Why We Fail to Become Rich

By Nitin Dangwal

Getting rich is one of the most selling concepts in human history, after religion. You can see it everywhere - in articles like ‘How to become wealthy: It’s simpler than most experts say’, in books like ‘How to Become a Millionaire’, and also in seminars such as ‘Get Rich Steady Seminars’.

You can even see this in the business of education. One of the prime focuses of studying is to get rich, not to build competencies – it comes as a side effect, if it comes at all. Isn’t that why you have a stack of degrees attached to your name – B. Tech, CFA, CA, MBA Degree, a second MBA degree? You get the point.

The Oxford Dictionary defines being rich as

[su_quote]Having a great deal of money or assets; wealthy.[/su_quote]

But, what they don’t define is that

[su_quote]getting rich is also a psychological construct, a state of mind.[/su_quote]

Evidently, the guy who wrote that definition never read psychology. There are two reasons why I say that you won’t be getting rich.

Survivorship Bias

First, you will sample it all wrong. Let me illustrate.

You work hard. Get into an Ivy League College. Land a high paying job. Marry the girl of your dream (or your parents’). And you will have kids. Then you want the best for your family and yourself. Don’t you? So, you will stretch, more than your means. You will search for a rich locality to live in. The one just above your comfort. Consequently, you will take a loan, loads of it. And buy your way into a rich neighborhood. But what will you get?

Your vicinity will be inhabited by extremely successful corporate executives, Investment Bankers, high-flying entrepreneurs. The social circle would comprise corporate raiders with their trophy wives, their children studying in schools that will give competition to five-star hotels.

So, day in and day out, subconsciously, you will compare yourself with them. Forget the fact that you are better that 99% of the rest of the country’s population. You will set yourself against them – your house against their villa, your car against their BMW, your watch against their Rolex, your tie against their Hermes.

You will concentrate only on the winners and leave out the losers. Losers are just not visible to you because you are surrounded by high achievers.

Nassim Taleb, renowned writer, says in ‘Fooled by Randomness’ of a fictional couple Marc and Janet living in New York:

[su_quote]This case provides a very common illustration of the emotional effect of survivorship bias. Janet feels that her husband is a failure, by comparison, but she is miscomputing the probabilities in a gross manner – she is using the wrong distribution to derive a rank. As compared the general U.S. population, Marc has done very well, better than 99.5% of his compatriots. As compared to high school friends, he did extremely well…… But as compared to his neighbors, he is at the bottom! Why? Because he chose to live among the people who have been successful.[/su_quote]

Comparison with the richer fosters a sense of inferiority. Photo Courtesy: Dennis Ottink via Unsplash

Therefore, this clearly is wrong sampling. You know this. You should not sample the size that exudes failure. You probably know this intuitively – sample size should be representative. But there are no failures in your sample. You will fail to apply this simple learning in your life and will choose to stay poor.

The Treadmill Effect

Apart from the wrong sampling and the resulting misperception of one’s performance, there is a second reason – The Social Treadmill effect:

[su_quote]Aside from the misperception of one’s performance, there is a Social Treadmill effect: You get rich, move to rich neighborhoods, then become poor again. To that, add the Psychological Treadmill effect - you get used to wealth and revert to a set point of satisfaction. This problem of some people never really getting to feel satisfied by wealth (beyond a given point) has been the subject of technical discussions on happiness.[/su_quote]

Now I can advise you to build a statistical perspective - you are “poor” not because you are “POOR”. You are poor because you are sampling it all wrong. I can advise you to get cognizant of your biases and get over the Social Treadmill effect.

[su_pullquote align=”right”]But being rational is not normal to human beings.[/su_pullquote]

But being rational is not normal to human beings. It’s difficult to put reasoning in the midst of the emotional chaos that such biases create in our mind. How much you may try, it’s very difficult when you get down the stairs, take your hatchback out of the parking and not steal a glance at the Mercedes or BMW parked on the left.

PS: Although the article says you can’t get rich, it also says, between the lines, what you can do to become rich.

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Nitin Dangwal is working as a business consultant in an IT MNC in Pune.

Featured Image Credits: Olaf Teuerle via Flickr