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IT’S ONLY BEEN relatively recently that mankind has come to rely on banks, brokerage firms and investment companies to build wealth.
Tangible property—land, gold bars, houses, livestock and so on—was the standard of wealth just a couple of centuries ago. The Bible frequently cites cattle to signify someone’s wealth. If folks had “cattle on a thousand hills,” they were a billionaire in that era. Wealth was something that you could physically lay your hands on.
By contrast, today, we can look up accounts on our computer and, in a flash, determine our net worth. It’s funny when you think about it: Figures on a computer screen can make our spirits soar and plunge.
Meanwhile, physical assets can still represent wealth, of course. But some folks take this to an extreme—to their detriment. Let me explain.
I’m an accountant by nature and training. Numbers on paper or a computer screen mean real wealth to me. It gives me a feeling of security knowing that my wealth is safely locked in a bank vault or somewhere similar that a thief can’t reach. Yes, scams and fraud exist. But I figure my intangible wealth is mostly safe as long as I act prudently and carefully watch over it.
What about physical assets? They just don’t mean that much to me. My wife and I didn’t go for the lavish home when we built our house 32 years ago. Sure, houses can go up in value, but to us it’s just a functional living space. We didn’t build the house because we thought it would be a good investment.
Yes, the house has value, but its worth just doesn’t feel as real to me as money on a computer screen. Owning our home does spare us the cost of renting. Yet we still have to pay property taxes, homeowner’s insurance and for the occasional major repair. All of these drain money from our net worth.
I know many others feel differently. They get no happiness from figures on a computer screen. They need to own something physical to get a feeling of contentment.
It could be a thousand different things: TVs, cars, shoes, Harleys, vacation houses. Nothing wrong with that—unless the things they buy don’t go up in value. Then, they can end up owning a lot of junk.
My wife has worked as a bank teller at three different institutions over the decades. She told me once that I’d be surprised at the number of folks driving up to her window in expensive cars who are overdrawn on their checking account.
Driving a fancy car makes them appear wealthy. The car is there for everybody to see. If folks act rich but don’t have money, there’ll be trouble when they want to retire. I’ve seen situations like that in my life, and I’m sure you have, too.
Here’s a good example: One couple started out much more successfully than us. They got great, high-paying jobs right out of college. They made twice what my wife and I made in our best years, and that was just at the very beginning of their careers.
Yet money seems to flow through their fingers like sand. Their yard is littered with old cars, motorcycles, ATVs, trailers and some things whose purpose has me stumped. None of this stuff is new, but when they bought it, they said it was “a great deal.”
To me, most of it looks like junk.
Every time they had two nickels that they could rub together, they ran out and bought something else. They got antsy when they had any cash in the bank. It demanded to be spent.
Sometimes, they’ll travel across several states to buy a “bargain” car. These bargains sometimes had hidden problems and blew up in their face. Occasionally, they made money selling some of their bargains. But most just took up space around the house. Their garage is so full their cars don’t fit.
I couldn’t figure it out. Why not just go to work, draw big checks, pay off the house early and max out their retirement accounts? It doesn’t require any special skill or ability. You just need the discipline to do it year after year.
Why does this couple engage in such time-consuming futility? Then it hit me. These good folks couldn’t look at a spreadsheet and see real wealth. Instead, they had to put their hands on something physical to feel their wealth—even if it was an old junk car.
As they advance to middle age, I fear their time for saving and preparing for retirement is slipping away. I also fear that they’ll hit some financial bumps in the road—a job loss or health issues—that will rock their world, and they won’t be prepared financially.
Ken Begley has worked for the IRS and as an accountant, a college director of student financial aid and a newspaper columnist, and he also spent 42 years on active and reserve service with the U.S. Navy and Army. Now retired, Ken likes to spend his time with his family, especially his grandchildren, and as a volunteer with Kentucky’s Marion County Veterans Honor Guard performing last rites at military funerals. Check out Ken’s earlier articles.
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My X; wife and I volunteered to deliver Thanksgiving food to folks that had been pointed out as needy. Most were indeed in dire problems.
One house had so many toys in front. We both knew where this families problem was!
I was a CPA for 40 years, and have the same “accountant gene” as you. After seeing people’s money habits, I describe people as “savers” or “spenders.” I am a saver, and still find it difficult to understand people’s lack of financial understanding and their spending habits; it must be their genes. Saving and controlled spending are easy for me. A year ago, I bought “My Money Journey” for my kids and some of their close friends. Some of the book has rubbed off on them.
This article reminds me of the Psychology of Money book. I’ve thought a lot about how my upbringing has affected my attitudes and choices toward money. We never had much, and I always say my family was on the bottom rung of middle class. My father was always in debt, and my parents had to declare bankruptcy in the 80s, which was a big shock to my mother (my dad handled all the finances)—in fact, it was the beginning of the end of their marriage.
The effect of all of this on me has been to make me extremely risk-averse and in need of financial security. Looking at our net worth on the computer DOES keep me calm, and I’m sure my family history is why. But I could also see that growing up in modest circumstances as I did could cause one to want to spend lavishly when they have money of their own.
This describes my sister and her husband: “Yet money seems to flow through their fingers like sand.” They have spent their money on toys galore. Now that they are entering their 60s and she’s lost her job, I know a reckoning is coming, unfortunately. I can post this here because without a doubt they are not HumbleDollar readers!
My idea of wealth is two adult children who both have their heads on straight , working hard in their chosen careers and are happy and….still call their dad for advice. Priceless.
In regards to net worth, I like the story (possibly Jane Austen in “Pride and Prejudice”?) who referred to a person being worth 20,000 pounds. That is to say, their net worth can provide an annual income stream of that amount. And since the primary purpose of my nest egg is to provide an income stream on which to live, that is a useful way to think about it.
Another interesting thing about “Pride and Prejudice” is I seem to recall the upper middle classes “living on the four percents”, i.e. interest in long-duration government bonds (consuls). Sort of like our modern day 4 percent rule.
Ken,
Another excellent post!
As – former – computer “geeks” we, too, feel like the numbers in our spreadsheets do represent “real wealth”.
When we downsized the hardest things for me to give away were my books.
The other stuff were just things and I’ve easily gotten used to not having them.
I still miss my books.
But I feel that – hopefully – they’re now in the hands of other people who appreciate them.
I am a slow reader and because of that I obtain used books on line rather than borrowing from the library. Unlike you most books I have no attachment to and give away to relatives, or to my town’s library for their semiannual book sale. I feel it honors the book to have others read it rather than having it sit on a shelf collecting dust.
Well, I’m with you. The house I bought after my first divorce was less than I could theoretically afford, and I lived there for the next thirty three years. Even when I was traveling I didn’t collect a lot of physical souvenirs. However, watching other people move into my CCRC I realize I’m an outlier. Even after downsizing they seemed to have so much stuff.
On the other hand, my net worth helps me sleep at night, but doesn’t feel like wealth. Of course, I grew up in England thinking wealth was a country estate with a stately home, rather than flashy cars.
I know of someone similar to those you describe. One in particular had a career in sales because he was good at BS’ing. He’s a wheeler dealer of everything. Now in his early 70’s, he has owned maybe 200 vehicles over his lifetime. Owned 50 different types of aircraft and has his own airstrip. Yet, he’s a junk collector with useless items his kids will have to dispose of. Will scam insurance companies to collect big. I could go on and on. Yet he criticizes me having a new home, keep my vehicles a long time and enough money not to worry. I think his plan is to stay one step ahead of the IRS. Our conversations have become unwelcome now and have had to block him out of my life. Sadly, he is a relative and one thing he will never have is Enough.
Interesting. We look at the spreadsheet exactly 2 times per year, and do indeed get satisfaction by doing so. Other things are at play in bad money habits as well. Depression causes some to spend. Narcissists have to keep up with the Jones. Others just missed out on an accountants (or in my case the tax preparers) nerd genes. Hope I’m not the guy laying on his deathbed wishing I’d bought that classic car.