Millennial Money Snapshot: The thin green line is the difference between being rich and being wealthy. You are “rich” when you make a lot of money, but spend it all. You are “wealthy” when you have enough money to live the life you want to live without worrying about money (i.e. security). For Millennials to become wealthy the rules are actually pretty simple – save money, take on as little debt as possible (except a mortgage you can afford), spend money on experiences instead of things, invest with the right amount of risk, and then don’t touch your investments except to add to them.
Paul Sullivan, the “Wealth Matters” columnist I enjoy reading on Sundays in the New York Times, writes about the differences between being rich and wealthy in his recent book The Thin Green Line: The Money Secrets of the Super Wealthy. In this exceptional book the author covers a lot of ground while conquering a difficult quest – trying to crack the code of the super-wealthy and figure out what makes them so different from the rest of us.
I imagine most readers picking up any book with the tagline “The Money Secrets of the Super Wealthy,” would expect a guide or a blueprint on how to become super-wealthy. This is not that book, but it is a stimulating look behind the curtain of how the super-wealthy make decisions about saving, spending, and living fulfilling lives. The book is a thorough examination of how people live on the two sides of the “thin green line” – the divide between being rich and wealthy.
To find these “secrets” of the super wealthy the author takes an almost anthropological approach – he not only interviewed over 1,800 people while writing this book, he also examined himself as a “subject”. One of the components of the book I liked is that the author is keenly aware of his own “privilege” and enviable position in life – he routinely reminds the reader that not only does he live amongst the One Percent in the posh town of Fairfield Connecticut, he is also a member of the One Percent.
But throughout the book, Paul Sullivan is very transparent that even though he makes a lot of money and lives in a ritzy neighborhood, he is continually worried about which side of the thin green line he is on. These worries include whether or not he is saving enough money, whether he is spending too extravagantly, or whether he is too frugal and not spending enough. This is a tough question for a lot people simply because there are different spending expectations depending on your social-economic class. For example, for someone making $10 million dollars a year it is not a lavish expense to buy a $100,000 car, but for someone making $150,000, it would be an insanely lavish purchase.
The recommendation the author gleans from the super wealthy is to be more conservative in your spending – splurging at the right times for the simple things that give you joy. The author cites an example where he could play golf down the street at a course for $30, but instead splurges to play a nicer course in town for $195 because he can play the course faster and also likes it more. While the author is not a Millennial, he clearly shares the Millennial view that it is worth it to spend a little more on better experiences (like the golf example), because “You only need so much stuff, but you can never have enough stories” (page 100).
One of the strongest areas of the book was the section on education and how many of the super wealthy people invest in high quality education for their children that ultimately can give their children an advantage in life. What I found most interesting was his conclusion, based on the research of University of Chicago economist James Heckman, that it is more essential to invest in early childhood education where children will develop the social skills that are truly what are necessary to live a successful and wealthy life. So based on this analysis it makes the most sense to put your kids in the best pre-school that you can find, but it might not make as much sense to send them to the best college.
I personally think that both quality early childhood education and quality college education are important. But the idea of sending a child to the “best college,” doesn’t have to equate with “top-ranked” or “most expensive,” because the idea of the “best college” has more to do with “fit” in my opinion. I do agree with the author that the increasing focus on SAT prep courses and the need to get better and better grades to get into increasingly tougher to get into schools is likely counter-productive because that pressure is likely robbing children of an adolescence. During one’s teenage years they should be spending more time finding themselves and learning from “trial and error”, as opposed to trying to fit into the perfect college applicant. It is this type of learning and growing and the development of soft skills, more than grades or test scores, which the author reveals truly dictate one’s resilience and wealth potential.
The last section ends with the author pointing the microscope at himself again when he visits the Financial Therapy Clinic run by the Institute of Personal Financial Planning at Kansas State University. Financial therapy is clearly a growing field as more people attempt to deal with their financial anxieties by seeking specialized help.
At Kansas State University researchers are studying how the body reacts when different people talk about money and what they have found is that people get nervous when they have to be transparent and honest about money. The super wealthy tend to think about money very differently than the “rich” – they are savers and worry about not saving enough money, they also believe that they are in control of their own future.
This is an essential take-away that resonated with me as a Millennial – taking personal responsibility, maintain control, and being able to accept contradictory information is essential to long term success. We are in control of our own opportunity to become wealthy and the formula is actually pretty simple.
- The average American has an income of $52,762 and owes $47,000 in debt (1/3 on credit cards) according the US Census data (page 65)
- The One Percent spent 30% less eating out and saved 30% more for retirement than the top 5 percent of income earners (page 66)
- The author estimates that to send one of his children through private school all the way from pre-school through college would cost almost $750,000 in after tax dollars (page 129)
- While most super-wealthy people don’t mow their own lawns, 95% of them cook their own meals and eat most of their meals at home (page 200)
In order to truly be wealthy you have to make a plan, save money, and invest your money until you can live the life you want to live. The whole book amounts to the pretty simple conclusion that living below your means is essential to building wealth – whether you make $10/hr or $100/hr, it is better to be more of a saver than a spender. The compounding effect of saving early and often will have a significant impact on your wealth later in life. For Millennials our long time horizon positions us well to build wealth.
To learn more about Paul Sullivan’s book The Thin Green Line: The Money Secrets of the Super Wealthy, watch the interview of the author discussing the book below.