How The Rich Get Rich

~ Laura

When we were poor graduate students, Steve and I would walk through the West Village on the way back from visiting a friend who tended bar at a popular dive. At night, the brownstones would be all lit up and you could peep inside these million dollar homes. “Who lives here?”, we wondered. “Who can afford a million dollar apartment?” Then we swiped our metrocard and took the long subway ride to the affordable apartments in Northern Manhattan.

Actually, it wasn’t just the brownstones of the West Village that were unthinkable. It was pretty much most of Manhattan. The boxy, modern apartment buildings in Manhattan and the grand, turn of the century buildings by Columbia. The whole island with hundred of thousands of apartments was out of our range and continued to be untouchable, even after we found gainful employment.

Who lives in all those apartments? Who are the super-rich? Doctors and lawyers we can understand. Hedgefund managers, sure. We even know one guy who is living off a trust fund set up by an ancestor who made a fortune in the railroads in 1880’s. But where else does wealth come from?

The Style Section of the New York Times is my little glimpse into the world of the super-rich. Today’s Home Section features a couple who bought the $4 million Brooklyn brownstone from Jenna Lyons. Lyons is the creative director for J. Crew. This brownstone was already featured in tons of magazine articles. The article refers to a personal chef and decorators.

Who can afford a $4m apartment? I skimmed the article looking for clues.  The wife set up Mortuary Museum. OK, that’s the not source of their wealth. She wrote some YA novels. Well, maybe. Then finally at the end, they tell us. The husband was a founding member of Depeche Mode.

Published by Laura

29 thoughts on “How The Rich Get Rich”

  1. I’m not so interested in how the rich became rich because that is so far out of my day-to-day experience it’s almost as if it’s a separate world from my own. I’m more interested in the people who are one step up from us: upper-middle class people with professional jobs similar to ours but who live in houses that cost twice as much a ours, take yearly (or more) tropical vacations, and have a full-time stay at home parent. How do they do it?

    The few families I know who are like this all received early and substantial familial support. College and grad school completely paid for, a gift of an entire down payment on a house, monthly checks so that they can meet bills, etc. I don’t know if that is the key factor though since I only know 2 or maybe 3 families like this. If it is the key factor then it’s strangely reassuring because we never had and never will receive that kind of support so at least I can feel like there is no need to stress about it.

    Like

    1. scantee — I’m like you. I ponder how people who I think have the same family income as mine, seem to be in a higher bracket. Granted my husband and I still live like grad students, but we wonder often how others do it (it being newer car, newer house, nicer hair cut).

      Like

    2. I ponder this as well; in my case, the answer is that the people as step above (and I have to say I’m measuring from something that definitely isn’t “middle class” by any criteria) have more wealth in comparison to income and have had more stable locations.

      Having more wealth has a number of effects. At some level (and I think this varies based on what your potential income level is) it makes your employment somewhat optional (so, a you can be more flexible about when you work and when you don’t). Having wealth means the wealth has to be somewhere, and a good place to put it, and diversify, is in housing, first and second homes (I continue to be struck by how many people i imagine to be in our bracket have 2nd homes). A number of the people have accumulated wealth over a longer period of time and have been more stable (i.e. 20 years of wealth accumulation, instead of 10, and all in one city, which means access to real estate is different).

      Also, you never really know how much money other people have. There’s the choice of what to spend money on. We spend way more on consumer electronics (computers, cameras, iphones, ipads, techy solutions like Hue lightbulbs, software) than I suspect others do. We spend less on furniture, cars, clothes (which are more visible).

      And, I think in a number of instances, there will be a wealth event in the lives of people like the couple profiled (founding member of a company, a big stock payout, inheritance, inherited property. . . .) which is largely invisible.

      Wealth makes it easier to make more wealth (because you can make riskier investments without bottoming out — i.e. taking a 10K be is not a big deal, if you have 10 million dollars. Lower levels of wealth also mean you can weather downturns, even big ones (say, keeping the property that’s underwater, paying taxes until the market turns around). The person with less wealth and income has to sell, and traps themselves with losses.

      Like

    3. I think that there are many more people with monthly trust fund stipends (from a few $100 to many more thousands), down payment gifts, private school tuition paid for by grand parents, etc. than we all realize.

      And if there isn’t direct monetary support, there’s trips paid for by the grandparents, summer vacations at the family cottage, etc that allow for a lifestyle that is above that individual’s income.

      It was interesting to see the impact of the last downturn in portfolio investments. Peers of our daughter were suddenly switching to public school when the grandparents could no long pay 100% or even 50% of private school tuition. It became much more transparent.

      Like

      1. I think this actually isn’t the case in my local circle — i.e. many families seem to have a fair amount more money than their families of origin, but, potentially the number of east coast prep school graduates is a counter-indication of my belief (or maybe I gravitate towards a subset of people). On the other hand, maybe I live in the land where kids of lawyers (well off, and at the top of the social structure) became internet millionaires (super rich).

        Like

      2. What are the parent/child relationships like where the parents are grandparents and the children are adults receiving support from the grandparents? Do the grandparents still think of their grown, adult children as answering to them in some way? I am insanely curious about this. I received a some support from my father to pay for college tuition for the first three years but after that I was on my own. Mr. Scantee has completely supported himself since he was 18. We have very peer-like relationships with our parents at this point; all parties generally consider everyone else to be “on the same level.” I somehow imagine that accepting financial support from our parents would come with attached strings that I don’t think I’d want to deal with.

        Like

      3. We have a number of families that receive grandparent help in the form of child caretaking (my own parents did this, and so did a surprising number of other grandparents). In my case, I can definitely say that it has helped, rather than hindered the development of a peer relationship (but my parents are really great and not at all controlling, and, I’m doing most of what they want for us anyway, and my kids are grandchildren cast from central casting — my son was recently repeating leave-it-to-beaver quotes to amuse his grandfather this morning).

        i think the bottom line is whether then help being given is given freely, and there are grandparents who can give this way, and children who can accept this way. I myself have matured on the question of “loaning”/giving money to family/friends who need it. I decide whether I’m willing to give the money away, regardless of what it is going to be spent on. At first, I thought of the money as loans or felt a proprietary interest (say, in whether a new car was being purchased, when I’d offered help for the mortgage) or on how vacations were spent (when we’d paid for the vacation). I realized though, that I’m giving the financial help because I can, and that I don’t want it have strings. Now, I’m also blessed with relatives who do their best to be self-sufficient and don’t mooch.

        Like

      4. scantee said:

        “What are the parent/child relationships like where the parents are grandparents and the children are adults receiving support from the grandparents?”

        There’s a raging thread on a very similar subject at a somewhat different economic level over at Catholic Answers. An upper middle class Protestant grandpa is writing in concerned that his Catholic convert 20-something daughter and her husband are too broke to be having kids as fast as they’re having them. Protestant Grandpa is helping out with rent and utilities and plans to help with extracurriculars and other nice things for the kids, as son-in-law does not make a lot. Grandpa and Grandma are both ticked off/worried about their daughter and her family and their future.

        http://forums.catholic.com/showthread.php?t=873963

        Some of these CA advice questions are trolling, so I can’t speak to whether or not the original situation is real, but the thread has a lot of posts from regulars talking about analogous family situations, and it sounds like the upper-middle-class parents helping lower-middle-class adult children situation is fraught with peril.

        From personal experience, my husband and I have very different relationships with my parents vs. his parents, although their financial position is comparable (my parents have less income, but are wealthier, while my in-laws have much more income, but have less wealth). With my parents, who are WASPy non-helpers, I do have something like a peer relationship. My in-laws, on the other hand, are ethnics and I think it would physically hurt them (particularly my FIL) not to help adult children financially. They pay for our plane tickets to visit them, they gave us $900 to start our oldest’s autism evaluations and therapy some years ago (very helpful), they usually pay for our oldest’s horse riding therapy, and they contributed half of our house downpayment (we bought our house when my husband was 40, after some 15 years of us being married renters–so not very quickly). We don’t ever ask for anything (except when prompted around birthdays or Christmas), but it’s hard to spend any money in front of my in-laws. These are all nice things that we could have lived without, but which made our lives easier.

        There are pitfalls to “help.” Some years ago, for instance, my in-laws wanted us to buy a house, with the understanding that they would contribute something on a monthly basis, as they didn’t have cash in hand for downpayment help. Nope–not going to do that! They were eventually able to give us a lump sum for our house downpayment. What a pickle we could have gotten into if they had trouble of some kind! The other iffy aspect of downpayment help is that I don’t think they would have helped if we had bought a much more modest house, so there is a tendency for “help” to increase consumption levels to a point where the beneficiary could not carry the expense on their own. There’s a danger that “help” is just increasing consumption rather than improving the family bottom line.

        There’s definitely a very parental quality to our relationship with my in-laws, but I think that’s only in part because of the financial help–the other side of it is ethnic origin and culture.

        Like

    4. For other families, it may be that they are living beyond their means.

      There’s a family I know well, and the last I heard, they had a half million dollar line of credit out, which was 2X their annual income at the time. That was in addition to very substantial mortgages.

      You never really know, just looking at consumption.

      Like

    5. My friend and I wish for a balance sheet and cash flow statement posted on the front door (yes, we are both accountants). We’re always curious if our friends and neighbors have a great house/vacation/etc. because they have no savings, better cash flow, or help from outside sources. We aren’t jealous – we’d just like to know an apples to apples comparison.

      But of course, that is never possible. But it would be nice.

      Like

  2. I don’t understand Manhattan at all. My wife almost went to a program at NYU and we were looking through the brochures for partnered student housing. The cost of a 400 square foot efficiency back then was quite a bit more than our payment for a whole house now. And that cost was subsidized enough that availability was not at all certain.

    Like

    1. A lot of non-Americans who don’t actually live in the US have apartments in NYC, if I’m not mistaken.

      Like

      1. Same here in Vancouver. Some neighborhoods are like ghost towns (some high rise apartment ‘hoods and some wealthy detached home ‘hoods) with many empty apartments/homes.

        Like

  3. Don’t forget that the husband is also half of Erasure, a band that is still recording and touring and therefore probably generating more money than Depeche Mode might be these days.

    Also, I’ve come to assume that most of the families we know are coming from a “family money” background. When my kids were little, I took them for a playdate at a house with a newly renovated, chef-caliber kitchen, which I remarked upon. The hostess said, “Oh yes, my dear grandmother gave us $30K to do the kitchen over when we bought this house.” That alone taught me that I was entering an entire different stratosphere than where I grew up, or even continue to live financially.

    Like

  5. I think three other things are related to this. One, staying on the f***ing bus (the Helsinki bus theory).

    http://www.theguardian.com/lifeandstyle/2013/feb/23/change-life-helsinki-bus-station-theory

    In other words, sticking to your knitting and moving up through the ranks of a particular career. Not retooling and starting over midstream.

    The other is peak earning years – say 40-50. That’s HUGE decade to earn max dollars if you have already “stayed on the bus”.

    And finally, what you could call “the rich get richer”. You travel a lot, you earn lots of air miles and hotel nights for free. You have a skill to negotiate extras at hotels in addition to cheaper nightly rates (free breakfasts, upgrades, etc). You have a general expectation of “deals” and experience in negotiating.

    Like

  6. When we took our son to accepted student’s days at a couple of colleges last month, there were people there who were clearly grandparents, not parents. Here, I assume that the grandparents were there to share in the decision since they will be the ones paying the tuition, not the parents. In a couple of instances, the grandparents made it quite clear through their questions that they were the ones casting the deciding vote on which college it would be — since they were the ones paying tuition.

    I have also noticed grandparents on High School Junior Open House programs at colleges with my daughter this year. When i dropped my daughter off at sleepaway camp last summer, there were also lots of grandparents there doing the camp drop-off, I assume because they were paying the camp fees. And at our daughter’s private school, there are lots of tuition-paying grandparents as well.

    It has led me to wonder about what else grandparents may be paying for — preschool, private high school, summer camp, the class trip, music lessons, college. I could see how your household finances might look significantly different if you were not the one paying these expenses.

    Like

    1. I’ve stopped making the assumption that older people with children are necessarily grandparents (there were probably other indicators in your case, I’m speaking more generally). There have been several children in my sons’ preschool and school that have parents in their 50’s and 60’s. One child’s father is 73 and his wife just had twins. I get so tired just thinking about that situation.

      Like

      1. My father gets mistaken as his grandchildrens’ dad — and though he’s not old, he’s also not young. He is young looking (and, my mom isn’t super-young looking, which can cause issues). I’ve learned the answer to these issues is to never assume.

        Like

    2. They may not be grandparents. I can think of numerous couples in our neck of the woods who have young children, but are as old as one would expect grandparents to be. I’ve learned to _always_ assume they are parents, unlesss there are “normal” aged parents in the group as well.

      Sometimes there are adult children from first marriages on hand as well. Add in au pairs and nannies, and it’s really easy to offend someone.

      Like

      1. My father often got mistaken for a grandfather when he was visiting colleges with my half-brother from my father’s second marriage–my father’s premature grayness/balding certainly helped bolster that impression too.

        Like

  7. There are cultural differences too. In some cultures the inter generational funds are pooled and shared and lots of assistance is freely given. Other cultures each generation is on it’s own.

    For those living with trust funds, I think it’s just part of their lifestyle and it neither hampers nor hinders. That being said, money can carry huge messages and burdens within families if strings are attached.

    Like

  8. Most of my seriously wealthy HS friends are wealthy by default, trusts, houses paid for, car leases, private school tuition, investments. I have a friend who fully funds her life off a trust. My experience is rich people beget rich kids beget fully funded grandkids with family names.

    Like

  9. The rich people I know who made their own fortunes are fearless. They are more likely to work in a concentrated fashion on things they know well–specialists, in other words. They are less likely to worry about their actions being socially acceptable. They also have a low tolerance for what they see as hypocrisy.

    Unless they set a healthy family as a priority, their family lives may be unbalanced. Workaholism and an impatience with others’ feelings are not factors which leap to mind as healthy for families. (Judging by multiple biographies/autobiographies of the children of the wealthy.) The best approach seems to be to choose a strong, nurturing spouse, delegate all family relations to that person, and support that person in his/her efforts to raise healthy children.

    The families which remain wealthy enough and harmonious enough to have grandparents contributing to tuition over generations are a subset of the rich. They are unusual.

    Many of the people who drive fancy cars and live in large houses are not rich. They are living beyond their means through mortgages and car leases. Quite a few people were able to buy and sell houses at the right time in the housing bubble. However, as real estate includes taxes and maintenance, it’s a good way to become less rich.

    Like

    1. Although I just found out that apparently, computer and math skills are correlated with wealth: Analyzing IRS data from 1979 through 2005, tax researchers at Williams College and at the Treasury Department found that five occupations accounted for the lion’s share of the top 1% again and again.
      They were executives at non-financial companies, financial professionals, doctors, lawyers and an occupational category that lumps together computer, math, engineering and technical jobs in non-financial firms.

      http://money.cnn.com/2014/04/04/pf/taxes/top-1-taxes/

      So all the parents pushing their children into engineering programs have reasons.

      Like

Comments are closed.