Why the Rich Stay Rich and the Poor Stay Poor

rich man with moneyPoor people want to be rich and rich people want to get richer.  Okay, I know that this is a sweeping generalization but for the sake of argument we can say that in America there is a premise that is very similar.  How about if we get a little more precise and say it this way - people who are poor and are unhappy with their financial condition want to improve it; and rich people who enjoy their financial situation want to maintain it.  With this refined premise, the question that this post centers around is this. If there are so many poor people who want to improve their financial situation, and there are so few rich people “standing in their way”, why can’t poor people become rich?

 

It is evident in our society that rich people generally tend to stay rich or get richer while the poor among us stay poor.  How and why does this happen?  There is a famous sociological study that says if you took all the money away from everyone and divided it EQUALLY among rich and poor that in 5 years the wealth would be redistributed almost exactly as it was before the experiment.  Now you might say this is ridiculous.  Certainly if poor people got their hands on some money they would finally have the opportunity to come up and the world would be much more balanced between the number of rich and the number of poor.  Well, by the time you are done with this post you will see why I believe in this study 100% and why it is so obviously true (even if only hypothetically).

It is no accident that rich people are rich.  Generally speaking, people who are rich have several things in common:

a) Rich people own property

b) Rich people own businesses

c) Rich people own investments (stocks and equities)

There are many recent articles and studies that state very clearly the facts and figures related to what the rich own and what others don’t.  Here are some of the key facts:

83% of the stocks in the United States are held by 1% of the people.1

The top 1% of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.2

For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.3

Poor people on the other hand are the proud owners of these statistics

As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.4

The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.5

For the first time in U.S. history, more than 40 million Americans are on food stamps.6

The statistics above serve to reinforce the concepts of why rich people are rich.  Mainly, if you want to be rich you need to have what rich people have: property, businesses and investments.  Likewise, if you don’t want to be poor you need to have less debt, more wealth and more autonomy.

So now that we have some basics about what needs to be done to become rich, let’s get back to the hypothetical experiment.  The rich people have lost most of their money and the poor people have gained a lot of money so what do these people do for the next 5 years?  MOST PEOPLE DO EXACTLY WHAT THEY DID BEFORE.

The man (or woman) who had a business before the experiment takes his money and immediately starts another business.  The rich person knows how to run a business so he makes his new business successful and makes just as much money as he used to make.

The man (or woman) who got rich from investments before the experiment immediately takes his money and invests it again.  The rich person knows how to invest so in 5 years he has become rich through his proven investment strategies.

The man (or woman) who got rich investing in properties before the experiment takes the money and immediately buys property.  The rich person knows how to buy property so in 5 years he has a stable of properties equal to what he had before.

Deducing from the last 3 repetitive sentences, the following should be obvious – rich people know how to make money and will use their proven methods to do so.  With this pattern established it should be no surprise what the poor people do in this situation.  The poor man who has this new money does what he does best – he spends most of it on things to improve the quality of his life and the lives of his family.  This is not a bad thing.  The poor man is just doing what he knows how to do.

This scenario is not just about white collar rich people.  It is also not about race or geography.  Place the black basketball player from the hood in this scenario and the same rule applies.  The black athlete got rich playing basketball and will immediately return to his lucrative profession because he knows how to get rich playing basketball.  It should be clear that the only way the money gets redistributed from rich to poor over the 5 years is if the rich person or the poor person does something DIFFERENT with their money.

The poor person must take his money and do with it what a rich person would do: start a business, buy some property or get some investments.  In order to do this he must change his way of thinking.  The poor man must not take his money and buy things that will depreciate in value. Instead he must invest some of it in educating himself on how to invest.  The poor man must learn about real estate and then instead of buying the new car he must buy some property.  The poor man must learn about business and use his money to start his own company.  Once these things are done the poor man will be rich and have enough money to buy things AND have the financial infrastructure of the rich person.

We need to help the poor man get the knowledge so he can do what successful people do (and don’t do).   For those of you reading this that know some of the keys to financial success, share them with others.  For those reading this that have no clue how to do the things mentioned in this post ask a friend, find a mentor, read a book or do something!  Without the knowledge and a new way of thinking, the poor man will never elevate his condition, no matter how much money he gets.  Still don’t believe it – ask the drug dealer who has a room full of money but still lives in his momma’s basement.

Note: If after reading this article you don't think you should spend your time helping the poor you missed a key point in this article. The middle class and the poor are rapidly merging into 1 large underclass.  In other words, the poor is no longer someone else - the poor is you and me!

Sources:

1. ACS, Lending Report via Financemymoney.com

2. Congressional Budget Office via MSN

3. Federal Reserve Board via endoftheamericandream.com

4. Dailyfinance.com

5. United Nations via informationclearinghouse.info

6. Boston Globe