Many of our assumptions about wealth are wrong

December 26, 2009 08:46 pm | Updated 08:46 pm IST

You can’t drive your way to happiness, yet some people believe otherwise, rues Thomas J. Stanley in ‘ Stop Acting Rich… and start living like a real millionaire ’ ( >www.wiley.com ). “They may see some fellow driving a fully accessorised BMW, Corvette, or Cadillac and assume something about him. They whisper to themselves, ‘There goes a happy guy. If I had that car instead of my Toyota, I would be off the far end of the happy scale.’”

Alas, there is no significant correlation between the make or brand of motor vehicle you drive and your level of happiness with life, Stanley instructs. “Earning more money may make you somewhat happier, but spending that money (particularly on cars) won’t.” Most people who are economically successful in objective terms do not need status brands to convince themselves or others in their social circles of this fact, he finds.

Apart from the rich who may drive prestige makes of motor vehicles, there are those who ‘act rich,’ the author discovers. The ‘actors,’ the ‘pseudo-affluent’ are those who ‘think they are actually rich, even upper-middle-class rich,’ and those who ‘believe that they will soon be rich.’

The book emphasises that there is a major difference between earning a high income and actually being wealthy (or, financially independent). Income is not the same measure as wealth; and if you do not have investments (of which your home can be no more than 25 per cent) valued at $1 million (at least), you are not wealthy, the author guides. “It does not matter what college you attended, for how long, or the number and types of degrees you have earned. Educational achievement is not wealth.”

Often, the acting-rich crowd has people who are college graduates earning good incomes, and who feel compelled to display the products and brands that they think many truly rich people own, observes Stanley. And, in the process of exaggerating their wealth, “often they have to struggle, really struggle, to pay their club dues, lease payments on their prestige makes of automobiles, payments on the interest-only jumbo mortgages, private school tuition, and on and on.”

What good is it to drive a Mercedes, live in an expensive home, belong to a country club, and pay up for wine and spirits if you are always living on the edge of financial solvency, the author asks? Or, “if you can’t weather an economic downturn? If there is any question that you might be unable to pay for the college of your daughter or son’s choice? Or can’t pay for healthcare services for your parents or grandparents?”

Considering the drastic times, a radical suggestion in the book is that ‘we should be required to file a statement of net worth when we file taxes, with the government subsequently issuing us colour-coded licence plates that allow us to buy cars within a certain price range, based on our financial health.’ For, ‘That would take care of the temptation to buy false badges of success.’

Many of our assumptions about wealth – who has it, what they spend it on, how they live – are downright wrong, the author bemoans. “We have confused status and prestige with wealth.” He adds that while the glittering rich and the merely wealthy spend below their means, it is the hyper-consumers, particularly high-income individuals, who have little wealth that spend on those things they assume their flush counterparts spend on.

“We try to emulate the consumption patterns of the glittering rich, not realising that we can never pass muster and will only erode our own wealth by doing so.”

Helpful counsel for those who would pause to listen.

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>BookPeek.blogspot.com

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