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Why So Many Rich People Don’t Feel Very Rich

economix.blogs.nytimes.com

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Re: Why So Many Rich People Don’t Feel Very Rich

#171

Post by jacques_chester »

schammy wrote: post #59
jeremymims wrote: post #38

This article wonders why the rich are getting richer and the answer is compound interest. Having $1 million in the bank will reliably generate between $25k and $50k per year. Having $2 million in the bank will reliably generate between $50k and $100k per year. Having $3 million in the bank will reliably generate between $100k and $150k per year. So someone with $3 million in savings and still working their 200k job w…

I know of no such bank offering interest rates even close to that. You're talking 2.5% - 5%. That's unheard of these days. At my current bank, $1M in a money market account would generate about $2,500/year, which is nothing short of insulting. Who are these fabled banks offering 10x the interest rate?

> Who are these fabled banks offering 10x the interest rate?

As usual it depends on country. In Australia the standard savings rate is around 4% at the moment. I can go to my bank and get 6.2% PA term deposits on a 7 month term.

Re: Why So Many Rich People Don’t Feel Very Rich

#172

Post by RickRoll »

chc wrote: post #169
RickRoll wrote: post #162

Earlier quoted context omitted.

If you don't know much about a given job it looks low risk. But a successful doctor, etc. have taken many risky decisions, with not enough information.

Bearing in mind that we are talking strictly in the financial sense — and not, for example, about risky medical decisions — can you explain what you're talking about further? What major risky investments do doctors make on a regular basis?

1. "But to break the 99th percentile - I think that was $342K/year for 99.5th percentile of single filers - you need to take on some risk. Like ... taking on high-visibility, high-impact projects that may fail - often at the cost of your regular duties - within your day job."

This is the OP.

2. Taking a bad important medical decision will have bad financial consequences - lower reputation, not so good references, patient complains leading to big losses of time - lower income in the future. Also there's stuff like which team do you join, what new technical skills do you get, which part of the world you work in. You take a lot of risk, you can expect higher rewards on success.

Re: Why So Many Rich People Don’t Feel Very Rich

#173

Post by benmccann »

roadnottaken wrote: post #80
jasonkester wrote: post #34

Earlier quoted context omitted.

The cool thing about this approach is how nicely it works with compound interest. Live like a college kid for the 5 years after you leave college, and I defy you not to put $10k per year into the market. Fresh out of school with my $32k salary, I'd regularly find month-old paychecks lying around undeposited because I simply didn't need the money to support my cheap apartment, used car, and 10lb sack of potatoes. With…

Boy I'd be happy with 10%/year or 5%/year right now. I think you're still living in 1998. Eventually it's making more on its own than you're putting in. This actually takes a long time.

The S&P 500 was up 11% last year, the Dow was up 9.5%, and the Nasdaq was up 17.5%

Re: Why So Many Rich People Don’t Feel Very Rich

#174

Post by mturmon »

schammy wrote: post #59
jeremymims wrote: post #38

This article wonders why the rich are getting richer and the answer is compound interest. Having $1 million in the bank will reliably generate between $25k and $50k per year. Having $2 million in the bank will reliably generate between $50k and $100k per year. Having $3 million in the bank will reliably generate between $100k and $150k per year. So someone with $3 million in savings and still working their 200k job w…

I know of no such bank offering interest rates even close to that. You're talking 2.5% - 5%. That's unheard of these days. At my current bank, $1M in a money market account would generate about $2,500/year, which is nothing short of insulting. Who are these fabled banks offering 10x the interest rate?

California state bonds are in this vicinity. Rates of return vary. Tax-exempt.

Re: Why So Many Rich People Don’t Feel Very Rich

#175

Post by zyfo »

chc wrote: post #168
zyfo wrote: post #157

Earlier quoted context omitted.

"The secret of happiness, you see, is not found in seeking more, but in developing the capacity to enjoy less ." - Socrates

Do you know what dialog this came from?

I don't remember reading it any dialogue, just stumbled upon it on the web. Quite frankly I'm not 100% sure it's a genuine quote, but it's a good one nonetheless ;)

Re: Why So Many Rich People Don’t Feel Very Rich

#176

Post by roadnottaken »

benmccann wrote: post #173
roadnottaken wrote: post #80

Earlier quoted context omitted.

Boy I'd be happy with 10%/year or 5%/year right now. I think you're still living in 1998. Eventually it's making more on its own than you're putting in. This actually takes a long time.

The S&P 500 was up 11% last year, the Dow was up 9.5%, and the Nasdaq was up 17.5%

How 'bout the year before that?

Re: Why So Many Rich People Don’t Feel Very Rich

#177

Post by hoag »

The argument presented in the article is plausible, but I call it "the guy with the S65 AMG Benz admiring the guy with the Maybach" argument, i.e., the Maybach is a few hundred thousand dollars dearer than the Benz, itself a $200K car. While valid, I think it illustrates the effect of the unhappiness problem rather than the underlying cause.

I call the root of the problem The SimCity Effect.

The SimCity Effect -- as I describe it -- is essentially a real life application of the economic principle of diminishing marginal value, i.e., the more of a given good you gain, the less value you gain from each subsequent good.

I think wealthy peoples' unhappiness with life is due to the far greater decrease in value -- or utility -- they gain each time they move up the ladder than those with lesser means.

This is in turn is caused by a fundamental failure by most people to have a predetermined sense of "satisfaction" or "accomplishment" in life. This is where the SimCity analogy comes to play.

Those of you who grew up playing SimCity probably experienced this phenomenon: you start building a city, eagerly growing larger and larger, with more and better public utilities, education, etc., and your satisfaction curve probably faced an initial upward curve: all things being equal, the goal of SimCity was arguably to build the largest, cleanest, most educated, and high tech city you could manage.

Trouble is, that's a pretty vague goal: what does "large" mean? 1M people? 2M? 10M? In the absence of a clear and defined goal, and no way to "win" the game in the traditional sense, most SimCity builders suffered a very real sense of diminishing marginal value, and thus their satisfaction -- joy with the game, etc. -- decreased as well.

This is not to say that one should set finite goals beyond which we should strive no further, but rather that we should at least set a mental note alerting us to when, in our life, we have obtained our goals, so we can at least breathe a sigh of relief and say "I've done it." Anything beyond that would be a bonus and it would essentially reset our internal "utility" curve accordingly to, perhaps, begin anew. This would certainly explain serial entrepreneurs and the like.

This to me is the real problem with happiness -- or lack thereof -- at the highest echelon of society: it is not unhappiness per se, but rather a lack of satisfaction due to what can be best described as satisfaction desensitization.

Just my 2c.

Re: Why So Many Rich People Don’t Feel Very Rich

#178

Post by Goladus »

presidentender wrote: post #30
Goladus wrote: post #22

Earlier quoted context omitted.

It's not that simple. It's more like Make $100K, meet basic expectations for standard of living with $20K to spare = feel comfortably well-off Make $100K, do not meet basic standard of living expectations = feels poor. Have enough money to blow a few million investing in startups just for the learning experience = rich. The catch is that living near people making more is likely to raise your standard of living expect…

I argue that living in Cambridge indicates that you value living in Cambridge, or at least moreso than you would living in Hudson, give or take the cost of moving.

Cost of moving can be very significant, in many ways (not just financially) and often people are reluctant to do it. That means you often have to make a guess as to what you're going to value a year or five (or ten) from now. And often, you have to make that decision under pressure, or make lots of tradeoffs and wind up paying for things you don't value in order to have the things you do. In other words you might have chosen a location in Cambridge because that was the only place that had the amenities you wanted, and its proximity to Harvard and MIT is coincidental.

And not only do your values change, but the environment changes too. The place you choose to live now may change significantly.

Re: Why So Many Rich People Don’t Feel Very Rich

#179

Post by endtime »

tptacek wrote: post #166
endtime wrote: post #164

Earlier quoted context omitted.

I don't understand what you're trying to imply. My point is just that money is useful and it can make your life and the lives of your family easier, and that there are reasons for wanting it other than not being Buddhist enough.

I'm saying you can justify a near arbitrary amount of acquisitiveness in the name of your kids lifestyles. Generally I think acquisitiveness is fine as long as it doesn't come at society's expense. But, I also think a lot of benign-seeming acts by acquisitive people come at a subtle significant cost to society; e.g., supporting the repeal of the estate tax.

By "society" should I assume you mean "other people who want my stuff"?

I see nothing unjust about an arbitrary amount of acquisitiveness. I don't think success, or its material reward, are inherently sinful. I do think it's unhealthy to be obsessed with acquisition for its own sake, as opposed to when one has healthy intentions for that which is being acquired; but in any case, that's nothing to do with the collective good to which you refer.

Re: Why So Many Rich People Don’t Feel Very Rich

#180

Post by cabalamat »

cabalamat wrote: post #142
msluyter wrote: post #31

Earlier quoted context omitted.

I believe there have been psych studies to this effect. Asked whether you'd rather make 110k when everyone else is making 80k, vs. 140k when everyone else is making 200k -- assuming prices remain constant, which is economically dubious, of course, but hey, it's a thought experiment -- and most people choose the former. Here's another study to that effect: http://www.telegraph.co.uk/science/science-news/3315638/Rela..…

It's more than economically dubious, it's outright false. If everyone else is making less than you, then whenever you buy anything whose cost is mostly personal service, it'll be cheap in real terms (i.e. the amount of time you have to work to buy one hour of someone else's labour). Conversely, if other people earn more money than you, you're going to have to work longer to pay for someone else's time.

It strikes me that this is the difference between wealth in the past, and wealth now.

A medieval king was vastly wealthier than me in his ability to command other people's time. But I am vastly more wealthy than him in my ability to command nature, which means I have access to much better medical care, communications, and entertainment opportunities than he had.

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