Sunday, May 10, 2015

How the rich and poor think differently about money

As far back as the roaring 20s, writer F. Scott Fitzgerald noted that the rich are “different from you and me.”

Many a person has quipped since then that it’s because the rich have money, but recent research suggests it is more than that. The rich have a different philosophy about money and a different attitude towards it as well.

Understanding these differences is becoming increasingly important as the wealth gap between the rich and the poor widens. Estimates are that by next year, if current trends hold, the richest one per cent of the world population will own more wealth than the remaining 99 percent.

We need look no further than the borders of the United States to see the impact of this trend, since of the top 10 billionaires listed on Forbes’ annual list, eight are Americans.
What can be learn from the attitudes of the really rich?

Playing to win

Rich people buy and sell stocks and make financial investments with a philosophy that this is a game to win. They think big. They don’t think about just breaking even or not losing money as a good end result.
Poor people do. They make their investments cautiously and carefully, always telling their financial planners that at best, they don’t want to lose their money. If they make money, that’s a bonus.

That impacts the level of risk and thus, the level of payback. The poor person has very little money, and they are terrified that they will lose it. The rich person has enough that they can afford to lose some, so their creativity is ignited and they have more courage in the investment game.

Interestingly enough, both economic groups know and accept that reality about the other. A 2012 nationwide study by Pew Research Center found that many Americans believe the rich do think differently than other people.

Besides their creativity in handling their money, the rich were deemed to be more intelligent and hardworking. On the downside, they were seen as greedier and less honest.

Questions of virtue and value

In fact, wealth and value of character were deemed to be another divide between rich and poor, but upon further analysis, it all comes down to perception.
The poor person has a perception that the rich person is greedy because they think big. They interpret their efforts to increase their already considerable wealth as a sign of greed.

The wealthy person, however, believes that they owe it to everyone around them to make their money work for them and create the best of all possible lives. If they don’t help themselves first by making their money multiply, they won’t be in any position to help other people.

Poorer people are advised to pay themselves first and create savings, but they are more inclined to give up that money to a needy friend or family member in the short term, rather than earn interest on it so they can offer more help in the long term.

A question of commitment

Rich people are totally committed to staying rich and will reasonably do whatever it takes to protect their wealth and generate its growth. This contrasts to the attitude of poor people who want to be rich, but are not as dedicated to doing something about it.
The poor person is more apt to buy a lottery ticket and hope that someone else will send them a windfall, as opposed to concentrating every waking moment on building up their wealth.

It’s also has to do with relationships

As Steve Siebold, author of How Rich People Think ( suggests, poor people have an emotional relationship with money, but rich people have a logical relationship with it. They see it merely as a tool that represents options and opportunities. To that end, they are more inclined to use other people’s money (such as banks).

Siebold suggests that rich people also find ways to get paid for doing what they love, whereas poor people end up doing jobs they hate to make money, which they then must spend on pursuing the pastimes and hobbies that they love.

But attitude isn’t everything

What is contentious is whether or not the rich person is actually more intelligent in their quest for wealth, or whether the poor person is mentally shortchanged by their circumstances.

A study conducted by researchers at Princeton, Harvard and the University of Warwick and published in the journal Science (, found that poverty in itself can deter our ability to make decisions about finances and life. Living in a constant state of scarcity amounted to a mental burden equivalent to losing 13 IQ points.

The researchers described the attitude of poverty as bleak, noting that it cuts off your long-term brain. While the rich person makes unlimited long-term plans, confident of achieving them, the person with little or no money doesn’t plan long term because they don’t want to be disappointed when their dreams don’t happen.
Eldar Shafir, author of the study, points out that this attitude about money and decision making is not determined solely by the person, but rather by the context they are inhabiting.

In other words, in discussing the philosophy both the rich and the poor have about money, the poor cannot be glibly chastised for making bad decisions because their context is completely different.
As sociologist Tressie McMillan Cottom notes in her blog, you have no idea what you would do if you were poor until you are poor.”

Financial planning helps at all levels

Nonetheless, experts agree that regardless of how much or how little money you have, acquiring some financial planning education on how to manage it gives you the best chance to grow your wealth and regain some semblance of control.

The biggest issues that keep the average person from growing their wealth are not keeping or maintaining a budget, not tracking their spending, buying everything brand new, spending more than they make, not setting aside any money for retirement, and not saving for emergencies.

In essence, whether we are rich or poor, our prosperity will either increase or decrease largely because of how we use our money, not by how much we have.

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