4. RECEIVERS OF GIFTS INVEST MUCH LESS MONEY THAN DO NONRECEIVERS.
When surveyed, gift receivers reported that they invested less than 65 percent of what nonreceivers invested each year. Even this is a very conservative estimate, since like most heavy credit users, gift receivers overestimate the amount of money they invest. For example, they often forget to take into account major credit purchases when computing actual consumption and investing habits.
There are exceptions to this rule. Teachers and professors who receive gifts appear to remain as frugal or even more so than those who receive no gifts. They are much more likely to save and invest the money they receive as gifts than are gift receivers in other occupational categories. The issue of teachers and professors as role models is discussed more fully later in the chapter.
As we have made clear, gift receivers are hyperconsumers and credit prone. They live well above the norm for others with comparable incomes. But often people mistakenly believe that gift receivers are concerned solely with their own desires, needs, and interests. This is not the case. On average, gift receivers donate significantly more to charity than do others in the same income categories. For example, gift receivers who have annual household incomes in the $100,000 category normally donate just under 6 percent of their annual incomes to charitable causes. The general population in this income category donates only about 3 percent. Gift receivers give in proportions that are much like those of households with annual incomes in the $200,000 to $400,000 bracket.
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These people give approximately 6 percent of their income to noble causes.
Noble or not, gift receivers consume more, so they have significantly less money to invest. What good does it do to be well versed in investment opportunities when one has little or no money to invest? This is the situation in which a young professor of business recently found himself. He, a gift receiver, was asked to teach a course on investing for a continuing education program. His audience included many well-educated, high-income people. The professor discussed various topics, including sources of investment information and how to evaluate the stock offerings of various public corporations. The professor received high praise from his audience. He was well trained in his discipline. He held a Ph.D. in business administration with a concentration in finance. However, near the end of the course, a gentleman from the audience asked the professor a simple question:
Dr. E., may I ask about your personal portfolio? What do you invest in?
His answer surprised most of the class:
I don’t have much of a portfolio at present. I’m too involved with paying two mortgages, an auto loan, tuition....
Later, a member of the class told us:
It’s like the fellow who wrote the book on one hundred clever things to say to attractive women. But the guy did not know any good-looking women.
Why don’t the financial advisors of under accumulating gift receivers emphasize thrift in their messages? All too often financial advisors have a narrow focus. They sell investments and investment advice. They don’t teach thrift and budgeting. Many find it embarrassing, even degrading, to suggest to clients that their lifestyle is too high.
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In fairness, many high-income individuals as well as their advisors have no idea how much net worth someone should have, given certain income and age parameters. Additionally, financial advisors are often unaware that their clients receive sizable cash gifts each year. Relying solely on a client’s earned income statement, they may likely say:
Well, Bill, for a fellow who is forty-four years of age and who earns $70,000 annually, you’re doing pretty well. Pretty well in terms of your lovely home, boat, foreign luxury automobiles, donations, and even your investment portfolio.
Would the same advisor feel this way if Bill told him about the tax-free cash gift of $20,000 he receives each year from Mom and Dad?
It is important here to emphasize a point made throughout this book. Not all adult children of the affluent become UAWSs. Those who do, tend to have parents who heavily subsidize their children’s standard of living. But many other sons and daughters of affluent parents become PAWs. The evidence suggests this happens when their parents are frugal and well disciplined and instill these values, as well as independence, in their children.
The popular press often paints a different picture. Too often they tout the “Abe Lincoln” stories. They dramatize those cases in which a child from a blue-collar background became very successful. They provide anecdotal evidence that the discipline of being poor is a prerequisite to becoming a millionaire in America. If that were true, one would expect there to be at least thirty-five million millionaire households in America today. But we know that there is only about one-tenth that number.
It is true that most millionaires are the sons and daughters of nonmillionaire parents, since the nonmillionaire population is more than thirty times larger than its counterpart. Only a generation ago it was more than seventy times larger. The enormous size of the nonmillionaire population has a great deal to do with why most millionaires come from nonmillionaire households. As a probability statement, millionaires are more likely to give birth to millionaires. Accordingly, the odds of becoming a millionaire are lower for individuals who are the products of nonmillionaires.
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