Better To Appear Poor

More Americans would do well to heed the advice: "Better to appear poor and have great wealth, than to appear wealthy and be very poor."

As I age, it becomes more and more obvious how many people use debt to make themselves appear as if they have it all together, when the truth is they are broke. Then there are the few who appear to have very little, but are multi-millionaires happily living the life they want whenever and wherever they want.

Decades ago, I recall reading a story in a business magazine about a 65-year-old single female librarian, probably earning about $40,000 annually in today's dollars. She lived in a small 1-room condo she owned herself within walking distance of her work. She owned this place for many years. Her shoes were very worn, not having replaced them in over a decade. She had two adult children living in other states who rarely spoke with her, who themselves held average middle-income jobs. Her husband left her just prior to the Great Depression, and if I recall correctly, he committed suicide, and so was of no financial help to her. Her small home had not much more than a bed, a dresser, a small kitchenette, and a few clothes and trinkets of value. Her boss at the library always felt bad for her, letting her work overtime as he could to help her out.

One day, this woman didn't show up for work, as she had faithfully done for over 40 years. Given her normal patterns, her boss correctly guessed something was wrong, and later discovered she died at home from a stroke.

The authorities were able to later locate her children, and when they began looking into her estate, they were surprised to realize her financial net worth exceeded $25 million (probably close to $75 million or more in today's value)! That amount of invested cash can safely throw off over $5 million of dividend income annually! Yet she continued working at her $40,000/yr job, walking to work wearing worn shoes. She displayed not even a hint of an appearance of wealth!

Her adult children all thought there must have been a mistake, but there wasn't. This woman had saved $5000 in the late 1920s just prior to the Great Depression. This was a lot of money then, equivalent to about 3-years average salary. She turned it over to a stock broker in the early 1930s to invest, and he lost it all. This loss taught her that the professionals were no wiser than anyone else, and should not be trusted. From that point forward, she made her own investment decisions.

During the Depression, she at least had a job, and began saving again, little by little, investing her savings in the stock market. She bought shares of defense companies during the war years, auto companies like General Motors in the 1950s, shares of IBM in the 1960s, and shares of Apple Computer in the 1970s. The major names she purchased are today still well known, but she was always sure to be invested in the biggest names of the next growth industry. Her choices were mostly by design, and her outstanding results were partially luck.

Long before she passed away, she could have taken her money and purchased a magnificent home, a new wardrobe, an expensive car, and traveled the world quitting her job. She could have given it all away to her children, who themselves would likely have consumed and wasted it. She could have even borrowed against it, purchasing even bigger items or exerting political influence, boosting her ego and showing the world how successful and smart she was. Yet she remained humble.

Americans today do not live like this. The minute someone has an income, not just assets, they borrow against that income to purchase a big home or car. If their income goes higher, they sell those items and buy even bigger or richer, throwing off an "appearance" of wealth, even though they don't own the assets on display. The bank owns them, and the typical American is instead stressed beyond belief paying off debt. This stress becomes apparent in how they manage the rest of their life, and even how they treat their children.

So what is the better way to live? Should we live like the woman I describe above, who appeared poor yet had great wealth? Or should we live like the typical American, paycheck to paycheck, struggling to pay off too much debt, appearing wealthy yet with nothing to show for it at the end of the day?

While I think this woman had ample ability to better enjoy the blessings her decisions caused, the answer to my questions will vary from individual to individual. The article did not say if she was happy or not, but I suspect her life was completely without stress, and certainly without financial stress, the main cause of divorce in today's society.

More than anything, I believe many Americans today could learn the lessons this woman's life taught us, that the appearance of wealth is not wealth, and will actually cause more stress than its worth! Many of these same principles are taught in Thomas Stanley and William Danko's 1996 book, "The Millionaire Next Door". Even Warren Buffett, with a net worth exceeding $160 billion, lives in a very average 5-room home built in 1921 that he purchased in 1958, before he acquired most of his wealth.

So the next time you see that person who doesn't appear to have much, perhaps appears disheveled and maybe a little odd, but seemingly without much stress, be careful in judging them. They well could be that multi-millionaire next door, that person who appears poor, yet has great wealth, and nobody knows it. They might work because they enjoy working, not because they have to. And they may similarly choose to live humble, desiring less stress associated with fewer worldly goods.