Why the Rich Get Richer and the Poor Stay Poor

I needed a little pick-me-up the other day, so I decided to do some Facebook scrolling to cheer myself up.  That might seem a little odd and probably not the first place you would go, but hear me out. Facebook can be a gold mine if you use it right.

If you are ever feeling down about your life accomplishments or decisions just go ahead and hop on Facebook and scroll until you come across some of your high school classmates. If you went to a high school like mine then it’s like an episode of Jerry Springer on steroids. I guarantee you’ll feel better about your life after looking through some of that, but anyway, let me get to my point. A guy I went to high school with had posted a picture of himself with not one, not two, but FIVE new watches (the cherry on top was that you could see he was wearing a house arrest ankle bracelet). I don’t know this guy’s financial situation, but let’s just say I have a pretty good feeling that he had no business buying those (or if he even did buy them if that house arrest anklet is any indication).

I’ve since moved away from that town I grew up in, but I’ve found that type of frivolous spending is rampant everywhere. And it’s a real problem. Whether it be gold Lamborghinis in Miami or the biggest set of car rims I’ve ever seen in Washington DC (the thing seriously looked like a Crown Victoria monster truck), there are signs of wealth flaunting anywhere you go. You just can’t escape it, and that’s because we’re living in a society where people feel like they need to “flex” in order to impress the people around them. It’s just human nature to want to show off, but if you fall into that mindset you’re setting yourself up to be much poorer than you have to be. Sure, you might impress a few people with your flashy things, but at the end of the day I can safely say it will end up not being worth it and wealthy people know that.

There’s a stark difference in the way wealthy people handle money versus how poorer people handle it. The wealthy person mindset is to put your money towards things that will make you more money, essentially making your money work for you. They’re always thinking how they can best utilize their assets to create more assets. On the other side, when a person with the poor person mindset gets their paycheck their first reaction is to immediately go out and buy things that quickly depreciate in value and do not build more wealth. This leads to the poor person living paycheck to paycheck while the wealthy person gets richer and richer every month. By the way, it truly is a mindset. A doctor could have a poor person mindset and a guy that works the register at a fast food restaurant could have a wealthy person mindset. It’s all about what you do with your money.

This type of behavior always reminds me about a study that Stanford did back in the the 1960’s and 70’s, and if you’ve ever taken a psychology course you’ve probably heard of it. The one I’m referring to is the Stanford Marshmallow Experiment, and I’ll give you a little breakdown of it in case you’re not familiar with it. Researchers at Stanford did a study based on delayed gratification with young children as the test subjects. The researcher would place a treat (marshmallow, cookie, pretzel) in front of a child and tell them if they could wait to eat it until the researcher returned they could have two treats instead of just the one. The researcher would then leave and return about fifteen minutes later to check up on the child and see if they had eaten the treat. Follow-up studies were done years later and found that the children that could wait to eat the treat typically had better life outcomes including higher SAT scores, higher levels of education attainment, and lower BMI to name a few. Maybe there is something to that old saying “good things come to those that wait”?

I think we can all agree that buying stuff makes people happy, but there needs to be a level of self-constraint. I realize that just throwing money into investments isn’t always the most thrilling thing to do, but if you can avoid buying all the trinkets with your paycheck then you’ll be able to buy something MUCH better later. By no means am I saying you shouldn’t enjoy your money, but if you’re struggling to pay your bills how about you put the credit card away for awhile?

Be like the kids that didn’t eat the marshmallow immediately, otherwise you might find yourself as one of the main characters in someone’s personal Jerry Springer special on Facebook.

Author: Finance Brofessor

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