Perspectives on Wealth

There is a difference between having, owning, and controlling, and distinguishing between the three is important to understanding what true wealth is, and not getting caught up in fake wealth. Let’s begin with a story, cover the definitions, and then summarize.

Bob has a house, a car, and a watch that all together have a market value of $2 million. Bob has paid off $600k and still owes $1.4million.

Tony has a house, a car, and a watch that all together have a market value of $1 million. Tony has paid for all of it.

Sally has a house, a car, and a watch that all together have a market value of $2 million. Sally has paid off $500k and still owes $1.5 million.

Who is the wealthiest?

Having means you have current legal rights to it, but not complete legal rights. What does that mean? I take a mortgage for a house. This gives me current legal rights to it, but if I fail to pay my bills I will be foreclosed upon. Therefore, I do not have complete legal rights. Government does not count in this definition, since you can never (presumably) have more legal rights than the government (hence why property taxes and government seizure don’t cause this definition to change).

Owning means you have complete legal rights. I’m not leasing this car, I paid it off: I own it now. I paid for this banana and I’m going to have my way with it! (Your thoughts are your own, friend).

Controlling means you as part of your identity have the power to do with it what you want and so it’s basically as if you had full legal rights to it (de facto) even though you may not actually have full legal rights (de jure). Control can be introduced with bullying: I take a soda from you. You have legal rights to it, but for all effective purposes I now control the soda because I’m physically stronger than you and you’re afraid of me. Or I don’t own any shares of a company, but I can influence over 50% of the shareholders to trust my opinion, so for all effective purposes I control the company.

Given these definitions now, we can see that Bob may appear to be wealthier than Tony because at face value Bob has $2 million of assets, but Bob does not own $2 million of assets. In fact, Tony is richer because Tony owns all of his $1 million of assets. What this means is that for you in real life, if you meet someone with cheap items, and you meet someone with expensive items, contrary to your initial impression, the one with cheap items may be wealthier. What about Sally?

Let’s say Tony and Bob’s net wealths are tied to the assets listed. Sally on the other hand is, overall, worth $10 million because her money is invested all over the place and working for her. She minimizes her cash in non-revenue generating assets like a car, a watch, or a house that is rented to herself. On the surface, Sally looks as wealthy as Bob, and if you asked them how much of the assets you can see they owned, Bob would look richer than Sally. But truthfully, Sally is the wealthiest: Sally controls her assets. As part of her identity (net wealth of $10 million) she can convince (bully in the example above) any bank to give her a mortgage or loan for $2 million and therefore then control $2 million in assets even though she doesn’t legally own it completely–she does indirectly because she is wealthy enough to buy outright any of the items, but chooses not to because it’s financially smarter to put the cash elsewhere.

 

Summary: Don’t get caught up in impressions of wealth. If someone is displaying expensive items, either they are financially dumb (Bob) or exceedingly rich (Sally). If you, like most people, are not exceedingly rich, make sure you know what you’re doing when you choose Bob’s lifestyle over Tony’s: the decision making process for that is too complicated to cover here and is highly subjective.

Read more about articles in the Rich vs. Poor Series here.

To find out when more life education writing is released, subscribe on the side! Follow on Twitter, on Facebook, on Google+, on Tumblr.