AI Summary #
Here is a summary of the podcast episode:
The host discusses the concept of wealth and how it’s relative, with no objective measure. They share a study that found Americans believe they need to earn over $1 million per year to feel rich, but when adjusted for inflation, this number only accounts for 0.6% of the population in 1990. The host argues that people’s definition of wealth has increased exponentially, making it difficult to compare oneself to others.
The host proposes a spectrum of wealth, categorized into 19 levels, from “complete reliance on kindness” (poorest level) to “being respected and admired by others” (richest level). They emphasize that wealth is relative and that comparisons are futile. The host shares examples, such as a rookie baseball player earning $500,000 compared to Mike Trout’s $36 million per year, highlighting how wealth can be skewed.
The host notes that the comparison game is almost impossible to win, regardless of one’s financial situation. They reflect on their own article from 12 years ago, which sparked controversy when suggesting that someone earning $34,000 per year could be considered rich. The host has learned from this experience and now advocates for a more nuanced understanding of wealth.
The spectrum of wealth is divided into levels such as “psychological poverty” (envy and inadequacy), “social bankruptcy” (disdain from others), and “adaptive poverty” (inability to keep up with lifestyle expectations). The host emphasizes that the most difficult financial skill is getting the goalpost to stop moving, as people’s expectations have shifted over time.
The final levels of the spectrum include “fake admiration of wealth,” “financial poverty and life wealth,” and ultimately, “being respected and admired by others.” The host concludes that wealth is relative and that comparisons are futile.
AI Transcription #
Welcome back to the podcast this is episode 15.
Today we’re going to be talking about the spectrum of wealth.
I heard this Chris Rock joke many years ago, Chris Rock, one of my favorite comedians of all time.
He said, if Bill Gates woke up with Oprah’s money, he’d jump out the window.
Most comedy, it’s funny because it contains a nugget of truth in there.
All wealth is relative.
There is no such thing as an objective measure of what wealth is.
And that is so true that I think most people’s definition of wealth can be so skewed in the eyes of somebody else.
There’s a study that came out recently, it was published on CNBC.
It asked Americans how much money you need to earn per year for you to feel rich.
And the most common answer in the survey was over a million dollars per year.
Which I understand that if that’s your answer to, I don’t fault you for it.
In today’s society I get why you would believe that.
What’s interesting about this number, a million dollars a year, is that adjusted for inflation?
It works out to something like $250,000 in 1990 money when you adjusted for inflation.
And I went back and looked, how many Americans earned over $250,000 a year in 1990?
The answer is just over 600,000 out of 250 million people who lived in the country at the time.
So here you have today’s definition of rich in 2023, equates to being in the top fraction of 1% in 1990, not that long ago.
I think what has happened here over the last 33 years is that people’s definition of what rich is has increased exponentially even adjusted for inflation.
That to me is just another indication that all wealth is relative.
It’s not about how much money you make, it’s how much money you make relative to other people.
Three hundred years ago, Matasque said, if you want to be happy, that’s easy to accomplish.
But most people want to be happier than other people.
And that is very difficult because we overestimate how happy other people are.
So this problem of a shifting definition of wealth or happiness whatever you’re trying to measure has been a problem forever and it will be a problem forever.
Back to income and wealth, I’ll show you what I mean.
Think about a rookie baseball player who earns, let’s say, $500,000 a year.
He is by any definition rich.
But let’s say he plays on the same team as Mike Trout who several years ago signed a $430 million dollar, 12 year contract.
By comparison to his teammate, that rookie baseball player is broke.
But then let’s think about Mike Trout.
$36 million per year is an insane amount of money.
But to make it on the list of the top 10 highest paid hedge fund managers last year, you needed to earn at least $400 million per year.
So relative to them, even Mike Trout looks broke.
And then let’s compare those high paid hedge fund managers to one of the top five highest paid hedge fund managers.
And to be on that list, you need to earn at least $800 million per year.
So compared to them, even the $400 million hedge fund manager looks like he’s falling behind.
And now let’s compare those hedge fund managers to somebody like Warren Buffett, whose personal net worth went up by $30 billion in 2021.
And then compare Buffett to somebody like Elon Musk, whose net worth went up by $200 billion in 2021.
Which if you’re keeping score, that equates to more money per hour, then Mike Trout makes every single year.
There’s virtually no limit to the comparison game.
No matter how much money you’re making, there is probably somebody who is earning not just more money than you, but way more money than you.
And when you realize that, you realize that the comparison game of trying to sum up how wealthy you are or might be is a game that’s almost impossible to win.
12 years ago, I wrote an article pointing out that to be the top 1% of wage earners in the world, not the country, but in the world, you needed to make something like $34,000 per year, which a lot of people in America do.
And the article got a lot of flak.
People were insulted and hurt that I would call somebody who earns $34,000 a year rich.
And maybe I deserved that criticism.
I would not write something like that today.
I’ve learned my lesson.
But the point I was just trying to make is that wealth is completely relative.
That somebody who feels poor in one context could actually feel rich and look rich.
In a different context through somebody else’s eyes, it’s all relative.
The most difficult financial skill is getting the goalpost to stop moving.
And today’s level of global wealth has moved it a town over.
Even household income adjusted for inflation is now more than double what it was in the 1950s.
But I guarantee you that most people do not feel twice as wealthy today than they did in the 1950s because their expectations have shifted.
So again, there is no objective level of wealth because people just compare themselves to other people and what other people have.
It’s always been like that and it always will be.
But I got to thinking, what would a spectrum of wealth look like?
If you try to describe it with words and feelings, not with numbers, not by saying if you earn over this dollar amount, you are wealthy and if you earn less than this amount, your poor, that will never make sense because it’s always a shifting figure.
But how would you describe the spectrum of wealth with words?
I tried to do it that a little bit here and I came up with 19 different levels of wealth.
And this is the spectrum of wealth from what I would say is the poorest to the richest.
And I’m going to go through those 19 levels now.
The first level, the poorest level of wealth, I would say, is the complete reliance on the kindness of strangers for your sustenance.
That is a deep level of poverty.
Everyone can imagine what that is like.
The second is what I would say is your income is actually above average.
But you are overcome with envy and a feeling of inadequacy towards those who earn more than you do.
What I would say is psychological deep poverty.
Then let’s say you actually have a large income and a big net worth.
But you gained it.
It was acquired in a way that brings active disdain from people who you would otherwise want to like you.
In that sense, I think you are socially bankrupt.
Next let’s say your lifestyle expectations consistently grow faster than your income and your net worth.
What I would say is adaptive poverty.
Next is you have so much money that you can do nothing and doing nothing leads to boredom at best and self-destruction more often.
That let’s call it ironic poverty.
Next is you have a large income and large net worth that you are satisfied with.
But your career and your assets are fragile.
They are often leveraged and will disappear when the world shifts only a little bit, leaving you yearning for the money you used to have and became accustomed to.
That let’s call it pent up poverty.
Next, let’s say your entire personality is built upon the appearance of being wealthy.
In that attracts a predatory social group that will abandon you without remorse the moment your money stops.
Let’s call that fake admiration of wealth.
Next let’s say that you have a large income and large net worth that you made in a job that you hate and it requires such long hours that it derails your social and your family life.
That is you have financial wealth but life poverty.
Next is you have a job that you love and you are surrounded by people who you enjoy.
But it’s a job that doesn’t pay very well and it leaves you vulnerable and stressed about your finances.
That is financial poverty and life wealth.
Next, you have enough money to stay comfortable and a good group of friends.
But you didn’t earn the money yourself.
Creating a lack of pride and ability to appreciate the value of a dollar that makes you feel poorer than someone who has less money but they earned it from hard and meaningful work.
Okay, next you can afford a little bit more than people you interact with daily and it makes you feel superior to them.
That is technical wealth but it’s actually insecurity that is likely to backfire into social poverty.
Next you can afford a little bit more than people who you interact with everyday but you still live the same material lifestyle as they do.
Which creates social cohesion among your friends that is valuable but so hard to quantify.
In that scenario you have a high savings rate that puts a gap between your mood and most financial hassle.
Next, you like your job so much that it doesn’t feel like work and it pays you to pay more than you ever expected to make.
That’s getting into the early stages of what I would consider rich.
Next this is number 14.
You could stop earning a paycheck tomorrow and your lifestyle could remain the same for the indefinite future just based off of your investment income.
Next, you could go to bed and wake up when you want to.
You have time to exercise, you have time to eat well, you have time to learn and time to think slowly and to clear your calendar and do what you want when you want to do it.
That is like health wealth.
Next number 16.
You can and you want to use your wealth to help other people and you want to help them because you care about them not because it will make you look good or because it will make them beholden to you.
I heard this quote recently that I loved.
It said, If you demand recognition for the money that you donate, that is not charity, that is philanthropy, big difference between the two.
Next, you genuinely feel no benefit from the social signal of wealth because everyone who you want to love you would still love you even if you were not wealthy.
So everything you spend money on is for its utility rather than its glitz and glamour and attention.
Next number 18.
The people you love the most will still have to work hard in life but your wealth provides them with a safety net that will help them avoid undue hardship.
And last, this to me is what I would consider the highest level of wealth.
You are respected and admired by people who you want to respect and admire you regardless of your financial circumstances.
Like illogically speaking, you are now on the Forbes list of billionaires.
That’s all for this week.
We’ll see you again next time.