It is all about long-term potential and character

Have you ever noticed how people tend to judge you right away when you meet them?


One of my biggest pet peeves has been the fact that people judge you immediately based on some quality they assign. Perhaps the most common and arguably the worst case is when people judge you based on how much money they think you have. People’s behaviours and the cars they drive often do not reflect how much money that actually have. Bill Gates for example at times, has been seen driving a 2008 Ford Focus. Gates owns other cars of course, but he is not profligate about flaunting his wealth. Neither is Warren Buffet. A very high percentage of the very wealthy tend to keep a low profile rather than flaunting their wealth. This corroborates the claims of other books that I have read, most notably Thomas J. Stanley‘s The Millionaire Next Door (Stanley has an entire series about these books), which explores this concept in greater detail. For those who have not read the series, here is a quick summary.


However, most of us are not going to be interacting with celebrities on a daily basis. Most of us are going to be interacting with “normal” people. Normal people judge based on appearance. The funny thing is that even there, the way that people dress, act, and what cars they own are not reliable indicators of wealth. Appearances can be deceiving. Often those who are driving top-end luxury vehicles are deeply in debt relative to their income. Anecdotally, I once spoke with a Certified Financial Planner (CFP) who said that the ones who own the most luxurious items, from her experience were those who were not always the wealthiest, but often upper-middle class types who acted wealthy. They actually do not know how much money a person has and they judge them based on that. I suppose that is the worst of all worlds.


You can see this most visibly with commissioned salespeople and sometimes waiters in restaurants. They will give the best service to those who they think will buy the most expensive items (as they are being paid on commission in the case of sales staff) and for the waiters, who they think has the most money for tipping. However even in our daily interactions you can see this happening still. I have noticed that a very large number of people do tend to treat people who they think have lots of money better.


Being young, I am of modest financial means myself, but I have found myself becoming less and less impressed by open displays of wealth. Often I find that those who are what Stanley called the “glittering rich” are only buying their status symbols because they think that they have something to prove to the world. They are often very insecure and as many waiters no doubt discover to their chagrin, are not always the best tippers. Sometimes, but not always. One lesson that I have learned is to be modest, even if I ever do become wealthy. Personally, if I ever become very rich, I firmly believe that I should donate most of it when I die to a charitable cause.


However, this phenomenon does seem to fool a very large number of people. It is very deceptive, but the effect is still very powerful, especially for those who do not know. This may be a good demonstration of the Dunning-Kruger effect.


In reality, being rich has nothing to do with fancy status symbols and everything to do with net worth. Ironically, people who spend their money on status symbols often have much less net worth. That is because such symbols (like luxury cars) are often rapidly depreciating assets. I suppose you could make the case that real estate in certain areas, luxury real estate even could be an investment, but such people seldom purchase their large homes to act as a long-term investment or as a source of income. There is also the fact that larger homes are more expensive to maintain and that such people have already often taken huge amounts of debt to pay for their homes when they are already heavily indebted to begin with. The bottom line though is that it is net worth that defines wealth, not the fact that a person owns high end brands, automobiles, etc.  Today I wonder when I see such things what percentage of people who own such vehicles are as wealthy as they seem and what percentage are deeply in debt.


Actually, I would argue even net worth may be a poor metric, especially for younger people. It is not about take-home salary or even net worth. It is about what they have the potential to develop into and whether or not they choose to exercise that potential. A person that is poor today or in debt, but with outstanding long-term potential can still become a relatively well-off individual later on in life, provided they make the right choices. They invested in themselves, their networks, their careers, and everyone else around them to become something. You would not know that though seeing them from the start.


Even in the case of those who choose to not exercise their potential in monetary earnings, that is not necessarily a failing. One of the people I work with for whom I have a lot of respect for choose to work at his position because he believed in the cause rather than maximize his earnings potential. There is often more to life than money. In that case, I should note that it is character that trumps all else in this case.


The mindset you should have I find is that you should not care as much about what people think about you. Certainly not those who are fooled by the status symbols. There are always going to be judgmental people. You cannot change human nature. I will freely admit that I too make the mistake at times of judging without knowing. I suspect that if you are honest with yourself, you will as well.


In the past, I have noted that IT people often lament the level of ignorance that people have on computers and technology. I suspect that CFPs must often do the same for their clients as well. It must be shocking how many people are living beyond their means, even when they are making high salaries. Financial literacy may be one of the most important things that a person can learn.


Finally, I think that this speaks volumes about what is wrong with our society. We have in some ways, become a decadent society, that looks at short-term immediate ownership rather than say, long-term potential or character.

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