Would you rather have rich or poor parents?

October 24, 2011

Does it matter if you grow up with rich or poor parents?

If only I grew up rich, then I'd have it made... I'd be cruising the seven seas in a yacht named Spartacus while sipping the world's finest wines.  I'd throw away my soap after I wore off the letters because I can't stand using small bars! 

The kids who grew up in rich families never had to forgo the new pair of shoes because their parents couldn't afford them.  They went to the best schools because their last name was their admissions ticket, and the Ivy League education was all but guaranteed.  After graduation, they had a plum job with a large salary already lined up.

Even if they didn't receive millions from work, they would surely get it through an inheritance.  They hit the genetic jackpot.

Would rich parents have been the answer to all of our problems of too little money and too much work?

How about the boy whose father left the family when he was a teenager and was forced to be the provider for the family at a young age?  He had to quit school so he could work full time and feed his younger siblings. 

Does that sound like the upbringing of a rich man?  Ever heard of John D. Rockefeller, the richest person ever?

This begs the question, is it better for your financial future to grow up rich or poor?

Let's look at the obvious answer; it is better to grow up rich.  Some reasons:

1.  You can receive a great education

2.  You have great connections due to your pedigree

3.  You were raised to know how to manage money

4.  You'll inherit millions!

Now, the not so obvious answer; it's better to grow up poor.  Some reasons:

1.  You've had a job since you were young, and you have great work ethic

2.  You have an unquenchable thirst to become wealthy because you've never had money

3.  You understand the value of a dollar and can live frugally

First, there are definitely some advantages to growing up poor.

We always hear the stories of people who grew up poor and later became wealthy.  What's the reason for this?  In The Wealth and Poverty of Nations, David Landes writes, "Nothing so concentrates the mind as lack of money."  Andrew Carnegie was a perfect example of this as he grew up poor and vowed to never be that way again.

Carnegie was a first time millionaire in his family.  According to Dr. Tom Stanley's book The Millionaire Next Door, 90% of millionaires are first time millionaires.  They achieved that status themselves.

However, that statistic doesn't mean 90% of poor people will become millionaires!  For every story you hear of someone making millions, there are probably one million stories for people who never made it.

Next, there are obvious benefits of growing up rich.

We tend to learn the most from the people we spend the most time with.  If you grow up in a family full of doctors and lawyers, there's a great chance you'll do something similar.  It's just the way things are, and you wouldn't even worry about how to pay for your school.

However, just because you grew up with money doesn't mean you'll have money when you grow up.  A common scenario is for families to inherit massive amounts of money and then squander it away quicker than it took to earn it.  The typical reason for this is the first generation rich doesn't do a good job of teaching future generations how to manage money.

Some other disadvantages of growing up rich are you've never experienced what it's like to be broke, and your parents may have spent too much time making money and not enough time teaching you anything.  Living a life of comfort can be dangerous to your wallet.

In Thou Shall Prosper, Daniel Lapin wrote, "Generations raised with very little in the way of material possession often focus so single-mindedly on providing their children with everything they didn't have that they neglect to provide their children with what they did have."  They give them the money, but they don't teach them the principles that will lead them to success.

In reality, most Americans are somewhere between the two extremes discussed above, and you must remember we all have different defintions of rich.

I grew up with very little money, and I'm glad that I did (in hindsight!).   It taught me many lessons, but it also taught me the importance of values.  When I was young, I didn't think I was poor because I felt like I had everything I ever needed.   Notice, I said 'needed' and not 'wanted'.

My parents provided an incredible amount of support for me and my three brothers while growing up, just as they do today.  I'm still not sure how my mom was able to keep up with all of our sports practices or how both of my parents managed to attend all of our games (baseball, soccer, football, tae kwon do, etc).  We never had a doubt our parents would be there for us.

We were taught humility, rock solid values, a strong work ethic, and that the world was ours to explore.  All of these qualities helped me get to where I am today.

In Out of the Labyrinth, Robert and Ellen Kaplain explain, "Man can be better understood in relation to his potentials than to his beginnings." 

So, where does that leave us?  Is it better to grow up with rich parents or poor parents?  In my opinion, neither is a true indicator of future success.  The most important predictor of your potential wealth is this:  your values and financial education. 

The most promising part of this discussion is you can learn what it takes to be successful and many people - rich and poor - have done it.  If you have the ambition are are willing to take the right steps to educate yourself, you have the possibility to get rich.  It may not happen  overnight, but it's possible.

So, what excuses are left?  It doesn't matter if you didn't grow up rich or poor.

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