Are You Rich?

In a number of my posts I have quoted or referred to Ferdinand Lundberg’s The Rich and the Super Rich, a tome that he published in 1968. I’m sure Mr. Lundberg, now deceased, could not have imagined how things would turn out over the forty-five years since, so in many respects his book is dated. It is generally unavailable, although the Dallas Public Library has a non-circulating copy or two. Amazon.com has a few copies for sale at exorbitant prices. My own yellowing copy is held together with Scotch tape.

Quite a bit of this work, however remains true, and probably always will be valid. One of Lundberg’s theses, is that America is controlled by sixty families, all inheritors, and essentially those who pull the strings are rich widows and their gigolos. Whatever its validity at the time, that does not appear to be the case today, at least for the most part.

One point remains generally valid was the subject of Scott Burns’s column in Sunday’s Dallas Morning News. Regular readers will recognize Burns as the author of a personal financial advice column for the News. He is known for giving sage insights and analysis. I was gratified to see that he knew Lundberg’s work, and considered it apropos for his subject. That is, how to determine wealth and who is rich.

Burns quotes Lundberg: “For my part, I would say that anyone who does not own a fairly substantial amount of income-producing property or who does not receive an unearned income sufficiently large to make substantial regular savings or does not hold a well-paid securely tenured job is poor. He may be healthy, handsome and a delight to his friends – but he is poor.”

In other words, conspicuous consumption is not the hallmark of wealth; property and investments that produce a sufficient return to meet one’s recurring needs and reasonable caprices is.

Another way of looking at it is, if one is susceptible to losing their ability to actively produce income and that loss will quickly result in their ability to obtain food, clothing, shelter, and other goods and services to the extent of which they have become accustomed and dependent upon, they are not wealthy.

I’m not sure that I buy Lundberg’s definition of poverty. After all, “poverty” and “poor” can be loaded terms. Nowadays, it seems be fashionable among certain segments of our society to automatically assume that someone living in poverty is virtuous, does not deserve his situation, and it is our collective moral duty to relieve that state, even when the sufferer is culpable and at the risk of jeopardizing one’s own well-being. That’s nonsense. Of course, the converse is true; wealth does not imbue virtue. Nevertheless, being rich is good; poverty sucks.

 

Here is the test that Burns divines from Lundberg’s analysis:

(1) do you make payments on your house or car? Assuming you have those items, if you answer no you may well be rich. If you answer yes, probably not. Especially if your car interest loan has an interest rate greater than the rate of inflation. As far as the mortgage interest deduction goes, I’d rather have the cash.

(2) Does your interest income, exceed what you pay in interest? If you carry a credit card balance, the answer to this question is doubtless no. Thus, you are not rich, unless you’re also rather inattentive to your financial affairs (which many rich people, especially those who inherited or otherwise were gifted a great deal of money are).

(3) Can you keep what you have without actually working? Burns believes that if you answer yes to this question, you probably are close to being wealthy. If not, you may be poor.

(4) You are at a cocktail party and a stranger asks: “What do you do?” Burns states that if this is answered with any “known occupation” you are not wealthy, and probably a workaholic. I take exception to this. In our culture, there are quite a few people who continue to work even if they could quit tomorrow because they love the fray. I know a few people like that. (I generally try to evade that question. When I was a police officer, I would hear a complaint about a traffic ticket; now as a lawyer, I’m asked to give gratuitous legal advice.)

There are the four questions that might test your wealth. The next question is, if being wealthy is desirable, how do we get there. To that, I’m afraid, there is no simple answer. The easiest way of course is to inherit money, but few of us ever do, or if we do it’s hardly enough to do more at the time received to buy a bauble or two. Become qualified in a high paid profession or other occupation such as engineering. That requires education, and not a little hard work.

A fairly sure key seems to be prescience, in the sense of the ability to delay gratification. What follows from that is investment. Now, that term takes on a number of meanings. A bank savings account is one. It does not pay much of a return, but it’s a start. And if interest is compounded, say, monthly, and regular additions are made, even if small, it can add up to an impressive sum in a couple of decades. Somewhat more risky, but with a better return, are stocks and other equity instruments. Blue chips are safe, for the most part. Investing in start ups and new businesses are riskier, but there can be serious return. You’ve doubtless heard of start up businesses who offered their employees stock in the company if they would work for minimum wage during some hard times. Many employees said “no way” and quit. Some stayed, and became overnight millionaires when the company went public. Obviously, that doesn’t happen most of the time. but it can. That’s why any investment portfolio should be diversified. Both to reduce risk but leave open the possibility of a bonanza.

One might complain that “But I have a family that I have to support and I cannot afford to make any investments. I live paycheck to paycheck as it is.” There are two things I would say to that. First of all, prescience would lead one to delay taking on commitments to support others until they’re firmly established supporting themselves. It is true, however, that there are those who don’t realize that until they already have the made the commitment and acquire the responsibility. Those will have to make do with less immediate gratification, in order to start investing. That might bring discomfort, both to that person and to the dependents, but I invoke the aphorism “that doesn’t what kill you makes you stronger.” No doubt catastrophes do occur, but when you observe and stop and think about it, those are rare. If we all ordered our lives around the possibility of a catastrophe, we would not get very far. Anyway, this is my opinion and analysis and it is based on a lifetime of observing. Many make it, if not to unambiguous wealth, at least to moderate comfort. Some don’t. I say, let’s all try for success, and not celebrate, or wallow, in failure.

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