t had the normal 9-5 work life and saving money. My wealth came from entrepreneurship and working a ridiculous amount of hours. He made a lot of sacrifices during those years, too. It would naive for me to think otherwise. While he doesn’t “deserve” all that I have today, his number isn’t zero either.
And for the future, I’m really more having to decide how much to leave grand kids when they come.
Indeed “ poor kids have nothing to lose and nowhere to go but up,”
Just about a decade ago me and my wife both migrated to the USA from Ethiopia with stuff worth less than $200, 2 MS degrees, frugal habit and zero social pressure.
For the first 3 years we worked for minimum wages at places like Sears and Macys. Then, one after the other, we both got entry level jobs at our respective professions. After 7 years in our careers and three kids later we are siting on over half a million invested portfolio without counting house and other assets.
Simply stated, our poor background helped us capitalize on AMAZING opportunities here in America including free resources on your website. We still feel we haven’t sacrificed a bit. In fact, we often pinch ourselves in disbelief of the possibility of having our cake and eating it at same time.
All credits to generous Americans.
GT, would you please email me at “hobo at mrhobomillionaire.com”? I’d like to interview you for my site.
I’ve always appreciated the work ethic that came from being poor as a child. I don’t think it granted financial superpowers – it made *me* risk averse because I never wanted to be that one the edge again, and I certainly wasn’t naturally frugal. It did help make me a hard worker, more aware of the realities of the world, accustomed to sacrifice, and willing to do whatever it takes.
My childhood sounds similar to yours in a lot of ways – I don’t regret it and I wouldn’t wish it on anyone else. That said, I’m always supportive of those who aren’t willing to let kids skip the struggle – there’s definitely a balance there. It sounds to me like you’ve found one that works for your family!
This is a very valuable post, and as the comments suggest, one that many of us are struggling with. I wouldn’t say that I grew up poor, but while my family had a limited income, my family was intact and very frugal. So, I learned about tradeoffs and money management from them. That has been harder to transmit to my children, because frugality born out of necessity is much more easily conveyed than out of choice, which can look downright mean spirited when a family has a lot of money. I think that we struck a good balance. (I view it as a victory that my 22 year-old daughter has been transitioned to paying her own cell phone bill within a year of graduating from college.) On the other hand, our son has significant special needs, so we need to leave a lot of money in trust for him, and to balance are leaving a lot to our daughter (also in trust–inheriting a lot while young does not help people out). Our outlook may will evolve as we get older.
Rather than setting a specific amount for each child now, why not a percentage of the estate? You don’t know how long you will live (maybe 30+ years) and also don’t know the value of the estate. It could grow or something could happen to cause it to be much less than expected. Either way the kids get a percentage.
I am trying to do more now so I can see the results of my gifts rather than waiting until I die.
For example, I paid for both kid’s college costs. I think there is no better gift than to start out after college debt-free. Why have the kids stuck with student loan debt and all of the associated issues and downsides only to get a large sum 30 years later when they don’t need it as much? They are both very aware of how fortunate they are to not have student debt like many of their peers.
I also provided a mortgage for both of them to buy their first home. Lots of savings on processing and closing fees, along with the ability to make a cash offer. The money was sitting in a savings account anyway – what better way to have my money work for me.
Lastly I plan to set up a fund to pay for college in the future for any grandchildren. Again, a gift that will keep on giving long after I might be gone. There will be set conditions that If they don’t go to college then they don’t get the money for something else.
I think this passes on both wealth and expectations. I would like to see my kids do the same for the next generation. Again if I live well into my 80’s and 90’s the kids will already be retired before they get anything. I would like to change that and do more now when they can enjoy it and I think this is a good balance.
Good post. I haven’t really thought much about this in many years… but my parents were separated when we were toddlers. We were on welfare and food stamps. I don’t recall much about that other that it feeling a bit weird. I mean I knew we didn’t have a lot but many in my area were in similar situations so it almost seemed ‘normal’. My grandparents on my father’s side seemed
rich but I’m sure they were middle class.
I guess I wasn’t driven to become wealthy but everyone in my family pushed my brother and I hard to go to college…. I guess that’s where I put some effort. I proceeded to get my Master degree in Engineering and an MBA. I always had a decent or good job and have never really struggled. My issue is since I didn’t have much when younger I wanted to buy more when I grew up. When my mom shopped for groceries she’d get store brand everything (plus welfare stuff). I hated that. So these days I almost always buy branded products. I also hated having clunkers for cars- so I always buy new now.
So I guess my early struggles motivated me to achieve more in some ways- ultimately helping with the ‘E’. But it hurt my ‘S’ and ‘I’… lol. But I’m fine and caught up a bit now.
Not sure what to do with my kids. My wife would never let me give everything to charity but I’d rather give it all to animal shelters and St Jude. We’ve given them a good start in life…
I’ve split my estate into 4 equal parts for my 4 sons when I pop my clogs.
They don’t expect a great deal though. I’m a single parent and I’ve told them that my estate is for ME. My worst nightmare is becoming financially dependent on their help when I’m old. I’ve told them that my greatest gift to them will be that I’ll never be asking them for handouts when they’re busy raising their own families and they desperately need their money for that. They wholeheartedly agree that they like this idea.
Hopefully there’ll be a chunk of change left for them… but not TOO much! I want to enjoy my retirement and there’s a lot of places in the world to see!
Beautiful post !
I’m the poster child for lacking grit and having never struggled. I never studied much in college and still eked out my Chemical Engineering degree. When I went into the work world it was obvious I had natural talent that outpaced my rivals and my career soared. Even then when people in equivalent jobs were working 60-70 hours a week I stayed at 40-50 hours with no commute. I only worked hard on fun projects but most were fun so I was credited with making the company tens, maybe hundreds of millions and was rewarded for it. But I’ve always felt the fact that I wasn’t very self motivated and never struggled hurt me in terms of character and integrity. I took up marathon running in part to force myself to do something unpleasant and that helped, but in truth my life has been almost exclusively fun without many character building events. I do agree struggle makes better people, I just never had to.
A very honest post. Thank you for saying it. I think your examples are very reflective of a large segment of society most would envy.
If you are genetically and/or situationally advantaged (and avoid being unlucky much), you don’t have to try very hard it is quite easy to produce results superior to most who have to try much harder.
WOW! I enjoyed the comments as much as the post. Surely I am not the only one out there with no children to leave money to. My husband and I have 6 siblings between us and so many nieces and nephews and great nieces and nephews that I have lost count so they will each a dollar or two.
I grew up poor and am money conscious and frugal. My husband grew up poor and buys whatever strikes his fancy. Go Figure!
Seeing as how you commented somewhat frivolously that you’re up another million dollars in the last 3 years since you retired, is there a point at which you would consider specifying in your will percentages to be left to your children and to charity as opposed to fixed amounts that presumably aren’t even indexed to inflation?
I recognize and acknowledge the balance you are trying to strike here. But in even just another decade your net worth could grow by another couple million. Your children are smart and well rounded but also human. It could be a difficult pill to swallow, receiving such a *relatively* small amount of money when you no longer have a use for it, particularly if at some point one of your children ends up being the executor/executrix. I’ll be honest, I love my parents more than anything in this world, but I’d have a hard time not being bitter if I discovered they gave me $500k and donated $4+ million, especially since as an only child, I’d be the one writing those checks to the charity. Maybe that’s a personal failing. I’m very ready to admit that. But I think on some level we are all subject to at least having those questions for at a minimum a fleeting moment.
Right now it sounds like you’re roughly giving 16.5% of your net worth to each kid and leaving the remaining 66% to charity. Even codifying that relative distribution as a percentage and not a fixed amount would allow you to still accomplish your overall mission to help the greater good of the world through charity while still leaving your children with a more substantial legacy. It’s an easier conversation to have, too. “Kids, your mom and I have decided that we’re giving 2/3rds of our net worth away to charity when we pass, and the remaining third will be split between you.”
Consider also that the value of $500,000 decays as time passes not only because of simple inflation but also because your kids are building their lives and their own portfolios. $500,000 in 20 years when I’m 45, married, with two teenagers is simply worth a lot less to me than $500,000 in five years, for example, when I’m 31, engaged, and looking to buy a home. $500,000 in 25 years when I’m 50 and have one out of college and am already worth nearly a million is a nice windfall but certainly does very little overall in terms of moving the needle. Not to put too fine a point on it, but do you really want your bequest to be so small as to have such little significance?
These are tough questions and there are no right answers but I fear you may have unintentionally stumbled on one of the few wrong answers. It’s your money, of course, and I wish you nothing but continued success and years of good health.
I should also add my money is where my mouth is, and should my wife and I predecease our children, they’ll both receive 50% of our assets. That total amount with the proceeds from life insurance and all of our assets is about 2/3rds of your total. As our wealth continues to grow my wife and I have often talked about doing something like this:
10% off the top goes to charity
Of the 90% remaining, each gets half (45% of the total) spread over installments
-any educational expense for grade school, bachelor’s masters or PHD is payable at any time and simply reduces the overall amount to later be split
10% of their share at 22
25% of their original share at 25, and if it’s to buy a house, any additional amount needed to satisfy the difference between this distribution and a 20% downpayment on a house (excess requires an executed home purchase contract)
30% of their original share at 30
the remainder, which would be 35% of their original share plus any investment gains (or minus any losses) over the period of the trust’s life unless educational or real estate distributions were made.
We worked in a detail that the trustee has the discretion to distribute the entire remainder at age 30 if in his opinion the money would be well used. This gives him the latitude to give all of the remaining money at 30 to my son if he’s married with a good career with kids but gives him a way to let a final amount sit for another five years per the terms of the trust if he feels like a kid isn’t on the right path. At the amounts we’re talking the good-use distribution at 30 that would be the final part of the inheritance would be enough to put half down on a reasonable house in a HCOL area, which could be a very meaningful gift.
Interesting post and comments. IMO, no right or wrong answers. At the end of the day, for us, it’s our money and we do what we damn well please with it. And if our kids don’t like it, tough cookies. They aren’t entitled to anything we’ve earned and it should be very clear before high school graduation. Our current plan:
– Kids undergraduate paid for. Must be for an “approved school and major”. If my kid wants to do basket weaving at expensive no-name private school U, he’s on his own.
– No disclosure of what our kids are getting until we need end-of-life care. If we live an average lifespan, our kids will be in their late 40s or 50s. It isn’t any of their business what they get until then. They shouldn’t be counting on anything from us. We may gift our kids something on an ad-hoc basis (e.g. down payment on a house, graduate school support, etc) but they shouldn’t count on any of it.
– Special needs trust for one kid. Obviously our one kid with special needs that won’t ever be independent needs different treatment. But the guardian won’t need to know the details until we need end of life care since until then, this kiddo will stay with us and we will take care of all the needs the best we can. We have a will, health directives and guardian designations set up but our kids/guardian don’t need to know the details any time soon.
– When we’re gone, there will be a percentage split between our kids and charity with the bulk going to the kids and a little more to the one with special needs. It is likely our kids will each inherit multiple millions but by their 40s or 50s, they should be able to manage it properly (or we will make adjustments to our will, set up appropriate trusts, etc. to protect them and grandkids the best we can).
Thank you for that post.
While I nor my 4 siblings ever went hungry and had wonderful parents, we were always barely getting by. I had an odd job or a few to get any “lifestyle” money I needed from age 7 through college. Didn’t understand the context our situation until I met some kids from the ‘rich’ neighborhood while at grade school who got new clothes, bikes, toys, etc., not 3x hand-me-downs from brothers and cousins that didn’t fit very well. From that point on I vowed never to be poor when I grew up, and to do whatever it (legally) takes to live in the ‘rich’ area.
Fast forward 40 years and a young man not from our neighborhood was selling magazines to fund an educational trip his organization was organizing. After pitching me on it (and I giving him a $20 – he was very good!), he asked if he could ask me some questions.
“Have you always been rich and lived in this house?”
“No, I’m not rich and grew up in a tiny house two or three to a room”
“How did you get rich?”
“No, I’m not rich, but I studied, then worked very hard and never did anything that could
lead to being poor”
“So, how did you stay out of jail and not get on drugs or anything?”
“When I was your age I did not want to be poor, and things like that would not help me
reach my goal.”
He thought about our conversation for a moment, then thanked me, “No one has ever told me something like that before.”
Somehow I think he is going to do very well.
Like! Awesome story. I bet that kid does well too!
Small amount of money in the childhood can be very healthy. It will teach wherefrom the money comes and that you cannot use more than what you have.
You`ll learn to prioritize and to put the things into the order of importance.
This will build you the right kind of an attitude.
I’ve been following your posts and have learned so much from them. I’m not a HNWI yet, sank most of my resources into cash crops (I’m African) and they’re long term. Won’t see dividends for another 3 to 5 years – then it explodes. Here’s waiting for the explosion.
But I’ve been living in and out of the US for a long time and wanted to add a teeny bit to the “gift of the struggle” for a black person. It’s one thing if the struggle is just about being poor – when it includes race, very few black people ever get to actually enjoy the benefits of the struggle since it never really goes away.
Very few groups get as large a share of the “struggle” as black people. Ordinarily, they learn all the lessons and receive probably a tad too much of the “gift” and then society just simply refuses to let them. Again, I don’t know how one fixes this…
I can’t say that I can agree or disagree with that… but all the advice, tips and knowledge shared on this website work for all colors. Please don’t let race hold you back. There was an amazing post here about an ‘uneducated’ guy that was almost entirely deaf…. he made it huge, at least from a monetary perspective… in other ways too I’m sure. Color maybe a ‘challenge’ but it’s not insurmountable. Many people have various challenges in life. Make it happen!
If you are not in this guy’s minority group (neither am I), then you need to understand deep down in your soul that you have no clue what that reality is. I also have no clue. You obviously mean well. But dude, check yourself.
I am checked… thanks.
Will,
Thank you so much for leaving this comment. It’s been the most interesting one for me so far.
Great post! I did not grow up poor, but my parents had very limited resources. I paid for college with scholarships and loans. Their college help was limited to buying me a $500 car during my junior year (I worked on campus and bummed rides from friends until then) and paying the car insurance until I graduated. And I did live at home during the summers. I have never been very driven, and I can see how I could have become an adult child depending on my parents if they had been able to help me. I was laid off from my first job after college, with no severance, and no money in savings. It never occurred to me to ask my parents for help. Instead I immediately took temporary work until I found another full time job. I look back at my upbringing as a gift that forced me to take care of myself.
I think the gift of the struggle applies not just to inheritances, but to help parents provide their children while they are living. I see people who start their adult lives with nothing, have successful careers, and then don’t allow their children to do they same. They do things like bringing their children into their business, setting their children up with their own business, or just giving their children money. I would think they would want their children to experience the sense of accomplishment and pride that comes from being successful as a result of hard work.
I think it depends on the child and their personality and the ability to productively use resources given to them. If one child is better at multiplying resources they may be better off being drip fed and motivated by their own production. It’s like the parable of the talents where the ones that use their talents wisely are rewarded.
On the other hand, this may viewed to be less fair and create resentment so it’s really balance between these two views. Like personal finance, distributing your assets is a completely personal decision and one where there is no right answer but rather many approaches you can take.
Great article, by the way! This one got me thinking and I needed to sleep on it before answering.
-Mike
Sadly this is too much selection bias. You, and others, are comparing the relatively few who get out and assuming the “forge” of poverty is what led to their success. I would say there is more to it than that. From my poor/lower middle class neighborhood and the kids I knew, the bulk stayed lower middle class, with a few doing better than their parents and a few doing worse. By this idea, all of us should have gone further since we were products of the same “forge”. When I look at extended family that were really poor, they are all pretty much still “there”. Unfortunately too many end up mirroring what they grew up with versus truly breaking out and getting ahead. So while I agree people are “forged” to a point by their childhood experiences and for a person who comes from such a background those things definitely imprint, I think there is much more at play here than that or many more would be getting ahead.
What I will add is that for those who do become millionaires that come from a very poor background, I can see how they are more likely to push harder for more than someone who didn’t have to overcome so many hurdles to get where they are.
Very good post and I’m guessing it’s a very accurate assessment. A fair assumption is there is much more to this equation than just a struggle- motivating and encouraging parents and extended family were a significant help for me as I’m sure it is for others.
As an extreme I know people that own some low income housing where much of their rent is subsidized from the government… the owners tell me it’s almost like some of the tenants are comfortable with that lifestyle and instead of working to ‘better’ their lives- they continue finding ways to use/abuse the system. Like having live in boyfriends, daughters/son adults living there with their boy/girl friends, etc, etc. The stuff I hear enrages me honestly. But I digress…
Point 1:
To get ahead people generally need some level of the following:
1. Ability
2. Motivation
3. Hard work
4. Opportunity
5. Luck
6. Help (parents, mentors, partners, community, teachers, etc).
The more of each you have the better. Motivation can be improved by the struggle, but if you lack in most of the other categories, motivation alone will not be enough.
Point 2 – This may be depressing for many, but not understanding it or refusing to accept the reality of it leads to frustration with results and with trying to implement programs that no one can figure out why they never work on a grand scale. Matt 26:11 – “You will always have the poor with you, but you will not always have me.”
Getting AHEAD is not possible for everyone … Ahead is above others … Math. People need to remember that the average person achieves very little financial success. Our economy is not at a point that could support everyone reaching a million dollars in wealth. It could not support 50% having that. It could not support 20% having that. (The median 65 year old net worth is less than $250K) Could it do so 100 years from now? Perhaps. But to do it right now, would mean a drastic pull back in spending and it would crash the economy and make everyone poorer. The kinds of changes that people need to make to improve their own lives and be financially responsible cannot happen in vast numbers over short periods of time without being counter productive.
This thinking by the way is one of the ways I knew the stock market of the late 90s had to end. I calculated the number of people who would reach financial independence if the market kept increasing at the same rate for another 10 years. Something like 1/4 of the population would effectively no longer need to work. The economy would crash if even a small number of them quit working. The economy is a vast interconnected system. It can’t handle massive disruptions from how it is currently functioning.
As such, regardless of people’s circumstances, the vast majority of people MUST …. MUST remain relatively poor in the short term. Not everyone can get out. Not even most can get out. Most by mathematical definition must remain where they are in the socioeconomic strata over the near term.
That means if we look at people who grew up in poverty, most will remain.
Anyone can get out! But anyone cannot be everyone or even most.
Super smart comment, if by “out” we mean increase in “relative position to your peers in current time period, say 2020.” In the last 40-50 years, big portions (and big absolute numbers, like 100s of millions, worldwide) of people have gotten “out” of poverty relative to their grandparent’s and parents’ generation. They have better absolute levels of nutrition, housing, freedom, education vs. their ancestors, but may still feel like they are lagging the neighbors in their respective countries in their own generation.
Yes, out can be interpreted in different ways, but I generally mean jumping economic strata. I do not mean the pie is fixed and everyone is going to remain at a starvation level etc. Capitalism has raised 100s of millions out of abject poverty, but that doesn’t mean that those 100s of millions entered into abundance. Some did, but the vast majority are just less poor. Most would still say that while they are doing better they certainly aren’t living the high life. They aren’t going to be on the path to FIRE.
However, I don’t just mean in a single year like 2020. The time frame you mentioned of 50 years can have some significant change, but large numbers of people cannot jump economic strata in short periods like 5-10 years. The economy just cannot support that kind of drastic disruptive change over short periods of time. Over 50-100 years the economy could potentially be slowly restructured in ways that support large movements in economic well being. Some of that happened after the industrial revolution and after WWII. While that is always possible it is still rare and unlikely. Wide economic inequality has been a reality for millennia. I have yet to see evidence that we are on the cusp of altering that.
Apex, big fan and always enjoy your thoughtful posts. Maybe you will find these graphics regarding ‘poverty’ and ‘population’ over time to be of interest. Good things are happening.
Two centuries of the world as 100 people
This is a subject near-and-dear to me. Almost anything one can say about it now, and future trends, invites pushback. So I’ll stop now.:-)
Thanks for that link JayCeezy. There is often a message that things are getting worse but things have definitely been getting better, albeit at a slow pace, for a long time.
We have absolutely made huge strides in lifting people out of the worst poverty and even out of basic poverty over the centuries. Large measurable changes are achievable over long time frames like that. Most people’s lives are getting better in many different ways.
I think what can be hard for some people to accept is that while we can make most people’s lives better, we can not make most people’s lives great. The people who visit this blog are in an extremely small and rare group both from the stand point of economic understanding and outcomes. The rarity of that level of economic surplus is what I see little path to changing on any kind of measurable scale.
Money gives you options. Money allows you to have time to accumulate power or experiences. Money really is power.
We’re leaving nearly everything to our kid(s).
We are also raising her (we only have a toddler daughter right now) to know about money, how to manage it, investing, the power of real estate, the power of entrepreneurship, etc. If she wastes the money we leave behind, I would be surprised. But luckily, I’ll be dead so no worries for me. And if she wastes all of it, I guess she’ll give herself the struggle gift you are talking about.
But the world is unfair and harsh. Our daughter will already be dealing with the hazards already built in to being female in this society. I will happily leave her as much power as I can and she’ll hopefully not even need it if we die late. Then maybe she can have some extra fun like we already have and then pass along some generational wealth to the next line down? Whatever, again, I’ll be dead and it’ll be their problem then. I can just provide what I can to help.
Your answer makes the most sense to me! Thanks for posting.
You had a tough childhood and it gave you the motivation to become wealthy. Congratulations, you made it. My parents were poor when we were young too. I knew what it’s like to be poor. Not to the degree, you described, but we had some scared relating to health. It was extremely stressful.
However, I disagree that growing up poor is better. You have more grits, but you don’t have as many opportunities. IMO, the wealthy/middleclass kids are much better setup for the future. Socioeconomic mobility shows that this is true. Most poor kids stay poor. Only a few moved up the ladder like you and me.
Also, I think that ship has sailed for your kids. If you want to give the gift of the struggles, you should have done it when they were young. We’re trying to live way below our means so our kids know what it’s like to be in the lower middle class… Being poor really sucks and we couldn’t put our kid (or ourselves) through that.
9 times out of 10, poverty begets poverty. A kid born in a poor family, with unavailable parents or perhaps living with grandparents or foster parents, without good/decent nutrition and who lives in an area with violet crime, drugs etc. – chances are that the child grows up with hardly any role models and will very likely be “poor” if he/she avoids incarceration, addiction or worse.
I won’t go into specifics but the general statement that – you are better off being poor is just missing the point. Growing up in a safe, relatively healthy environment with or without a lot of resources, a decent education – these are the pre-requisites to one being successful later in life. Of course, a strong work ethic, risk taking, earning, saving, investing, a frugal lifestyle are all important.
Which brings me to my point – what you call the “gift of struggle”, it’s really about values. The values of ethics, integrity, hard work, an attitude to life that is appreciative of the opportunities and the resources that they have access to.
As long as the values are intact – a child will grow up to be successful. They will be good stewards of the legacy bestowed upon them, including any wealth if there is any to be passed on.
That is my belief and that is what my wife and I agree on.