Thursday, June 19, 2008

Definitions of wealth

I’m starting a new section of this blog to compare and contrast the different ways wealth is defined. In an era of keeping up with the Jones, one’s wealth can be realized in many different manners. In SoCal wealth can be defined by zip codes, wheels, or silicon and nips-and-tucks. In other words- down here- wealth is the ability to buy stunning things.

However, I’ve just started The Millionaire Next Door by Stanley and Danko. While its’ data is outdated (I’d never let students turn in paper 100% supported by ten-year-old studies…), I think in 1996 it was a turn in the way this materialistic society thinks about money.

Their definition of wealth is:

(your age)(pretax income from all source except inheritance)/10 and compare this to the wealth you’ve actually got

If your wealth is twice this amount you are a very wealthy person.
If your wealth is half this amount you are an under-accumulator of wealth.
If you’re in between, you’re average.

So how do I stack up?
(25)(0)/10=0 and I’ve got more than that in the bank- in fact I’ve got thousands more than that amount!

Whoo-hoo! I’m rich!

Ah- so this calculation doesn’t work for the unemployed.
I’d suspect this definition has ceiling effects (what would a person who is 110 really need that much money for? They’re going to die soon…) and floor effects (does a five year old need more wealth than their weekly allowance?). But I see it as a good general rule of thumb.

I wonder how other people stack up using this rule.


david santos said...

Excellent post!
Happy day

So Cal Savvy said...

Thank you! You were the first person to post on my site- I appreciate it!