Money has many ironies. Here’s an important one:
Wealth is what you don’t see
My time as a valet was in the mid-200os in Los Angeles, when material appearance took precedence over everything but oxygen.
If you see a Ferrari driving around, you might intuitively assume the owner of the car is rich- even if you’re not paying much attention to them. But as I got to know some of these people I realized that wasn’t always the case.
Many were mediocre successes who spent a huge percentage of their paycheck on a car. I remember a fellow we’ll call Roger. He was about my age. I had no idea what Roger did. But he drove a Porsche, which was enough for people to draw assumptions.
Then one day Roger arrived in an old Honda. Same the next week, and the next. "What happened to your Porsche?" I asked. It was repossessed after defaulting on his car loan, he said. There was not a morsel of shame.
He responded like he was telling the next play in thegame.
Every assumption you might have had about him was wrong. Los Angeles is full of Rogers. Someone driving a s100,000 car might be wealthy. But the only data point you have about their wealth is that they have s100,000 less than they did before they bought the car (or s100,000 more
in debt). That’s all you know about them.
We tend to judge wealth by what we see, because that’s the information we have in front of us. We can’t see people’s bank accounts or bokerage statements.
So we rely on outward appearance to gauge financial success. Cars. Homes. Instagram photos,
Modern capitalism makes helping people fake it until they make it a cherished industry.
But the truth is that wealth is what you don’t see.
Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first class upgrade declined.
Wealth is financial assets that haven’t yet been converted into the stuff you see.
That’s not how we think about wealth, because you can’t contextualize what you can’t see.
Morgan Housel – The Psychology Of Money