The Paradox of Wealth

Very Rich, but Very Poor

Money, assets, wealth, rich, poor, destitute: all of these are in some ways less tangible than they may seem. Sure, today we have a world full of have's and have not's. Some are suffering in extreme poverty while others lounge on Caribbean beaches. This may seem to reflect some sort of natural arrangement, but in fact it does not. Wealth is really just a socially constructed system to distribute society's resources.

Imagine for example that you are Bill Gates; you have more money than you could ever dream of. Now imagine that you are in a desert with a low-income person. Nobody else is around. You are both walking through the desert alone together and you happen to find a pitcher of water. What would happen? I suspect that you would simply split the water between the two of you. Outside of market system of society, Bill Gates and any other person suddenly become equals. If something cannot be bought or sold, wealth becomes meaningless.

It's important to remember that in the natural world, money does not divide humanity into those who are worthy of something and those who are not. Society simply has needs and wealth is in a very general sense a reward to those who fill some of these needs. So what happens then when society determines that certain individuals should be given a huge share of total wealth, relative to other people? 

I think it depends.

Money alone really is empty. It really takes meaning when it represents something else. For example, for some people money can come with achievement and the fulfillment of ambitions. These people may feel happy earning more and more money because it represents their own accomplishments. On the other hand, some people seem to happen upon money for seemingly no reason, and in these situations it may generate other feelings.

The Rich Can Feel Poor

I know that often times nobody really wants to hear about the problems of the rich. People may think that they have nothing to worry about because they have all the money that they need. But money is not always a solution and I believe that all life problems can really only be in perspective of one's own life. That being said, I truly want to examine the perhaps sad lives of some extremely wealthy individuals.

If someone becomes rich upon accomplishing a major life goal, reaching some milestone or just by chance, they may feel discontent. If money was a motivating force in someone's life and they suddenly have more of it than they will ever need, it could create a sense of being finished in some way. The sense of achievement and abruptness that could come with wealth may leave some rich wondering "What now?" Money alone might have the effect of interrupting a sense of purpose in the world. 

The Rich Can Also Feel Rich

Perhaps if instead we examine a rich person, or a set of rich people who earn wealth over time, we may find a different outcome. If wealth becomes a part of the journey rather than a destination, it may not conjure the same feelings of a sort of existential dread associated with fulfilling a life goal. Those who are able to come into wealth and adjust their life goals to seek new passions and ambitions, rather than just more money, may feel quite happy with their wealth.

Tension Between Rich and Poor

For some reason, there seems to be a theme in our society of being obsessed with knowing who has money and who doesn't and of creating some sort of judgment as a result. If you are rich, you are taught, probably subconsciously, to look down upon those who earn less than you. On the other hand, if you are poor or even middle class, you may resent those who have more money than you do. 

I believe that no matter the direction of the scorn that it is in many ways quite foolish. There is really no point in disliking an individual or a group of individuals just because they fall into a different financial class than you do. Thinking back to the desert example, after extracting the social construct of wealth from the equation, it's easy to see that everyone is really equal to one another in their intrinsic human value. 

Wealth is just the way that society determines the allocation of resources. Individuals really cannot determine how much society will value their contribution; market forces set wage rates for different industries, companies and individuals. Therefore nobody should judge somebody else simply for a difference in income. 

We are all humans and we are all equal. We should stop letting ourselves believe that a person's financial status is at all indicative of their human value. 

Netflix Psychological Price Increases

Netflix May Be About to Raise Prices

For years, Netflix has charged $7.99 per month for it's online streaming subscription and by all accounts the company is doing quite well. In an attempt to bring in more money each month from subscribers, Netflix appears ready to use some psychology to entice you into paying more!

Middle Price Trick

Many consumers are unaware of the middle price trick, sometimes called reference pricing. This is the practice of using tiered pricing for similar goods to entice the consumer to choose the middle option. There are a variety of examples of this.

Take Starbucks for instance. On menus, coffees are typically offered in three sizes: tall, grande and venti. When choosing to purchase a coffee you may think, consciously or subconsciously, that the venti would be too much, but that the tall would not be enough. You are psychologically enticed to choose the size in the middle, the grande, because you perceive it as average. But Starbucks also has a fourth option that is not advertised, a short, which is even smaller than the tall. If you walked into a Starbucks and saw "short" "tall" or "grande" on the menu, you would be more likely to choose a "tall" because again, you would think to be making the middle of the road choice.

Netflix

This past year, Netflix moved in a similar direction by offering a lower priced option. There is some speculation that Netflix may introduce a tiered system by which the low end service is $7.99 per month, while a premium option is $8.99 and a super-premium option is $9.99. This move would not really be about offering more choice to customers; the purpose here would be to make you feel "cheap" with your $7.99 subscription and move over to the $8.99.

Subtle eh?

I'm not arguing that companies are somehow evil for charging prices in this way. It is up to the consumer to really think about what their needs are when making a purchase. It is my hope that learning a bit about this type of pricing strategy will stop some of you from being fooled into buying more than you really want or need.

Poverty in America

The Sad Truth About American Poverty

Depending on who you are and where you are from, you may think that Americans are either extremely rich or extremely poor. Many Americans truly do fit on one of these extreme ends of the spectrum. The middle class has been shrinking for decades and it is easy to assume that we are a society that is divided by social class. The sad truth is that we are so divided that most of us cannot even notice.

What I mean is that rich and poor Americans live in completely different worlds that often do not overlap at all. The wealthy people of this country live in certain towns, shop at specific stores and may not interact with people who are struggling financially on a day to day basis. Let me show you.

These two images show one of the saddest realities about life in America. The color of each dot represents the average wealth distribution of a particular area. Notice clusters of extreme wealth in the Northeast corridor, particularly between Boston and Washington D.C., and in California. Also pay attention to just how dark most of the rest of the country is. This is what I mean. 

Let's zoom in.

This is the world that I grew up in. For most of my life I never left the area of this map. I thought I knew how the world worked; my childhood was surrounded by affluence. I thought that three car garages, granite countertops, private schools and expensive clothes were average. It was rare that I interacted with someone who came from a different world. Nearly my entire region belonged to the wealthiest 5% of society, but I had no idea.

Imagine what it might be like living here instead.

In fact, it is much more likely to come from a place like this than from where I did. Dark shades of impoverished blue cover the majority of the country. Living here, it may be possible to think that wealth is made up and that average means government assistance, living paycheck to paycheck and wondering if you and your family will have enough to eat. 

Bridging the Gap

We truly are more divided as a country than many of us even know. We are so segregated by class that it is really difficult to see those who are not like us, even when we are paying attention. Our perceptions of our country are so skewed. Perhaps the best thing for all of us would be if these colors were spread more evenly around the map. We could all learn so much from increased exposure to those who are the most different from us. 

City vs. Rural Homes

In my post yesterday I talked a bit about the fact that Americans have the largest homes of any country in the world. But I have also written about the fact that living in cities can be extremely cramped and expensive. So today I decided to talk about the differences between living in the city and in rural areas in terms of space.

Ultimately, homes are much larger in the suburbs and in rural areas compared to cities. For example, in Boston, prices can run upwards of $1,500 per month per bedroom for an apartment or condo. In the far reaches of the Greater Boston suburbs, $1,500 per month can buy a four bedroom house and leave you with money to spare.

This difference in home sizes used to play into the idea that people in the suburbs were wealthy while those in the cities were poor. For a long time, this general idea held largely true. More recently, poverty rates have increased in suburbs while cities have seen increased gentrification. Now a family of four may live in a nice four bedroom suburban home but may be in a worse financial situation than a similar family cramped into a two bedroom apartment in a city. 

It seems that perception of wealth may be changing and therefore so are the material items that people value. For the better part of American history, having an impressive house was among the most important status symbols. But now as many people are electing to have smaller, more humble homes to live closer to cities, it appears that other factors, such as eco-friendliness or perhaps access to public transportation, are redefining American status. 

Why Wealthier Couples Have Fewer Children

The costs of raising a child from birth through age eighteen are staggering. This year the estimated cost of raising a newborn from birth to age 18 tops $250,000. This number does not account for financial support that parents may and often do provide later in life such as the cost of a college education, which bring the total to well over $300,000. One might assume these high costs may indicate a positive correlation between economic status and number of children; however, the inverse is actually true.

Despite the high economic cost to child raising, lower income households throughout the United States and abroad all tend to have more children than households of higher income levels. This type of contrast between expectations and statistical realities serves as a reminder to perform deeper analysis of conditions before drawing conclusions. In this case, there are a number of confounding variables that upon consideration, indicate the likelihood for wealthier couples to have fewer children.

Higher Education Levels: There is a positive relationship between education and income. This means that people who have higher incomes are more likely to have spent extra years pursuing education than those with lower incomes. Increasing the duration of full-time academic pursuits pushes back the start date for careers. Delaying working tends to delay marriage which in turn pushes back the age at which at a highly educated woman is likely to have her first child. Ultimately the gap between marriage and menopause decreases therefore giving an educated women fewer opportunities to have children. Less educated and lower income women tend to have a longer period available for the "traditional" process of career, marriage and children.

Better Planning: Women who have higher incomes tend to have better access to contraceptive measures. In higher income brackets, women are more likely to have health insurance and thus more likely to have more options in preventing unwanted pregnancies. Higher income women of higher education levels are also more likely to be aware of the cost of raising children and are thus likely to place stricter limits on the number of children they plan to have.

Less Need: Historically, one reason for having children was to ensure that parents would be taken care of as they aged. Women would have many children conscious of the fact that some may not live to see adulthood. As mortality rates dropped both for infants and adults, having numerous children increased the likelihood that one or several of these children could support aging parents. Higher income families are more likely to have the financial resources to provide for themselves into old age and so the idea of relying on children for financial support is less material.

It is unclear whether families make the choice to have fewer children simply because they are wealthier or if being wealthy is a causative factor for having fewer children. No matter which direction is the cause, this relationship likely explains the slow decline in the number of children per family throughout the world. Eventually this may slow the rate of global population growth and even out age pyramids for countries with large imbalances.