Rags to Riches to Rags

The Coffee Shop
1

We seem to hear this same basic rags-to-riches-to-rags news story over and over–often enough to suspect that it’s no coincidence. Excerpts:
"HUDSON - From a ruined family life to a $13 million Florida Lottery jackpot to abject poverty and ultimately federal prison, Rhoda Toth’s life has more chapters than ‘War and Peace.’ …

That came to $13 million for the Toths, who instantly went from living from paycheck to paycheck to multimillionaire status.

Looking back, she has a surprising perspective.

'It was my worst day, she said.

From the beginning, she said, she knew they were handling their good luck badly. They decided to get payments over 20 years and the yearly payment came to $666,666.66.

‘It was too many sixes for me,’ she said. ‘My husband said it was evil money.’

That may have been prophetic."
http://www2.tbo.com/content/2010/sep/24/lottery-winner-toth-goes-from-rags-to-riches-to-ra/

It seems that the lady inferred one thing from the experience, at least: 666 is the Sign of the Devil. sigh But are there other less mystical, more practical truths that we can glean from this oft-repeated story? Maybe some lessons about human nature, or how to live, or at least about money? Naturally, I have some thoughts about that, but I’m curious what others here make of it.

2

The article says she bought that winning lottery ticket at the Circle K on Trouble Creek Road…

3

Yeah, and she probably stepped on some cracks and broke some mirrors on her way over there. sigh again

4

I can see why they say gambling is the worst addiction…

Well that and hanging out with people from Mass. They’ll steal your copper pipe and shoot your windows out!!

It seems like most lottery winners give a great bit away, just to the wrong people in the wrong amounts. Starting college scholarships or cleaning up parks seems like it would more akin to benefitting people, at least from my POV.

5

But are there other less mystical, more practical truths that we can glean from this oft-repeated story?

What’s the saying? If you took all the money in the world, put it all together and divided it up evenly amongst everyone, in a short period of time most of the people that had money before would have it again?

For the most part I think this is true.

There is a mindset that goes along with getting and being rich. You give someone money that not only doesn’t have that mindset, but can’t even think along similar lines and they can’t hang onto the money. Take away money from someone that does have that money and they will get it back…likely from the ones that don’t have the mindset.

You have people with varying mindsets from “Filthy rich” to “I’m poor” and everything in between. In many, even most cases, people stay in the mindset they are and in many cases carry that mindset over to further generations. Poor becomes poor forever, rich becomes rich forever.

There are exceptions but in most cases there are reasons for those exceptions.

A poor immigrant coming from another country to here and getting rich. They more than likely had the right mindset in the other country, just lacked the opportunity.

The “Generationally rich” that suddenly the person with the “Rich mindset” dies and the mindset was ignored or not passed on. How many times have we seen an estate simply vanish in one or two generations? To the contrary we have seen more than one “Royal families” where the mindset is passed on generation after generation.

Money, getting rich, being middle class or poor, at least for the most part, and for now, in this country is greatly about mindset.

There is a bit of luck involved, particularly when speaking of “Rich”, but less and less luck when going further down the ladder.

There’s little doubt in my mind that Gates would still be very well off without a few key moments in his life. He probably would not be UBER rich. These “Key moments” are often times partially “Luck”.

To the contrary it doesn’t take much luck at all to maintain a lower middle class existence, even in the face of some bad luck.

~Matt

6

My mom passed away 13 years ago. My parents had always been terrible with money. They lived well beyond their means. My parents were a combination of a mother who had claimed we were “upper middle class” (my dad worked for the post office, and she was an X-Ray tech) and tried living like it, and a father who never once in his life gave a moments thought to a budget.

Life insurance paid out $250,000. 5 years later my dad moved to Florida to get remarried and had a net worth of almost nothing (couple $100 plus a used car that he was making payments on). It was sad watching him blow all of that money…and none of it really amounted to anything tangible.

Likewise, I’d watch my old coworker constantly living on the edge. Every few months he’d go back and forth between bying things he couldn’t afford and selling things on craig’s list and Ebay. Last I heard, he bought a Harley.

Some people just can’t control their spending. It’s like an eating disorder.

7

I agree with what you say about mindsets. It would be interesting, though, to try to figure out more specifically just what goes into a “poor man’s mindset” versus a “rich man’s mindset.”

Your example of the poor immigrant who becomes nouveau riche might shed some light on the question. As you observe, that immigrant probably already had the right mindset. I would suggest that part of that mindset was in fact what led him or her to come here in the first place. If trying to get rich by buying lottery tickets suggests an attitude that success comes from luck, taking the initiative to leave one’s past life behind and make the adjustment to a new culture suggests just the opposite.

8

“Some people just can’t control their spending.”

But more specifically, why is it that some people can and some cannot? Or in a few cases (perhaps Dave Ramsey?) that a person moves from one category to the other? Is managing one’s money learnable?

9

I pretty much agree with what Matt had to say and Rob, I’m not sure I agree with your last point. I read the ‘poor stay poor’ philosophy as more of a: “Whatever happens to me I won’t have true wealth” kind of mentality. Those aren’t the perfect words but the only ones that popped into my head right now… The rich mindset I read as: “Eh, just a few more hurdles in the way, but jump those and keep working hard and I’ll have that nicer house for my wife and kids and that new car. I’ll get 'em, come hell or high water.”

10

“I read the ‘poor stay poor’ philosophy as more of a: ‘Whatever happens to me I won’t have true wealth’ kind of mentality.”

I think that kind of fatalism–“learned helplessness,” as I think the psychologists call it nowadays–is very common too, and plays a big role in poverty. At the same time, though, if you buy a lot of lottery tickets, it definitely suggests that you think luck might make you wealthy.

11

I don’t disagree with that statement at all; but I do believe that even if one of the learned helpless were to win the lottery, they wouldn’t consider themself as wealthy as a self made person of the same hypothetical worth, that wealth is somehow destined to be temporal.

12

Maybe that estimate would be right, if wealth is measured by more than one’s current financial bottom line.

13

But more specifically, why is it that some people can and some cannot? Or in a few cases (perhaps Dave Ramsey?) that a person moves from one category to the other? Is managing one’s money learnable?

Oh I can tell you from personal experience it is absolutely learnable, but it’s probably a lot like calculus. A good teacher and good aptitude will take you much further.

Or more accurately, it’s more of a culturaly engrained trait…I think my wife pointed out that a lot of spending behaviors are reflected in the generation and circumstances that that person came from. That’s one of the reasons you’ve got rich old grannies who still have a year’s worth a canned soup in their cubord…just in case.

14

There is a saying that getting a large chunk of money just makes you more like you were before. If you are already screwed up, winning the lottery, getting a huge sports contract, getting a big lawsuit settlement etc just gives you a higher tight rope to fall off of. Not many people actually go from managing their lives well an a low income to totally screwing up a windfall. Its generally the folks who were not running things well before who mishandle sudden wealth.

On the other hand, a couple people win the lotto somewhere in the US almost every week and jsut about all of them handle it at least well enough not to end up in the news. Most people are smart enough to either a) deal with the money themselves or b) smart enough to get help.

15

You can take the woman out of the trailer park, but you can’t take the trailer park out of the woman.

16

I don’t necessarily think it’s about generation. I learned my attitudes towards money from my parents. No doubt my attitudes are somewhat different, but we’re the same on the basics. And I can see the same transfer from them to their parents.

17

I agree with what you say about mindsets. It would be interesting, though, to try to figure out more specifically just what goes into a “poor man’s mindset” versus a “rich man’s mindset.”

Your example of the poor immigrant who becomes nouveau riche might shed some light on the question. As you observe, that immigrant probably already had the right mindset. I would suggest that part of that mindset was in fact what led him or her to come here in the first place. If trying to get rich by buying lottery tickets suggests an attitude that success comes from luck, taking the initiative to leave one’s past life behind and make the adjustment to a new culture suggests just the opposite.

The “Rich Dad, Poor Dad” guy, whose name (Iwasaki?) escapes me at the moment, crystallized it quite succinctly. Poor people think for the short term, never beyond the next paycheck, the next meal, or, at times, the next fix, no doubt because that’s all they know. Rich people think for the long term, as in what today’s financial decision means down the road, what you’ll have to sacrifice in the future to meet today’s need. It might be overly simplistic, but not far off the mark.

18

From the story: “They lived large for a while. They went to Las Vegas, Lake Tahoe and Atlantic City.”… “'He went down to Tampa one day and lost $75,000,” she said. “Once, over a week in Tahoe, he lost $400,000.'”

Translation “they threw away millions of dollars gambling” Yes, she squandered it in other ways, but I would bet that 90% of it was lost due to gambling. Even at the end, she doesn’t seem to acknowledge it. Her advise:

“Get a good attorney and get a good accountant,” she said. “And get counseling. Don’t let family and friends control what you do with your life.”

Luckily, this seems to be an extreme example. Most lottery winners seem to avoid such a horrible outcome.

19

I agree with what you say about mindsets. It would be interesting, though, to try to figure out more specifically just what goes into a “poor man’s mindset” versus a “rich man’s mindset.”

There’s actually been more than a few studies on this.

There is actually quite a large difference.

My wife went to some conference a while back and this was covered a little bit.

Her paraphrasing was something to the effect of “Poor mindset” = “It doesn’t matter what I do, I’m poor”. “Middle class mindset” = “If I work hard I will make money” “Rich mindset” = “If I get other people to work for me I won’t have to work hard”

That’s not exactly what was said but the idea was that the upper class or rich put all of their assets to work. Their goal is not to “Work hard” but “Work smart”. The middle class seems to have the “Middle class work ethic” ingrained in them. Work hard and you’ll have a good life, get somewhere etc.

The poor have a mindset of hopelessness and helplessness. “No matter what I do it doesn’t matter, I’ll always be poor”.

~Matt

20

Funny, when I got laid off my friend wondered if I was worried. I told him that we’d be okay because we could afford to live on one salary + unemployment. He said that he couldn’t. We can actually go two years on one salary (that’s how much savings we have after UE runs out). I still feel like we are behind in our retirement.

While being on UE he asked how things were going. I said we were able to save $500 a month after expenses while I was on UE. He said that they aren’t doing that now with both of them employed.

He owns nicer house, 2 acres of land, and a boat. He said the docking fees of the boat alone are $5,000 a year.

Funny thing…a poor-er friend of mine had commented that this friend of ours “is loaded.” What do they say in that book? Big hat, no cattle?