Yeah, That Kind Of Rich
How Misconceptions Of Wealth Hurt The Wealthy
The New York State Lottery runs a television campaign for the Powerball
jackpot with a rather smug tagline: “Yeah, that kind of rich.” In one of the ads,
a man wanders through an underground parking garage filled with expensive
sports cars, pressing the button on his keychain and listening for the
response of a beep. Then we see him pull out of the garage, and we suddenly
realize that all of those cars are his, because, of course, he is that kind of rich.
In another campaign, the lottery asks, “What would you think about if you
didn’t have to think about money?” A woman wanders around her manicured
estate garden and thinks to herself: “Isn’t it weird that pizzas are round, but
the box is square, and the slices are triangles?”
Here’s the pitch: Get rich, buy cars, wander aimlessly, and
Such campaigns represent—and indeed encourage—our
never think about anything consequential again.
societal misinterpretation of wealth and financial security.
Ads like these exploit some of our basic human emotions.
People line up to spend hard-earned money on a 1-in175,000,000 chance at fortune, willing to suspend logic for
hope. We’re taught to take risks in our quest for wealth,
because wealth quells our biggest fears and fulfills our
deepest desires. Surely, being that rich (presumably in this
case a multi-hundred-million-dollar Powerball winner) can
allow for a few sports cars and a more relaxed outlook on
financial security. But what does being that kind of rich really
mean, and at what point do you—or should you—really stop
thinking about money?
Many believe that ultra-wealth allows for spending without
consequence and the ability to no longer contemplate
important financial decisions—or even make them at all. We
perceive wealth as limitless, conjuring images of Scrooge
McDuck swimming through his piles of gold coins. We often
hear things like, “He has more money than God” or “Her
money grows on trees.” But the ironic truth is that even the
ultra-wealthy are often prone to running the well dry, partially
because they sometimes operate based on those same
misconceptions. The perception of infinite reserves and the
desire for more can enable general apathy, grossly misguided
decision-making, or both.
CONWAY WEALTH GROUP, LLC is owned by Michael W. Conway who offers securities and investment advisory services through Summit Equities, Inc.,
Member FINRA/SIPC, and financial planning services through Summit Equities Inc’s affiliate Summit Financial Resources, Inc. 4 Campus Drive,
Parsippany, NJ 07054. Tel. 973-285-3600 Fax 973-285-3666 Direct Office Tel. 973-285-3640
One of the most universal problems we face as consumers is
say one hundred $500 chips—to reflect his week’s earnings.
our inherent penchant for spending. We act based on the
Both players have made the same financial choice—to bet
core of our emotions, constantly seeking explosions of
against at least a 50% chance of a negative outcome—based
endorphins from what’s shiny and exciting—that new car
on their earnings and what they expect they’ll soon earn.
smell, the new dress, that investment promising 50% returns.
They’re both making an unwise spending decision, and both
And as in lottery ads, consumer media enables us to morph
will end up broke at around the same time if they continue to
our emotional desires into something logical, retreating from
play (unless they’re excellent blackjack players). Indeed,
our impulse control and allowing thoughts of: “Go ahead, you
some of the wealthy rely on future inflows just as much—if
deserve it.” Advertising reassures us that our life’s success
not more—than the middle class and poor. In a 2014
and happiness hinges on our decision to spend on that new
Brookings Institution paper, titled “The Wealthy Hand-to-
necklace, TV, or truck. How might people think of you if you
Mouth,” economists Greg Kaplan, Giovanni L. Violante, and
don’t buy that new suit?
Justin Weidner conclude that about 38 million Americans live
Regardless of wealth level, consumers often tend to spend
money based on what they have and what they think they’ll
“paycheck to paycheck,” two-thirds of which are considered
wealthy Americans.
have in the near future. In addition, spending often runs on a
Since emergence from the Great Recession, the reliance on
sliding scale in parallel with income. That’s why we shouldn’t
future income and success to enable spending has become
be so shocked to discover that despite a raise at the
rampant across each section of the wealth spectrum. Credit
beginning of the year, our savings accounts look eerily similar
card spending on consumer products certainly helps to drive
to the prior year.
the economy, but can culminate with disastrous
Think of two players sitting at a blackjack table on a Saturday
night. One player is poor, the other a millionaire. The poor
player has a stack of one hundred $5 dollar chips in front of
him, totaling his weekly earnings. All else being equal, the
millionaire might choose a much higher chip denomination—
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Yeah, That Kind Of Rich / CONWAY WEALTH GROUP
consequences on both a micro and macro level. Amid a
sense of economic improvement and the assumption that
wages will increase, average Americans have driven the
household debt total to $11.83 trillion, according to the New
York Federal Reserve (as of Dec. 31, 2014). Meanwhile,
March 18, 2015
Oracle CEO Larry Ellison boosted his company credit debt to
of 2015 Ferrari—but it will allow for the enjoyment of spending
$9.9 billion last September, much of which he uses on yachts,
in tandem with security and true peace of mind.
homes, planes, cars, etc. He pays with credit partially
because of his limited liquid assets, as much of his wealth
is tied to his approximately 1 billion shares in the company.
If his company fell apart or the stock plummeted in value,
Ellison might struggle to pay down debt amid the chaos.
Former WorldCom CEO Bernie Ebbers famously lost his
fortune after borrowing against company shares that
subsequently disintegrated amid the bursting of the dotcom
bubble. Simply, spending through high debt can prove
dangerous among all levels of wealth.
Wealthy individuals can best create a balance in their
financial and personal lives by escaping the misconceptions
of wealth, resisting the temptations of overspending, and
establishing long-term planning based on long-term goals.
Those that seek professional guidance for their investing,
retirement planning, budgeting, tax liability limitation,
insurance, college savings, etc., are most likely to enjoy their
wealth for their entire lives. Because, of course, they are that
kind of rich.
While susceptible to spending beyond their means, the rich
also might apply more risk through investment decisions—
a loan to a family member starting a restaurant franchise,
a foreign mining operation, a large real estate deal in an
“up-and-coming” section of the city. Those that come into
money quickly—whether through lottery winnings, inheritance,
an insurance payout, a signing bonus, or the sale of a large
asset or business—face even greater risk for loss. The
wealthy sometimes employ these types of atypical
investments in their belief that they’ll survive a singular failure,
or because of a desire for very high (maybe unrealistic)
returns. This might be to compensate for losses from
spending, or the simple hope to have more to spend. Either
way, it often can compound the damage when the
investment fails or an unexpected “Black Swan” event
disrupts markets (or both, as would have been the case for
a real estate investor with no savings during the Great
Recession).
The Lottery ads, like so many individuals that become
wealthy, skip the most significant step that might allow for
a garage full of sports cars and a sense of financial comfort.
While the ad suggests you’ll no longer need to think about
money, quite the opposite is true, especially at the onset
of wealth creation. To be sure, not every person that creates
wealth ends up living paycheck to paycheck or bankrupt.
Many thrive, creating and maintaining wealth after defining
rules and budgets and establishing comprehensive long-term
plans. Planning for the future and defining limits might not
seem as cool—it might even mean buying the 2014 instead
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Yeah, That Kind Of Rich / CONWAY WEALTH GROUP
March 18, 2015
Sources
• “The Center for Microeconomic Data.” - Federal Reserve
Bank of New York. New York Federal Reserve, Feb. 2015.
Web. 26 Feb. 2015.
• Ingraham, Christopher. “Living Paycheck to Paycheck: It’s
Not Just for the Poor.” Washington Post. The Washington
Post, 21 Mar. 2014. Web. 26 Feb. 2015.
• Johnson, Angela. “76% of Americans Are Living Paycheckto-paycheck.” CNNMoney. Cable News Network, 24 June
2013. Web. 26 Feb. 2015.
• Kaplan, Greg, Giovanni L. Violante, and Justin Weidner.
“The Wealthy Hand-to-Mouth.” Brookings Papers on
Economic Activity (2014): 77-138. Brookings.edu. The
Brookings Institution, 2014. Web. 26 Feb. 2015.
• Melby, Caleb, and Laura Marcinek. “Larry Ellison Boosts
Oracle Credit Line to $9.9 Billion.” Bloomberg.com.
Bloomberg, 25 Sept. 2014. Web. 26 Feb. 2015.
• O’brien, Timothy L. “Fortune’s Fools: Why the Rich Go
Broke.” The New York Times. The New York Times, 16
Sept. 2006. Web. 23 Feb. 2015.
• Sandberg, Jared. “Bernie Ebbers Bet the Ranch — Really
— on WorldCom Stock.” WSJ. The Wall Street Journal, 12
Apr. 2002. Web. 06 Mar. 2015.
• Singletary, Michelle. “Suddenly Wealthy, Just as Quickly
Broke: Be Careful with That Windfall.” Washington Post.
The Washington Post, 2 Oct. 2014. Web. 06 Mar. 2015.
20150313-0305
CONWAY WEALTH GROUP, LLC is owned by Michael W. Conway who offers securities and investment advisory services through Summit Equities, Inc.,
Member FINRA/SIPC, and financial planning services through Summit Equities Inc’s affiliate Summit Financial Resources, Inc. 4 Campus Drive,
Parsippany, NJ 07054. Tel. 973-285-3600 Fax 973-285-3666 Direct Office Tel. 973-285-3640