wealthy http://www.wisebread.com/taxonomy/term/9171/all en-US Peak Debt and Income http://www.wisebread.com/peak-debt-and-income <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/peak-debt-and-income" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000001512809Small_1.jpg" alt="Rich person giving money to poor" title="Rich person giving money to poor" class="imagecache imagecache-250w" width="250" height="169" /></a> </div> </div> </div> <p>The big argument in the debate on the stimulus packages was between two groups. The demand-side folks wanted to make sure that the money got into the hands of the poor, because they'd spend the money, boosting the economy. The supply-side folks wanted to keep money in the hands of the well-off, because they'd invest it, providing increased productive capacity to boost the economy. (See also: <a href="http://www.wisebread.com/5-creative-ways-to-invest-during-a-weak-market">5 Creative Ways to Invest During a Weak Market</a>)</p> <p>If you're interested in looking into the issue a bit more deeply than the economic pundits in the mainstream media usually do, check out <a href="http://www.philipbrewer.net/wpx/wp-content/uploads/2011/03/Peak-Debt-Income-v7.25.10p.pdf">Peak Debt and Income</a> (PDF), a new paper by&nbsp;Ronald M. Laszewski. (I linked to his previous paper in my <a href="http://www.wisebread.com/peak-debt">Peak Debt</a> article.)</p> <p>There are two threads to Laszewski's argument.</p> <h2>Maximizing Household Assets</h2> <p>Laszewski creates a simple model of the economy as a tool for investigating the question of how to get household balance sheets back in order after suffering the problems diagnosed in the earlier Peak Debt paper:</p> <blockquote><p><a id="fck_paste_padding"></a>At the time it appeared that a peak in consumer purchasing power had already been reached, and that it was likely that there would be a long period of economic decline to follow. Three ways in which the consequences of the large over-hang of debt might be ameliorated were examined: (1) a significant growth in real personal income, (2) a default on outstanding debt, and (3) a central bank induced hyper-inflation.</p> </blockquote> <p>The earlier paper had gone on to demonstrate that options two and three would probably have little effect in boosting future economic activity. Option one, on the other hand, could be effective.</p> <p>The result of Laszewski's further analysis is that growth in GDP is strongly dependent on how total income in the economy is divided up.</p> <h2>Consumption by Income Group</h2> <p>From the end of World War II until the early 1980s, the top 10% got about 34% of total income. In recent years the share taken by the top 10% has grown sharply; they now get almost 50%. If the income fraction received by the top 10% was returned to its historic value, the current incomes of the other 90% of households could be increased by 30%.</p> <p>As the demand-side analysts have been pointing out, the rich spend much less of their income. The poorest folks spend almost 100% of their income, average folks spend about 90%, and the top 10% spend only a little more than 50% of their income.</p> <p>Putting these facts together, Laszewski calculates the effect on the economy if the income distribution were returned to something like its <a href="http://www.wisebread.com/patriotism-and-personal-finance-a-brief-walk-through-american-history">post-war norms</a>. If the richest 10% only got 34% of the national income (instead of the 50% they're currently receiving), the increased spending on consumption would boost GDP by 4.2%. Other assumptions about how the money might be redistributed could add as much as 10.5%.</p> <p>The math in this paper isn't as complex as in the previous paper. So, if you're interested, take a look at Laszewski's <a href="http://www.philipbrewer.net/wpx/wp-content/uploads/2011/03/Peak-Debt-Income-v7.25.10p.pdf">Peak Debt and Income paper</a>&nbsp;(PDF).</p> <h2>Key Takeaways</h2> <p>The supply-side folks are wrong. At this time, additional business investment will produce very little additional growth in GDP.</p> <p>The demand-side folks are right. Getting extra money into the hands of the bottom 90% of the population would produce substantial growth in GDP.</p> <a href="http://www.wisebread.com/peak-debt-and-income" class="sharethis-link" title="Peak Debt and Income" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/peak-debt-and-income">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-gdp-still-important">Is GDP Still Important?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-i-miss-about-the-recession">What I Miss About the Recession</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-these-8-things-to-profit-from-the-improving-economy">Do These 8 Things to Profit From the Improving Economy</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-inflation">Why Inflation?</a></span> </div> </li> </ul> </div> </div> </div> </div> Financial News Economy GDP peak debt poor wealthy Tue, 15 Mar 2011 12:00:09 +0000 Philip Brewer 504638 at http://www.wisebread.com Tactics of the rich http://www.wisebread.com/tactics-of-the-rich <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/tactics-of-the-rich" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/sunsinger.jpg" alt="Sunsinger statue in Allerton Park" title="Sunsinger" class="imagecache imagecache-250w" width="250" height="334" /></a> </div> </div> </div> <p>There are things the rich do that working class and middle class folks don't. Some of them--living off the return on capital rather than wages or salary--are only available to the rich. Others--seeking a first-rate education for your kids, working for yourself rather than others--are things that ordinary folks do to the extent that they can, but their ability is limited. Even so, it's worth learning the tactics of the rich and applying them where possible.</p> <p>Some of the tactics of the wealthy are unsavory. One key tactic is to share as little as possible of the profits of the enterprise. This is why working for yourself is such an important tactic--the owners and managers are in a position to grab the lion's share. Put your suppliers in the position of competing with one another for the lowest price, put your workers in the position of competing with the unemployed for the lowest wage, and pocket the savings (via dividends if you're an owner, via bonuses if you're a manager).</p> <p>Others, though--tactics like frugality, living within your means, avoiding debt (except to invest in a money-earning enterprise), and working hard--are positive virtues, or at least neutral. (And they're generally the ones that lead to wealth creation. The others are largely about wealth preservation.)</p> <p>These tactics are not kept secret, exactly, but various factors keep them largely out of view from ordinary folks. The biggest is simply that consumption is interesting while frugality is dull. So, buying a yacht makes the news, whereas driving a 10-year-old car one more year doesn't get noticed. The result is that popular culture shows the excesses of super-wealthy but not the ordinary lifestyles of the ordinary wealthy. But there are way more of the latter than there are of the former.</p> <h2>Not a level playing field</h2> <p>There are a lot of ways in which the deck is stacked in favor of the rich. The advantage I mentioned at the beginning--owners and managers being able to skim off an outsized share of the profits--is a huge one, but there are others:</p> <ul> <li>The legal system heavily favors the rich.</li> <li>The financial system offers high quality services to the wealthy (often for free), while the poor make do with expensive check-cashing services and payday lenders.</li> <li>The rich are in a much better position to wait for a good deal--which gets them lower interest rates on loans, lower rents, lower insurance rates, and better prices on just about everything.</li> <li>And then there are simple social realities--affluent neighborhoods are safer, stores that cater to the affluent have more and better choices (and often cheaper ones as well), schools in affluent neighborhoods are better and safer.</li> </ul> <h2>Knowledge can help level it</h2> <p>If you know enough, though, most of these advantages of the wealthy are available to the poor as well:</p> <ul> <li>Anybody can start a small business. The internet has vastly increased the range of options that require almost no capital (and has made a wide range of formerly expensive services available cheap or free). This mean that anybody can work for themselves rather than others.</li> <li>Anybody can be frugal and live within their means, as long as they don't assume that they're entitled to some particular standard of living.</li> <li>Anybody can avoid debt. More important, anybody can understand the difference between <a href="http://www.wisebread.com/good-debt-bad-debt">productive debt</a> (invested to earn the money to pay itself off) and unproductive debt (spent on consumption).</li> <li>Anybody can do the research to find the good public schools. The affluent have a lot more choices, but you only need to find one affordable place to live in a safe neighborhood with good schools.</li> <li>Anyone (even <a href="http://www.wisebread.com/making-direct-deposit-safe-for-the-garnished">people with garnishments</a>) can open a bank account and quit using the check-chasing places.</li> <li>Anyone can be patient and refuse to take a bad deal--which will, over time, get you the same good prices that the rich get.</li> </ul> <p>It takes time and effort to learn the tricks and pitfalls, and this is where the children of the affluent get their biggest leg up: They learn these things from their parents and their friends' parents, from their classmates and teachers and neighbors. They also generally reach adulthood with at least <a href="http://www.wisebread.com/join-the-rentier-class">a little capital</a> (instead of student loan debts). But you can learn these things too. It's one reason for reading Wise Bread.</p> <p> &nbsp;</p> <a href="http://www.wisebread.com/tactics-of-the-rich" class="sharethis-link" title="Tactics of the rich" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/tactics-of-the-rich">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-you-won-the-lottery-you-would">If You Won The Lottery, You Would...</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/if-youre-so-smart-why-arent-you-rich">If you&#039;re so smart, why aren&#039;t you rich?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-decent-standard-of-living">A decent standard of living</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/chinese-money-habits-how-my-culture-influences-my-attitudes-toward-money">Chinese Money Habits - How My Culture Influences My Attitudes Toward Money</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/cheap-and-romantic-ideas-for-valentines-day-and-any-other-day-of-the-year">Cheap and Romantic Ideas for Valentine&#039;s Day (And Any Other Day of the Year)</a></span> </div> </li> </ul> </div> </div> </div> </div> Personal Finance Frugal Living class investments rentier class rich tactics wealthy Sun, 12 Apr 2009 21:18:49 +0000 Philip Brewer 3037 at http://www.wisebread.com If You Won The Lottery, You Would... http://www.wisebread.com/if-you-won-the-lottery-you-would <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/if-you-won-the-lottery-you-would" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/lotto.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="154" /></a> </div> </div> </div> <p>We've all had the dream where the bouncing white balls in the glass orb line up perfectly or the numbers we picked magically materialize in the exact order we predicted to set us up for life. Millions of dollars are coming our way, and we don't have to worry about anything anymore.</p> <p>We've won the lotto. Ahhh...the life that would await us...</p> <p>But the odds of winning the MegaMillions are 1 in 135,145,920, so don't hold your breath and get back to work.</p> <h3>Not Likely</h3> <p>While the lottery is a nice fantasy, it's much more likely you'll wind up in a position (CEO, anyone?) that pays you tons of money for working hard instead of getting lucky. And that's something I've been thinking about a lot lately. What would I do if I won or was making millions of dollars a year? I've talked to friends about this and usually the answer is the same:</p> <blockquote><p>I'd work for a few years and then retire to an island somewhere!</p> </blockquote> <p>I understand the sentiment&mdash;who wouldn't want to quit the rat race and go relax on a beach without a care in the world?&nbsp;But I always play devil's advocate and try to get them thinking about this at a deeper level. My argument is that they probably wouldn't just walk away like that.</p> <p>Here's why: whatever motivation drives you to work hard enough to make it to CEO&nbsp;(or any other top-paying position) isn't just going to disappear after you've &quot;made it.&quot; If anything, that drive would get even stronger. Sure, this sometimes happens with certain athletes after they get their big contract (which always draws the ire of fans&mdash;you're getting paid to play a game!), but most athletes follow the same pattern. They play because they're driven to compete and win.</p> <p>You can't just turn off the machine that got you to the top like that&mdash;it's not that simple.</p> <h3>So What Would You Do?</h3> <p>I love imagining these kinds of scenarios and trying to picture what I would do. Last year, I imagined what I&nbsp;would do if I&nbsp;had all the money in the world and how my life would change. Here's the weird thing about that little exercise, though: <a href="http://www.thewriterscoin.com/2007/11/12/all-the-money-in-the-world-part-1/">I&nbsp;figured out</a> that most of the things I would do or change were things that had nothing to do with money.&nbsp;</p> <p>They were things I&nbsp;could do in my life right now.</p> <p>I didn't want to buy a new car or move into a mansion. The things I wanted to do were more about personal fulfillment (although I did want to buy an apartment on the Seine and travel more). But most of it was about the job I had and some other things I&nbsp;could actually control.</p> <p>And I asked myself, &quot;Why don't you do them then?&quot;</p> <p>It was quite the moment for me&mdash;I&nbsp;was surprised that money had nothing to do with the things I&nbsp;would do if I&nbsp;had tons of money. Does that make sense?</p> <p>Granted, once you have a couple million bucks in the bank, things change...but I think it's still a worthwhile exercise to picture yourself in that position to see what you would do. Go ahead and list out the things you would do right away if money wasn't an object: would you quit your job or get a different one?&nbsp;If you quit, what would you do with all that spare time? Would you move to a different apartment or house?&nbsp;</p> <p>Think about it for a second and then look the list up and down. Can you do any of that stuff right now?</p> <p>Let me know what you find out!</p> <a href="http://www.wisebread.com/if-you-won-the-lottery-you-would" class="sharethis-link" title="If You Won The Lottery, You Would..." rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carlos-portocarrero">Carlos Portocarrero</a> of <a href="http://www.wisebread.com/if-you-won-the-lottery-you-would">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ten-tenets-for-arranging-your-rich-part-1-rich-is-relative">Ten Tenets for &quot;Arranging Your Rich&quot; - Part 1: Rich is Relative</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-same-actions-will-produce-the-same-results-ten-tenets-for-arranging-your-rich-part-2">The Same Actions Will Produce The Same Results (Ten Tenets for Arranging Your Rich: Part 2)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tactics-of-the-rich">Tactics of the rich</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-six-figures-really-that-much">Is Six Figures Really That Much?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-get-rich-by-being-evil">How to get rich by being evil</a></span> </div> </li> </ul> </div> </div> </div> </div> Personal Finance Career and Income Lifestyle lottery millions rich wealthy Fri, 03 Apr 2009 12:21:35 +0000 Carlos Portocarrero 3003 at http://www.wisebread.com Are You a Yawn? http://www.wisebread.com/are-you-a-yawn <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-a-yawn" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/yawn.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>I am familiar with the meaning of hippies and yuppies, but today I heard a funny new word for a demographic of people - yawns. YAWN stands for Young and Wealthy but Normal. It is a pretty silly acronym, but this is how the radio program I was listening to described this group of people. </p> <p>Yawns are people in their 20s to 40s who are usually wealthy through their own work. Many of them are self-made millionaires and have a lot of disposable income. However, they prefer to live simple lives away from excessive consumerism. They usually live very much beneath their means and like to purchase local produce. They are also more environmentally friendly and philanthropic because they want to save the world with their money and they really think they could do it. They live relatively muted lives they do not have as much entertainment value as other rich people, and thus the Sunday Telegraphy of London coined the acronym YAWN to indicate that these people live somewhat boring lives.</p> <p>The radio program also suggested that the amount of Yawns is increasing because recent history has seen several cycles of pro-materialism and anti-materialism. For example, the communists and hippies of the 50s and 60s spawned a materialistic backlash in the next generation and produced the selfish yuppies. Now the rampant consumerism is once again producing a generation of people who hate the mainstream materialism. I think that may be true because I am seeing a growth in the popularity of frugality and &quot;green&quot; products amongst my friends and colleagues.</p> <p>As much as I like to be a person fitting the description of a yawn, I would hate to say, &quot;I am a yawn!&quot; because that just sounds like that I am admitting I am a boring person. I am glad that there are so many rich people who are living beneath their means and conscious about helping others, but why do they have to be stuck with such a silly moniker? So what do you think? Are you a yawn? Would you like to be one? </p> <a href="http://www.wisebread.com/are-you-a-yawn" class="sharethis-link" title="Are You a Yawn?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/xin-lu">Xin Lu</a> of <a href="http://www.wisebread.com/are-you-a-yawn">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/it-costs-nothing-to-be-nice">It costs nothing to be nice.</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-six-figures-really-that-much">Is Six Figures Really That Much?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/these-diy-magazines-can-help-you-be-self-reliant">These DIY Magazines Can Help You Be Self-Reliant</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-forced-frugality-last">Will &quot;forced frugality&quot; last?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-big">How to save BIG</a></span> </div> </li> </ul> </div> </div> </div> </div> Frugal Living Lifestyle demographics lifestyle people wealthy Thu, 01 May 2008 05:09:26 +0000 Xin Lu 2056 at http://www.wisebread.com