Peter Carbonara on the downwardly mobile class habits of today’s mega-rich
It used to be that serious wealth accumulated slowly, and those doing the accumulation saw their status change in small steps over generations.
Not anymore. Just 30 years ago, Bill Gates, a lawyer’s son from Seattle, was an extremely bright but somewhat aimless kid who dropped out of Harvard. Now, less than half a lifetime later, he’s the richest man in the history of the world.
How did that happen? We could talk about how the post-industrial economy has turned the planet into a single, winner-take-all global market (and we’d be right). But just as central to the explanation is the fact that what’s generating the greatest wealth today isn’t huge, clunky stuff such as agriculture or heavy industry, but rather the lightest, fleetest and most democratic things of all: ideas – dreams, if you care to get poetic about it. Sure, it still takes capital to get an idea to market; but capital now flows with astonishing speed, and in astonishing volumes, toward the best ideas. From Indian outsourcing moguls to Filipino retailers to Argentine internet tycoons, the people who are producing the most new wealth in the world these days started out somewhere in the middle and climbed up quickly on the strength of their ideas.
And because they rose so fast, Gates and the other new millionaires and billionaires of his generation have brought their middle-class values and tastes with them, redefining the concept of what it means to be wealthy. Noblesse oblige has given way to middle-class notions of thrift, community and civic responsibility. These are people who don’t recognise themselves (or even a kindred species) in the media’s representations of the rich. Who worry that money will spoil their kids or disrupt their friendships. Who can (and sometimes do) buy third and fourth homes, yachts, Bentleys and Gulfstreams, but who still like a good grilled-cheese sandwich and still look for bargains at Costco. Who, above all else, are humbled by the realisation that money can’t necessarily solve all their most difficult problems or fulfil their deepest aspirations.
This kind of ‘middle-class wealth’ manifests itself in different ways from place to place. Wealthy people in Hong Kong have a different idea of family and community and the meaning of money than do people in Bahrain or Arizona. But the underlying realities are similar. In many ways the race for riches is over – for this generation, anyway – and the middle class has won.
The Harrison Group, a Connecticut-based market research and consulting firm, recently took the most detailed snapshot of wealth in America ever attempted. The research, called the Worth-Harrison Taylor Study on the Status of Wealth in America, was developed in partnership with the editors of Worth magazine. The firm set out to learn what the 750,000 families at the top of the heap – the 0.5 per cent of the population that collectively account for approximately half the total net worth of the US population – think about themselves. The group conducted extensive one-on-one interviews with 500 families, each of which has at least $5 million in liquid assets, not counting primary residence, collections and non-liquid business ownership interests. The results are striking to any member of this economic cohort because so many assumptions about the wealthy that are widely held – even among the wealthy themselves – come in for a definitive drubbing.
‘Silver spoons’ and the ‘idle rich’, for instance, prove to be largely outdated clichés. According to the study, 92 per cent of the 500 families surveyed earned their fortunes in their own lifetimes, mostly in the past 20 years and mostly by starting a business. Of that 92 per cent, 72 per cent say their upbringing was poor, lower middle-class or middle-class. As for the notion that the wealthy aren’t like everyone else, well, they don’t see it that way: 81 per cent of those surveyed (including 92 per cent of the newly wealthy) say that despite their affluence, they still think of themselves as ‘middle-class at heart’.
Feeling middle class apparently has a lot to do with one’s work ethic. The wealthy overwhelmingly cite hard work, focus, courage and determination – not connections, intelligence or education – as the key drivers of their success. And they are intent on remaining true to their values. Take one US cable-TV magnate who started out in the business repairing television sets in his basement. Well over a billion dollars later, the man lives in the same home he lived in when he started. The house has been expanded over the years, but his old repair bench remains a prominent fixture in the basement, a kind of shrine to remind him and his family how they got where they are.
As the image suggests, the wealthy appreciate what wealth can do for them – indeed, only 20 per cent say money is not important – yet insist that it is not central to their lives. While 95 per cent describe themselves as happy, for instance, by and large they don’t see wealth as the source of their happiness. In fact, the wealthy are less likely than members of the middle class (44 versus 55 per cent) to feel they’ve grown happier as they’ve accumulated money, and less likely (45 versus 55 per cent) to agree that money does come close to ‘buying happiness’.
On the contrary, says Harrison Group vice chairman Jim Taylor, many of the respondents – particularly those who became wealthy most recently – find their money to be a source of anxiety. To some extent, that’s a function of all the new decisions they have to make in order to invest, spend and give away their money wisely. Forty-four per cent of the newly-wealthy say that the more money they accumulate, the more complicated their lives have become.
Another factor is the speed at which they’ve grown rich. The middle-class wealthy tend to believe that their success as entrepreneurs – and as people – is at least partly a function of their ability to survive without money, to tough it out for all those years before the market recognised the power of their idea. Little wonder that when the key element of their identity is suddenly and radically altered, they’re often thrown for a loop.
Squaring one’s self-image with reality poses further challenges for some, especially in the US, says Paul Schervish, a Boston College professor of sociology and director of the school’s Centre on Wealth and Philanthropy. A certain amount of squeamishness about money is built into the American character, he says. Cultural assumptions about equality and fairness are underscored by powerful biblical ideas about, say, how hard it is for a camel to pass through the eye of a needle. ‘In the American iconography, there is this demonisation of the wealthy, this notion that if they have a lot of money, it’s because they stole it from somebody else,’ he says. That’s a deep-rooted idea, and one that’s hard to shake even if you’re the one with the money, as reflected in the study’s findings that the wealthy are less likely than middle-class respondents (75 versus 89 per cent) to feel they ‘deserve every penny’ they have; that they are more likely (33 versus 26 per cent) to fear they may be judged overindulgent in the things they own and the way they live; and that only 11 per cent want others to even know that they’re wealthy.
The study also attributes some of the anxiety of newly rich entrepreneurs to what Taylor calls the ‘big-bonus syndrome’ – the fear that they could wind up, like so many former pro athletes or C-list entertainers, blowing their one and only big score. Indeed, 35 per cent of respondents, including half of those who became wealthy within the past five years, say that money remains a constant worry in their lives.
Taylor tells the story of a Connecticut entrepreneur named Jim who built a thriving national retail business and then took it public. When he met with the personal wealth advisers from the investment bank that ran the IPO, they got into an argument around the conference table about what to do with Jim’s money, debating all manner of financial vehicles he’d never heard of. Jim was an accomplished person, a smart and experienced guy, but suddenly he felt like a total beginner – and started worrying that it would be harder to hold on to his money than it had been to amass it.
The anxieties that accompany wealth are hardly restricted to one’s financial life. Half the surveyed individuals, and 62 per cent of those who became wealthy within the past five years, say they worry that growing up wealthy will undermine their children’s work ethic. When Steve, a 43-year-old luxury real estate developer, was growing up, ‘getting a bike was a big deal’. Not so for his young son, who naturally takes for granted many of the accoutrements of his life: the multimillion-dollar home with a spectacular mountain view, family vacations in five-star hotels and the like. ‘We’ll go to a hotel somewhere, and he’ll say, “This isn’t so nice”,’ Steve laments. ‘He’s used to staying at the Four Seasons.’
Pamela York Klainer, a psychologist who has written widely on the emotional implications of wealth, says it remains an open question how children and grandchildren of successful entrepreneurs will respond to their parents’ values as they grow older. ‘Will they follow the pattern set by many children of traditional inheritors, who often struggle with self-worth, responsibility and accountability?’ she asks. ‘Or will entrepreneurial parents make sure their offspring develop a strong work ethic, whether or not there’s a strictly financial need to do so?’
Louise, a 64-year-old health-care entrepreneur in New York State, doesn’t have children but nevertheless struggles with the effect of her wealth on family relationships. Like Steve, she is very aware of having grown up ‘middle class, or maybe not even’. But for Louise, the tension is between her deeply held ideas about thrift and hard work, which she inherited from her Depression-era parents, and her impulse to offer financial help to members of her extended family. She tells the story of making a substantial financial gift to a relative, who asked, ‘What are the strings?’ Taken aback, Louise said there were none. Later, though, she and her husband were irritated when they found out that the money had been spent in a way they considered frivolous.
Of course, many newly wealthy people struggle with their own spending as well. On the one hand, they do spend prodigiously. But contrary to the popular image of the profligate few, they do it carefully, sometimes reluctantly and usually in keeping with middle-class notions of thrift and value. As the Harrison Group study puts it, ‘wealthy families never lose their concern for price’ or their appreciation of a good deal. Instead, they shop for products with the highest nexus of quality, exclusivity and personalisation and then look for the best price. In short, the wealthy are willing to spend as long as they have what they feel is a good reason – a value gained, an investment made. All this may explain why a surprising 48 per cent feel that luxury items like watches, jewellery and cars are ‘a waste of money’.
Yet almost all of these sources of anxiety tend to decrease over time as the newly wealthy undergo what the Harrison Group study dubs ‘training in the art of wealth’. Being wealthy, the study found, ‘is a learned process in which wealthy people grow more effective as networkers, investors, consumers and representatives of their private vision and dreams.’
It’s a process the pollsters call the Arc of Maturation: For the first five or so years of wealth, one is an ‘apprentice’. Apprentices tend to be conservative in their spending, focus mostly on their business, haven’t established the networks of friends and advisers who will help them navigate their life of wealth, and generally live within their means. For the next ten or so years, one is a ‘journeyman’. Journeymen are wealthier, spend more time on investing relative to their primary business, look to their networks for both investing and spending advice, and begin to indulge in collectible and status objects. Finally, one becomes a ‘master’. Largely freed from financial risk, masters seek stability, invest in art and antiquities, and, perhaps above all else, focus on establishing their legacies.
In many ways, philanthropy is both the culmination of the Arc of Maturation and the result of middle-class values coming full circle. When respondents were asked what they planned to do with their money as they got older, the most common answer – besides travel – was: give it away. Here again Bill Gates is the role model. Gates has stepped down from Microsoft and now devotes more time to the Bill and Melinda Gates Foundation, which is involved mainly in health and educational initiatives throughout the world. This is a different and more active idea of philanthropy than just putting your name on a building: it’s a second career. Gates is just 52, and he is legendarily demanding and aggressive. The same generation that has redefined wealth is poised to redefine philanthropy – and maybe poverty, education and health care. It’s not hyperbole to talk about Gates changing the world. He and his cohort of middle-class millionaires and billionaires have done it before.