Defined Contribution Plans

[c1ue]

Re: Defined Contribution Plans

The book does examine people who are not millionaires as evidenced by some of the PAWs (Prodigious Accumulators of Wealth) profiled who are not millionaires but likely will be when they retire. While not explicitly stated, the book makes it clear that one needs to be a business owner or skilled labor to generate enough income to have a shot at becoming independently wealthy; they do not suggest that an unskilled laborer earning minimum wage is ever going to become wealthy. However, the premise of frugality as a substantial factor in amassing net worth is valid and, if one looks and is willing to ask uncomfortable questions, one will find that frugality (or at least temperance for the truly high-grossing individuals) is a common trait among PAWs.

As I've noted before, frugality is not itself a bad practice.

However, the notion that frugality in any way predicts wealth is far less clear. The studies that I've seen which look at the entire population clearly show that the strongest predictor of wealth is the parent's wealth.

As for business owner or skilled trade, again the role of circumstance is not to be underestimated. Sure, anyone can be successful at any time under any circumstances, but there are definitely differences between wealth accumulation during booms than busts.

Thus while frugality might help those who are earning money retain it, it is far less clear what role frugality plays in helping earning money.

I think you appreciate the subtle but important distinction.

The study method noted in the book glosses over this distinction by looking at those who already have gained the earning potential and are simply maximizing the savings part of it - but in both business and skilled trade cases, there is very substantial financial risk involved in starting a business as well as in getting the skills/accreditation for a skilled trade.

It is exactly like saying those star professional athletes who save their money show that frugality is what makes them wealthy - as opposed to those athletes who blow their wad on cars, drugs, and women, but in reality the full analysis of success must also include the many, many athletes who fail to achieve the professional pinnacle level of sport much less super-stardom. Under this paradigm, frugality is frankly a thoroughly secondary factor - luck and athletic performance are far more important.

While the book focuses on those who have managed to accumulate substantial wealth, the book also contains relatively detailed profiles of people who fail to accumulate wealth. Something that really stuck in my mind from the book was the study in contrasts of Dr. North and Dr. South: both 50-something year-old physicians who grossed over $700,000 per year (in mid-1990s dollars!) but had vastly differing net worths of $7,000,000 (Dr. North) versus $400,000 (Dr. South.)

While I don't disagree these archetypes exist, at the same time it is pointless to select unrepresentative samples which exist only to illustrate a point. For one thing, different people have different goals. One person might have a coke habit, or a flying habit - much the same in financial terms - while the other might derive full satisfaction simply from having a gigantic bank account.

Without context of more generalized behavior, not clear at all to me what value is offered by cherry picked anecdotes.

The book is not so much focused on studying millionaires so much as it is focused on studying people who have accumulated enough wealth such that they can not have jobs and live off their wealth. In fact, the only mention of a Wall Street worker I can remember from the book is that of a broker who wasn't a PAW partly because he couldn't stop trading.

As I've already noted several times - there are a lot of severe flaws with looking at millionaires to try and ascertain what traits help people become millionaires.

Several other factors are also very common among millionaires:

1) They're white
2) They're older than 40/boomer
3) They're men

Are any of these as morally satisfying as the notion of frugality being a factor?

In my earlier post, I did mention that the book states that the PAWs grew their wealth through investments in the stock market. However, I also stated that even in a bubble economy, it is still possible to make capital gains provided that one avoided the truly horrible assets. But your point is taken and it is a major problem with the book: the Baby Boomers had it pretty easy. It would be nice to get an update on the book using newer data and younger people while following up on how the PAWs and UAWs in the first edition of the book are doing today.

With that said, however, one can become wealthy without FIRE economy gains. A frugal friend has over his working career put the vast majority of his money in CDs. Despite having a relatively modest income (he is college-educated and a skilled white collar worker), his net worth is easily in the top ten percent--maybe even top six or seven percent--and he has more than twenty years to go before he retires.

No disagreement here. Absolutely you can become wealthy for some values of wealth by being frugal.

However, the original point still stands: is frugality really a major factor? Was the methodology behind the book really valid?

For graduates from reasonably good colleges with degrees in more immediately useful fields such as engineering, computer science, accounting, and medicine, I would argue that the answer is an unequivocal, "Yes!" These fields can earn $50,000 or more as a starting salary and they do not have the high unemployment rates of liberal arts or humanities majors.

I'd say that you might want to revisit the numbers. A decent school costs $50K/year these days. Graduate school extends the debt creation period 2 years, and medical school extends doubles or triples net debt load.

So while a $50K starting salary sounds great, in the context of servicing a $200K debt plus cost of living in say California - it is far less attractive.

A friend who got his M.D. from a top medical school in the 1990s did not borrow unnecessarily and only owed $60,000 upon graduating.

I think that's great, but I also suspect that repeating the same education today would cost a lot more. We're also looking at 2 decades past - right in the middle of the FIRE asset boom.

If the American Dream is, "work hard and you'll become rich," of course it's likely to fail because it omits critical details. However, even in these difficult times, I still believe a person can become relatively wealthy if he follows a more practical guide to accumulating wealth. Here are a few things off the top of my head:

1. Acquire a useful skill or trade.
2. Work hard and do good work.
3. Make sure you are fairly compensated for your work; in other words, make sure you aren't underpaid.
4. Learn how to manage one's finances: balancing a checkbook, using and eschewing debt, investing and capital preservation.
5. Try to save at least 25% of your gross income.
6. Don't buy stupid things you don't need ($100/month cable TV subscriptions, $100/month cell phone plans, $50/month gym memberships, cigarettes, unnecessarily fancy and expensive things, etc.)
7. Buy quality goods with the goal that they will last your lifetime.
8. Learn how to cook for yourself. Not only is this less expensive than eating out, it's healthier.
9. Take good care of your body so you don't waste all your money on expensive doctor visits and expensive medicines that typically have nasty side effects.
10. Don't get divorced, especially if you're a man.

And of course, hope that you are a little bit lucky and manage to avoid personal catastrophes.

Gee, this sure looks like a lot more work than the classical American Dream: work hard and keep your nose clean.

What about the other option? Join Facebook/Twitter/FourSquare/Zynga?

I especially like the part about not getting divorced.

Definitely one of those things you can fully control, but only via not marrying.

[lektrode]

Re: Defined Contribution Plans

Actually, Dr. North and Dr. South were both married with children and I seem to recall the data indicating that neither had ever divorced. The key difference was that the South family were hyper consumers.

sounds then like maybe could it also have been Dr S being a 'victim' of the 'trophy wife' syndrome?
(but dont mean to sound chauvinistic here, there's lots of 'trophy husband' victims too ;)

Regarding divorce: the book does state that divorce is detrimental to net worth and being married is conducive to accumulating wealth.

i've often wondered whether this is a 'cause or effect' question....
in my case (as a not-yet guy) we both are quite frugal, its one of our complimentary traits (tho she tends to be more prone to splurging than i, she's also making a lot more than i have been, lately anyway, which may or may not be a good thing.. luckily - for me - she doesnt need a 'trophy' and i'm quite handy to have around a house/car ;)

It has always puzzled me how anyone could think that getting a degree in English literature would result in one being able to secure a relatively well-paying job outside of academia. Outside of getting such a degree from one of the elite programs, I wonder if that has ever been the case.

well... altho school teachers DO have some great fringe bene's, methinks it more to do with the 'education for educations sake' syndrome more than it has to do with anything else - that and to keep the .edu-industrial complex humming along, its necessary to balance the output - i guess - just seems that we've got too many of them (and the rest of the 'humanities') and not nearly enough of the more practical career path majors (like engineering and the sciences, NOT counting the social and political 'sciences', which we seem to be over-run with, with apologies to them, of course)

[flintlock]

Re: Defined Contribution Plans

Secondly the generation of the typical millionaire in that book was Boomer. Do I really need to highlight the FIRE driven asset, as well as stock market inflation underlying much of the Boomer generation's wealth?

Would the strategies of frugality work as well when you as a college student today must accrue $50K or more in debt to just get educated, only to then enter in a job market with 25% to 40% un- and under- employment for your age demographic?

Good points! I think anyone with an open mind would have to agree that WHEN you were born had at least some impact . For example, my Dad made his money in real estate (land mostly), buying tracts of land with any extra money he could scrape up. Land that he bought for as little as a few hundred an acre, and later selling it for as much as $200,000 acre. Those days mostly past I'd imagine. (And there were no women to compete in the workforce back then either! ) But at least Dad didn't squander the money on drugs and hookers. He did save, he did make the most of the opportunity. Which is still a common thread with most millionaires.

For a time, in the area I live, once rural, it was quite common to see farmers in their overalls, fresh from multi million dollar sales of the family farm. People no different in ability really, than their grandparents (who actually bought and paid for the farm.!)Yet their grandparents had to scrap for every bite of food, every dollar. The only difference in their case, was their time and place in history. But I also never forget that some of those who rode the economic boom of the 20th century, also got their butts drafted and sent to WWII, Vietnam, etc. I kid my Dad and tell him he was lucky as hell, because he lived in great economic times, but was too young for WWII and too old for Vietnam.

I'm not saying its all luck. I don't buy into the myth that most millionaire's wealth is inherited. But economic factors beyond our control do have a huge impact, and part of that has to do with what period of history we are setting out in. I feel for young people today, and worry about the debt this crooked system has saddled them with. I can't see things ever being like they were. I hope I'm wrong.

[Milton Kuo]

Re: Defined Contribution Plans

However, the notion that frugality in any way predicts wealth is far less clear. The studies that I've seen which look at the entire population clearly show that the strongest predictor of wealth is the parent's wealth.

I should note that the book describes wealth in a way that I haven't seen mentioned in our conversation here yet. It did not set some arbitrary dollar amount as the threshold for being wealthy. Instead, it used a combination of one's age and annual income relative to net worth to determine whether one was wealthy. The threshold used for classifying people as UAWs (Under Accumulators of Wealth), AAWs (Average Accumulators of Wealth), and PAWs (Prodigious Accumulators of Wealth) is:

threshold = income * age / 10

Where UAWs have a net worth of one-half or less of the threshold, PAWs have a net worth of twice or more the threshold, and everything else classifies one as an AAW.

Yes, it's somewhat loosey-goosey but it does remove the factor of parental wealth from the equation somewhat. Thus, using the above definition for determining whether one is wealthy or not, a person with a net worth of $2,000,000 is not considered wealthy if he is 60 years of age and grosses $1,000,000 per year while a person with a net worth of $600,000 is wealthy if he is 60 years of age and grosses $50,000 per year.

If one is looking for a book that describes what one must do to become a decamillionaire, I agree that the book is not very useful. The book is useful in describing what should be done to become wealthy relative to one's income. Average household income in the U.S. is roughly $50,000 per year and I'm quite sure that the average net worth of these households is far less than $600,000 and likely far less than $300,000. I contend that a good number of these households would be in far better shape had they understood some of the what is stated in the book.

Thus while frugality might help those who are earning money retain it, it is far less clear what role frugality plays in helping earning money.

I think you appreciate the subtle but important distinction.

The book noted the distinction, too. It called earning money, "playing offense," and saving money, "playing defense." Alas, I am like last year's 49ers: anaemic offense but solid defense.

As for the role frugality plays in earning money, the books clearly states that the hyper consumers have no money to invest whereas the savers do, thus multiplying their wealth.

[Re: The example of Dr. North and Dr. South]
While I don't disagree these archetypes exist, at the same time it is pointless to select unrepresentative samples which exist only to illustrate a point. For one thing, different people have different goals. One person might have a coke habit, or a flying habit - much the same in financial terms - while the other might derive full satisfaction simply from having a gigantic bank account.

Without context of more generalized behavior, not clear at all to me what value is offered by cherry picked anecdotes.

I believe the authors were trying to make a point that despite consuming far, far less, the North household was happy, well-adjusted, and much better prepared for the future than the South household. In other words, spending did not make the Souths any happier than the Norths. In fact, other parts of the book [see the chapter on Economic Outpatient Care] show that the hyper consumers were likely to be less happy than the moderate consumers.

However, the original point still stands: is frugality really a major factor? Was the methodology behind the book really valid?

If we take wealth as something relative to what one earns, yes. But I understand your point. A person who grosses $50,000/year for his entire life is highly unlikely to amass a net worth of $10,000,000.

I'd say that you might want to revisit the numbers. A decent school costs $50K/year these days. Graduate school extends the debt creation period 2 years, and medical school extends doubles or triples net debt load.

So while a $50K starting salary sounds great, in the context of servicing a $200K debt plus cost of living in say California - it is far less attractive.

I didn't bring up the issue of today's much higher tuitions because I'm a glacially slow writer and wasn't sure I could manage a write-up without months passing. Anyway, a discussion of college tuition and how to manage its costs is probably best left for a different thread. However, all too often I'm reading about students who are $250,000 in debt pursuing degrees in comparative literature, sometimes at colleges I've never heard of. Clearly, these students failed to make sure they got good bang for their college debt buck.

[lektrode]

Re: Defined Contribution Plans

As I've noted before, frugality is not itself a bad practice.

However, the notion that frugality in any way predicts wealth is far less clear. The studies that I've seen which look at the entire population clearly show that the strongest predictor of wealth is the parent's wealth.

As for business owner or skilled trade, again the role of circumstance is not to be underestimated. Sure, anyone can be successful at any time under any circumstances, but there are definitely differences between wealth accumulation during booms than busts.

Thus while frugality might help those who are earning money retain it, it is far less clear what role frugality plays in helping earning money.

I think you appreciate the subtle but important distinction.

very good point(s)
altho one cant understate the role of frugality in making it in the first place (unless of course one has the best setup, being born into it) - the most significant cliche being 'it takes money to make money' or more precisely - and somewhat old-fashioned concept of having savings (or the ability to borrow, the less preferred way) and being willing/able to spend (invest) it where it will help provoke/generate the most cashflow - i know of too many who dont think it worth the investment (spending) of money (and time) on stuff like the proper tools, certifications etc and then wonder why they cant bill as much per hour as those of us who have (and then resent us for it)

and i guess it boils down to the same conclusion - getting back to the orig topic - when it comes to retirement - i agree with your observation that one needs to be able to 'see' where ones occupational path is leading them (and boy have eye seen the light, somewhat tragically, somewhat late in the game) and its unrealistic for one to expect much beyond what they've been able to do for themselves - vs what we're being fed by the finance-industrial complex that all we have to do is 'invest' and the magic of compounding will cover us - or from political/union-industrial complex that promises in lieu of pay, 'better retirement benefits' - which then evaporates when the overly-promised (lied to) discover that, not only do realestate values NOT go only up, but that "our projections didnt work out, sorry about that" and then taxpayers get stuck with the bill? (while the projecters - enabled by the political class - sail away to the caymans, after they rigged the game...)

The study method noted in the book glosses over this distinction by looking at those who already have gained the earning potential and are simply maximizing the savings part of it - but in both business and skilled trade cases, there is very substantial financial risk involved in starting a business as well as in getting the skills/accreditation for a skilled trade.

It is exactly like saying those star professional athletes who save their money show that frugality is what makes them wealthy - as opposed to those athletes who blow their wad on cars, drugs, and women, but in reality the full analysis of success must also include the many, many athletes who fail to achieve the professional pinnacle level of sport much less super-stardom. Under this paradigm, frugality is frankly a thoroughly secondary factor - luck and athletic performance are far more important.
....

I especially like the part about not getting divorced.

Definitely one of those things you can fully control, but only via not marrying.

you can say that again.

considering all thats happened - i guess i was just lucky... (and thankful, altho i define luck as 'where preparation meets opportunity' ) just wish i'd figgerd all this out 20or30 years ago (or had stumbled upon the itulip in 2006)

[lektrode]

Re: Defined Contribution Plans

....
I didn't bring up the issue of today's much higher tuitions because I'm a glacially slow writer and wasn't sure I could manage a write-up without months passing. Anyway, a discussion of college tuition and how to manage its costs is probably best left for a different thread. However, all too often I'm reading about students who are $250,000 in debt pursuing degrees in comparative literature, sometimes at colleges I've never heard of. Clearly, these students failed to make sure they got good bang for their college debt buck.

+1
and you think you type slow?
as i've often accused mr c1ue of: that he must type 120wpm and be connected to a cray (and the tulip) via T1...
i'm clearly out of my league here (on most everything) but still enjoy the discussion - but you compose very good stuff mr K = why eye like it when you engage, esp with one as sharp as mr c1ue, we all learn something)

[Milton Kuo]

Re: Defined Contribution Plans

sounds then like maybe could it also have been Dr S being a 'victim' of the 'trophy wife' syndrome?
(but dont mean to sound chauvinistic here, there's lots of 'trophy husband' victims too ;)

No, the impression I got from reading the book is that the South household used boxes and rolls of C-notes where normal people used boxes of Kleenex and rolls of toilet paper. It seemed like they enjoyed the act of purchasing goods and services but did not particularly enjoy the goods and services purchased. You might want to borrow the book from the library and give it a read. It's an easy read and some of the profiles are really quite interesting.

i've often wondered whether this is a 'cause or effect' question....
in my case (as a not-yet guy) we both are quite frugal, its one of our complimentary traits (tho she tends to be more prone to splurging than i, she's also making a lot more than i have been, lately anyway, which may or may not be a good thing.. luckily - for me - she doesnt need a 'trophy' and i'm quite handy to have around a house/car ;)

Well, let's use your situation as an example. As a married, er, co-habiting couple, you are currently in a situation where you have two incomes and one home rather than two incomes and two homes. There is also a happiness benefit in marriage, which can positively affect health and longevity.

[flintlock]

Re: Defined Contribution Plans

Here are some tips that I use.

1) I don't know if it is possible any more with inflated house prices, but only buy a house approx. 2x your income.
2) Cars are really expensive. buy a good used car treat it well, and drive it into the ground. Watch fuel economy, and if possible live close to where you work.
3) cable + internet + cell phones + land phones add up to a lot of money every single month. ditch cable, find low speed internet, get a track phone.
4) get clothes especially childrens from childrens resales. the money goes to support good causes, and like new clothes can be bought for pennies on the dollar.
goodwill can provide some of the clothes for adults. I can't find good shoes there. pants and shirts are good.
5) buy one generation old electronics from ebay. I just bought a canon power shot s2 for $30. Retail price 5 yrs ago ... $499. A used laptop $100.
6) same with other toys like musical intruments, sporting goods, colletables etc.
7) eat out less, don't drink out, eat low on the food chain.
8) for gas, groceries, and other sundries find a loyalty program. We buy a lot of stuff at target. a target red card gives you 5% back. Some gas cards will get you 5% back on a fillup.
9) Be careful when accessing the medical system. Try to call around and get prices and determine coverage before the procedure. Model your expenses, so you can
decide the best insurance plan for yourself. I know these are very hard to do and that is one of the reasons why the health system is so messed up. opacity.
10) For investors, unless you really know what you are doing, just buy low cost index funds and adjust asset allocations to your risk tolerance.
11) cut out the firemen. If you have cheap cars and a cheap house, insurance costs will be lower. If you save some money you can raise deductables for home, auto and health insurance. a cheap house means you can ditch pmi earlier too.


Anyone else can add to the list.

All great advice. Only I'd say spend enough on a home to put you in a decent neighborhood if possible. I stretched and spent a little more than that 2x my income on my current home in order to get into a much more safe and stable neighborhood. It seems to have paid off as my last house has dropped in value due to the neighborhood going to crap, and my current home is still worth more than I paid. While my old house was perfectly fine( I built it), I could see the writing on the wall and got out just in time. The hardest hit neighborhoods in my area are the "low cost" ones. Just hammered with foreclosures. So you can be too cheap in my opinion. Look for VALUE. Find a nice solid middle class neighborhood where people take care of their homes and plan on sticking around a while. Those seem to be less affected by the ups and downs of the economy. Or Rent. Then you can just move if things get rough.



I'll add a few more:

1) Consider an Amazon.com Prime account. For $79 year I get free 2 day shipping and free streaming movies. I now buy even the most mundane items online, usually for better prices than locally, no sales tax, and I don't spend my time and money driving around shopping. You'd be surprised how much time you can spend shopping for things, and how many miles you tack on to your vehicle doing so. I easily save the $79 fee in gas alone. And my time is worth something too! Often their return policy is better than local as well.

2) Coupons. Buying a big ticket item like an Appliance? Check one of those online coupon sites to see if any deals are available. You can buy 10% off coupons for places like Lowes on Ebay for about a buck. My wife does the food coupon stuff because I lack the patience for it. But some big savings are available if you are willing to invest the time and learn how to do it.

3) Slickdeals.com . Simply a site where people post good deals. Its free. My wife got us a new $2500 Refrigerator for only $400 from a deal on this site once. People will post deals and advertising mistakes. In the case of the refrigerator, Lowes honored a miss-priced online ad, just for asking the manager. She gets tons of free stuff and almost free stuff quite often.
There are tons of deals out there, but you have to have know about them. This is a quick and easy way.

4) Learn how to fix things. There is a How to video on almost anything on YouTube these days that will walk you through simple jobs. At least watch the video and see if its a task you might feel comfortable tackling. Repair costs can really add up over time. Plus you are less likely to be taken advantage of if you have some knowledge.

[shiny!]

Re: Defined Contribution Plans

i'm clearly out of my league here (on most everything) but still enjoy the discussion

Me too. Trying to comprehend the posts at iTulip is a hard workout for my brain, like Scrabble or the NY Times Sunday crossword puzzle. Maybe it'll keep me from getting senile. They say as we get older the brain is the first thing to go; I can't remember what the second thing is.

[Raz]

Re: Defined Contribution Plans

c1ue wrote:

"I especially like the part about not getting divorced.

Definitely one of those things you can fully control, but only via not marrying."

The Three Stages of a Man’s Life

Single

Married

Divorced!

[c1ue]

Re: Defined Contribution Plans

I should note that the book describes wealth in a way that I haven't seen mentioned in our conversation here yet. It did not set some arbitrary dollar amount as the threshold for being wealthy. Instead, it used a combination of one's age and annual income relative to net worth to determine whether one was wealthy. The threshold used for classifying people as UAWs (Under Accumulators of Wealth), AAWs (Average Accumulators of Wealth), and PAWs (Prodigious Accumulators of Wealth) is:

threshold = income * age / 10

Where UAWs have a net worth of one-half or less of the threshold, PAWs have a net worth of twice or more the threshold, and everything else classifies one as an AAW.

Yes, it's somewhat loosey-goosey but it does remove the factor of parental wealth from the equation somewhat. Thus, using the above definition for determining whether one is wealthy or not, a person with a net worth of $2,000,000 is not considered wealthy if he is 60 years of age and grosses $1,000,000 per year while a person with a net worth of $600,000 is wealthy if he is 60 years of age and grosses $50,000 per year.

I did read the book, and am aware of the PAW/UAW.

It is interesting, but still fails to convey the very significant differences between having wealthy parents and not.

For example: wealthy parents means the kids don't have school debt. Wealthy parents means the kids know they don't have to enter the wage earning category immediately, so can take more risks. Wealthy parents also yield far better social connections for their kids.

None of these factors are in any way addressed by the UAW/PAW paradigm.

I believe the authors were trying to make a point that despite consuming far, far less, the North household was happy, well-adjusted, and much better prepared for the future than the South household. In other words, spending did not make the Souths any happier than the Norths. In fact, other parts of the book [see the chapter on Economic Outpatient Care] show that the hyper consumers were likely to be less happy than the moderate consumers.

I agree with what the book is trying to do, but I don't agree that being a consumer or miser is necessarily related to happiness. Sure, there are people who spend foolishly despite said spending directly contributing to their unhappiness via financial strain, but a PAW can as easily be happy or Ebenezer Scrooge.

Choosing examples of people who are financially unwise is cherry picking.

[DSpencer]

Re: Defined Contribution Plans

It is interesting, but still fails to convey the very significant differences between having wealthy parents and not.

For example: wealthy parents means the kids don't have school debt. Wealthy parents means the kids know they don't have to enter the wage earning category immediately, so can take more risks. Wealthy parents also yield far better social connections for their kids.

There's no doubt that having wealthy parents is a big headstart. And if you simply inherit millions it's hard to go wrong. However, when I look at the friends I knew enough about to have an idea of their financial situation during/after college, I'm not convinced that this will be the principal determining factor in their wealth down the road at all.

The decision to choose a useful major and apply themselves in school seems to be much more correlated.

Some people chose partying; degrees in communications, anthropology, history, english, etc; and whatever jobs were easy to get.
Other people chose studying; degrees in math, engineering, business and then law, medicine etc; and found paid internships and co-ops.

Family paid tuition vs loans was mixed throughout. The difference in career paths and earning power is dramatic even after a few years. I doubt many who owe lots in loans but have a good degree would agree to have their loans paid off and their degree switched to basket weaving.

Yes, this is anecdotal but statistics often lie and almost never give a level of detail sufficient to really understand an issue. At the point of graduation, I realized that many people who had paid the exact same price and with the same school name on the degree, ended up in vastly different situations.

Sorry to all the people who I've offended by listing their degree!

[jiimbergin]

Re: Defined Contribution Plans

Family paid tuition vs loans was mixed throughout. The difference in career paths and earning power is dramatic even after a few years. I doubt many who owe lots in loans but have a good degree would agree to have their loans paid off and their degree switched to basket weaving.

DSpencer, I have a math degree and am a retired actuary so I tend to agree with you, and I am also a BASKET WEAVER! But I would be hard pressed to ever make a living from it.

[shiny!]

Re: Defined Contribution Plans

DSpencer, I have a math degree and am a retired actuary so I tend to agree with you, and I am also a BASKET WEAVER! But I would be hard pressed to ever make a living from it.

You're a BASKET WEAVER?!?!?!

I'd like to see what everyone else here can do- vocations and avocations. I'll start a thread in Rant and Rave and see if anyone participates.

[c1ue]

Re: Defined Contribution Plans

There's no doubt that having wealthy parents is a big headstart. And if you simply inherit millions it's hard to go wrong. However, when I look at the friends I knew enough about to have an idea of their financial situation during/after college, I'm not convinced that this will be the principal determining factor in their wealth down the road at all.

The problem with this anecdote is that you're ascribing the behavior of some number of friends you have - who evidently don't work hard but have parents of some degree of wealth - to the behavior of all those who have parents of some degree of wealth.

If this were true, then the demographic statistics for wealth as a factor of parental wealth would be different than they are. And I would further note: having a wealthy parent is not a guarantee of personal wealth, nor even a majority factor.

It is simply the largest factor compared to anything else.

Thus the correct inference is not that wealthy parents automatically does or does not predict children's wealth, but that all things being equal a person with wealthy parents is far more likely to be wealthy than one who doesn't have this luxury, and furthermore that the simple fact of parental wealth is a greater predictor than anything else.

Equally with frugality: being frugal is a good personal trait. However, frugality as a factor in wealth cannot be identified as important if you do not survey a broad cross section of people. Trying to backwards identify factors in wealth creation by looking at millionaires is no different than trying to backwards identify factors in entrepreneurial success by looking at AOL's executives.