Attitude matters: unravelling the rich-poor divide
Why does there seem to be a growing wealth disparity between the rich and the poor?
Here at Become Wealth, we strive to help people create and sustain personal wealth, so every day our team sees firsthand what it takes to become ‘rich’. Guess what? It has more to do with mindset and habits than any external circumstance. So, let’s explore the power of attitude and mindset in shaping financial outcomes. From spending habits to investment strategies, below we’ll explore how different attitudes can influence financial success.
For context, let’s quickly run through a series of facts, some of which may challenge common thinking:
Fidelity Investments, the world’s third largest money manager, researched the source of millionaires wealth and found 88% of millionaires built their wealth themselves. A raft of similar studies draw the same conclusions and so fly in the face of the common myth that most millionaires are born into wealth. For instance, a 2019 study from Wealth X found of the global population with more than USD$30 million, “…over two thirds of UHNW [Ultra High Net Worth] fortunes were predominantly self-made”.
Despite what we may see or hear in media reports, the most common economic measure of inequality, called the Gini Coefficient, has fallen in the most recent New Zealand data available. This means New Zealand is becoming more financially equal, not less – in other words, by this measure the rich are not getting richer relative to the poor at all! This data makes New Zealand one of the most equal nations worldwide.
If you’re a New Zealander reading this, then you’ve already hit the jackpot. According to the Nobel Prize-winning economist Herbert Simon, the benefits of living in a well-functioning economy probably accounts for 90 percent of individual income.
If you have total net worth of more than USD$138,346 you’re already in the top 10 percent of wealth accumulators worldwide – as determined by the most recent research from global financial powerhouse Credit Suisse.
Globally, the economic growth that the world has experienced over the last century isn’t just enjoyed by the rich. While the rich worldwide are increasing significantly, the poor are not doing poorly. The World Bank says that over the last 25 years, more than a billion people have lifted themselves out of extreme poverty.
All of this seems to lead to two conclusions: no matter how much we clamor that the rich get richer, data also shows that the poor get richer, too. More importantly, the data shows that true wealth creation is available to anyone.
Circling back to our main topic, let's dive in and examine the fascinating world of wealth accumulation through the lens of attitude.
1. Poor People Blame Circumstances, Rich People Make Circumstances
Our attitude shapes how we respond to challenges and setbacks. For whatever reason, there seems to be no shortage of ‘professional victims’ nowadays. We all know them or have met them: the sort of person who is continually blaming someone else or wider society for their struggles, forgetting the role they play in directing their own life! This sort of person might be perpetually offended by something or someone, and lacks the attitude required to be successful, and therefore lacks the attitude to be wealthy.
Poor people often attribute their financial situation to external circumstances, such as perceived or real societal barriers, or wider economic conditions. On the other hand, the rich embrace a proactive mindset, taking ownership of their financial destiny. They identify opportunities, overcome obstacles, and persistently strive for success. By maintaining a positive and solution-oriented attitude, the rich are more likely to create favorable circumstances and seize opportunities.
To illustrate this, consider the back story of the world’s wealthiest man, Elon Musk. He’s had a wide range of challenges and setbacks in life, not limited to:
Repeated rocket failures at rocket company, SpaceX
Instead of dwelling on his disadvantages or issues, Musk has channeled his energy into finding solutions and creating his own circumstances. His determination and resilience have propelled him to the top of several industries, showcasing the power of a proactive mindset.
Think Musk is unique in this regard? Think again:
Oprah Winfrey was born to a teenage solo mum, grew up without running water or electricity, and suffered childhood sexual abuse
Arnold Schwarzenegger was raised in Austria, which was devastated by WW2. He had an alcoholic father and lived in a home without running water or electricity
J.K. Rowling was a single mum who struggled to make ends meet
Steve Jobs was the child of two immigrants
Ed Sheeran dropped out of school and slept in subway stations
Putting politics aside, before he made the rich list John Key was raised in a state house by a widow mother who had fled the holocaust
New Zealand’s wealthiest person, Graeme Hart, dropped out of school at 16 and worked as a truck driver and panel beater
2. Poor People Think Ahead to the Weekend, Rich People Think Ahead to Their Children's Children
While the poor may be more focused on instant gratification, the rich tend to have a long-term perspective. They consider the impact of their decisions on future generations and work toward building a legacy. This forward-thinking approach enables them to make strategic investments, build successful businesses, and secure inter-generational wealth.
By thinking beyond their own lifetimes, the rich lay the groundwork for leaving a legacy and ongoing prosperity, while the poor struggle to break free from the cycle of short-term thinking.
Often, the rich aren’t even that focused on wealth at all, wealth just comes as a byproduct of their efforts. Let’s consider Elon Musk’s latest pursuits:
Mass manufacture of electric cars to help reduce our dependance on fossil fuels. Musk doesn’t even patent the technology, it’s available for any competitor to use!
Travel to Mars to ensure the human race isn’t dependent on one planet for our survival
Purchasing Twitter to facilitate and safeguard free speech
Yes, there is a financial return for these efforts, though it’s clear Musk’s aim isn’t just to make an extra buck!
3. Poor People Buy Liabilities, Rich People Buy Assets
The disparity in wealth accumulation can also be attributed to divergent spending habits. Poor people tend to spend their money on liabilities — items that depreciate over time — such as luxury goods, excessive entertainment, or expensive cars. In contrast, the rich focus on acquiring assets — investments that generate passive income or appreciate. They invest in stocks (shares), property, businesses, and other ventures that have the potential to grow their wealth significantly over time.
Let's consider two hypothetical individuals, Mike and Lisa. Mike, who is struggling financially, purchases a brand-new sports car that immediately starts depreciating in value (i.e., dropping in price if he were to sell it). On the other hand, Lisa invests in a rental property. While Mike's car loses value, Lisa's property generates a steady stream of rental income and has the potential to appreciate over time through capital gain. Lisa can then allocate this passive income as she sees fit, perhaps to help her retire early, buy a nice car for herself, or maybe to support a worthy cause. In this way, by prioritising assets over liabilities, the rich increase their wealth and create a solid foundation for financial stability.
4. Poor People Want the Cheapest, Rich People Want the Best Value
Attitude influences the way we make purchasing decisions. While the poor often prioritise finding the cheapest option, the rich consider the overall value proposition. They understand that quality products and services may come at a higher initial cost but can be a smarter choice over the long run. By valuing quality over price, the rich maximise the value of any purchase, ensuring long-term financial stability and growth.
Let's consider the scenario of purchasing a kitchen appliance. Imagine you have two options: a cheap appliance with a tempting price tag, or a well-crafted, high-quality appliance that comes at a higher cost. Initially, the cheap item may seem like a bargain, but as time goes by, it starts to show signs of wear and tear. It breaks down frequently, requiring costly repairs or total replacement. On the other hand, the well-made item, while more expensive initially, proves a wise choice. It withstands the test of time, performing flawlessly year after year. Its durable construction and superior craftsmanship ensure it remains functional and efficient, eliminating the need for repairs or replacements. By choosing the well-made item, you save money in the long run and enjoy the convenience and reliability it provides, ultimately lasting a lifetime.
The rich also know this applies to a whole range of services too:
The rich understand the importance of surrounding themselves with a network of professionals who can provide expert guidance and support. They seek out financial advisers (including us here at Become Wealth!), lawyers, accountants, and other professionals to help them navigate financial matters and make informed decisions. By leveraging the expertise of these professionals, the rich optimise their wealth, minimise risk, and capitalise on investment opportunities.
The rich understand the value of acquiring knowledge and expertise in their pursuit of success. The wealthy prioritise personal growth and continuous learning, recognising that education is a powerful tool for expanding their horizons and unlocking new opportunities. They are willing to invest in quality education, whether it's through universities, specialised training programs, micro-courses, or to hire personal coaches and mentors.
5. Poor People Think "I Can't Afford That," Rich People Think "How Can I Afford That?"
Poor people often view financial constraints as insurmountable barriers, thinking, "I can't afford that." In contrast, the rich adopt a growth mindset and ask themselves, "How can I afford that?" The rich explore creative solutions, seek out opportunities to increase their income, and leverage their resources to achieve their goals. This proactive mindset allows them to overcome limitations and pursue lucrative opportunities.
6. Poor People Think Problems, Rich People Think Solutions
The mindset of the rich and the poor can often be distinguished by their approach to problems. While the poor tend to focus on the problems themselves, the rich have a natural inclination to seek solutions.
When faced with the rising cost of living and feeling like their income is insufficient, a poor person might express frustration and blame circumstances. On the other hand, a rich person's mindset is geared towards finding ways to overcome the challenge. They ask themselves proactive questions such as: "How can I earn more?" which will lead them to explore various avenues, such as seeking a bonus or promotion at their current job, starting a side hustle, acquiring new skills to increase their value in the job market, or even considering relocation to another country with better opportunities. The rich understand that dwelling on the problem won't bring them closer to a solution, so they focus their energy on action and exploring possibilities to improve their financial situation. This forward-thinking attitude empowers them to find innovative solutions, adapt to changing circumstances, and ultimately increase their wealth.
The Bottom Line: Why the Rich Get Richer and the Poor Get Poorer
Attitude is the underlying force that separates the rich from the poor when it comes to wealth accumulation. From thinking long-term instead of seeking short-term gratification, the rich demonstrate a mindset that positions them for financial success. They take ownership of their circumstances, prioritise assets over liabilities, seek value over price, and proactively seek solutions to life’s inevitable issues.
While it's important to acknowledge that external factors do play a role in wealth disparities, the power of attitude should not be underestimated. By adopting a proactive mindset, we can begin to shift the needle and build a wealthier, happier life. Remember, it all starts with the right attitude!
It’d be the pleasure of one of our trained professionals to help you work through any of the topics mentioned above, so get in touch today.
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