Free Money Finance had a post yesterday asking How Much of a Role Does Luck Play in Money Success? This was in turn inspired by a Wall Street Journal blog post similarly titled What Role Does Luck Play in Getting Wealthy?
(I have trouble making heads or tails of that blog, The Wealth Report. Sometimes it sounds like serious reporting on the world of the seriously loaded, e.g. Switzerland Ranks No. 1 as Home for the Rich, and sometimes sounds like The Colbert Report’s Colbert Platinum segment. e.g. Oprah: It’s Great to Have a Private Jet. Alas, I digress.)
The degree to which financial success is correlated with talent and hard work, which is to say the degree to which money is distributed justly in our society, is a fundamental question of great importance that I don’t have the energy to tackle today.
What I do want to consider is a smaller and related question: are rich people necessarily good at personal finance? It’s a basic premise of a large segment of the personal finance literature from The Millionaire Next Door to Secrets of the Millionaire Mind through Kiyosaki’s Rich Dad series.
I got a comment to my post on Ramsey’s Step 7 that may or may not have been meant as a joke:
I don’t know why people wouldn’t take Dave Ramsey’s advice since he is a Millionaire. I’m pretty positive that you are not a Millionaire so I don’t understand why anyone would take your advice or continue to read what you have to write about Dave.
Ramsey is much richer than I am, and more talented than I in several ways. But does it follow that his advice is better? As I pointed out in my tremendously clever riposte to the comment, Alex Rodriguez is much richer than either of us. Should he host a money advice radio show after he retires from baseball?
Millionaires are actually pretty common in America. Something like 1 in 16 households are millionaire households. To put that in perspective, it’s very roughly the same as Chrysler’s market share, so spotting a millionaire should be no harder than spotting a Chrysler on the highway.
Of course, as socially mobile as we are, and we really are, America doesn’t quite work that way. Most people either know no millionaires or they know only millionaires. If this were not the case, much of the more goofy “millionaire mind” literature wouldn’t work at all. Nobody would believe the secrets dispensed in those books if they could just ask their buddy the millionaire about them.
Well, for those those of you in the no millionaires category, let me share with you a secret from the other camp. Millionaires are not particularly good at personal finance. Generally, they are talented at whatever made them rich. They are good cardiologists, venture capitalists, and consultants. There’s a particularly successful florist who lives a few doors down from me. (Landscaping to die for.)
I’m not even sure that the millionaires I know are, as a group, better than average at personal finance. Having a healthy six-figure income over an extended period means you don’t have a lot of the stress that inspires others to think carefully about their money and develop good habits.
Of course, you are more likely to become rich, or perhaps more importantly, avoid becoming poor, if you manage your finances well. The real test is how much wealth a person has acquired considering their income, something I will grudgingly admit The Millionaire Next Door gets right. But somehow, as that genre progressed and developed, the focus shifted from how people of ordinary means became very comfortable to the secrets known only to the millionaires, which you too can learn for the price of a book and/or tickets to a seminar.
I don’t think that just because a person is rich they are necessarily deserving any more than I think that just because they are deserving they are or will become rich. And being rich doesn’t imply that a person is good at personal finance any more than it implies that they have a medical license or can consistently hit Major League pitching.