The importance of Teaching your children how to invest and thrive for the future.
Part 8: what the wealthy do differently
Today we continue to explore the way people with generational wealth think, we call this “old money” how does old money think?
If we want To know how to build generational wealth, then we need to look at how people with generational family fortunes think.
Making a Public Spectacle of Yourself – Not Cool
Old money likes to keep things private. It favors
private businesses, private information, private investments, and private lives.
Private businesses are more profitable, to their owners, than publicly quoted stocks. They pay fewer legal fees, fewer accounting fees, and spend much less money trying to please investors and the media.
Today, publicly traded businesses in the U.S. distribute an average of 60% of their profits to shareholders. A privately owned, privately controlled business, on the other hand, may turn over 100% of its earnings to shareholders.
In a public company, much of the earnings go to paying CEOs and corporate managers. In a privately controlled corporation, the owners decide who gets the money.
Old-money discounts public information – the stuff you get from newspapers and TV – and puts a premium on their private information sources.
They trust their own eyes and ears… sound state of mind, and their personal contacts.
This attitude informs the old-money to be ahead by having the facts and makes better investments. Rather than invest on the basis of what everybody else knows, or thinks they know, they try to pin their investments on what they know that other people don’t.
Cash Flow – Not Cool
It’s capital that counts, not income. Most people – even high earners – are on a treadmill. They earn. They consume. There isn’t much left. Since their consumption depends on their income, they are eager to increase their income at every opportunity.
Not so with old money. It knows that, in the long run, income barely matters. It knows, too, that expenses normally rise with income, but not with real capital gains.
In other words, when you earn more money, your taxes rise… and you tend to spend the extra money on lifestyle enhancements. But if the value of the family farm goes up, the extra wealth tends to stay put.
Old-money families don’t care as much about income as they do about capital. Often, they live in houses that were bought many years ago (no mortgages)… They drive cars that are fully depreciated (no car payments; no loss in value)… And they eschew costly fads and fashions of all sorts.
In most households, a young person is encouraged to go out and get the best-paying job he can find. Then he enters the labor force and spends the rest of his life trying to stay ahead of his expenses. He becomes a living example of the old expression “Too busy to make money.”
Tell your children: “Don’t worry about how much you make. Worry about what you learn… and what you end up with. Tell your employer you’d rather have equity than a salary increase.”
This is true in your career. And it is true in your investments. If you worry too much about the current yield, you are likely to miss the real payoff later.
Trading out of winning stock positions, for example, can trigger taxes and incur trading costs. In your work, as in your investments, you are better off ignoring income and short-term gains in favor of long-term capital growth.
Until next time,