Foo - The richer you get, the cheaper you become?

I thought the general theory was that the richer and more wealthier you are, the more generous you become.

But I been hearing and soon realizes that it's the opposite.
Is this because you know how hard you work to become rich, therefore is more conscious of how you spend?

The richer you get, the cheaper you become.

Discuss. Thanks.

When it comes to charity, this study says the rich give more than the poor:

http://www.philanthropy.iupui.edu/research/giving%20focused%20on%20meeting%20needs%20of%20the%20poor%20july%202007.pdf


I think it all depends on how you define "cheaper." I think most data would show that the rich *save* a higher percentage of their income and net worth than the poor. But that's because they have enough money to *spend* a lot more than poor people and still have some left over.

I think it depends on what you mean by 'the richer you are, the cheaper you become', do you mean you spend less money in absolute terms, or as a fraction of your total income? I'm going to guess that it's the latter, and there is a pretty simple explanation for that pattern. If you don't make a lot of money (i.e. you are poor) a very large fraction of your money goes to paying for necessities (food, shelter, transportation, etc), and very little of it (if any) is disposable income that you can spend on 'fun' stuff including donating money to charities (many polls have shown that people gain the greatest levels of satisfaction from money that they've donated to charity). With every additional dollar that you make, a greater fraction of the total amount of money that you make falls into discretionary spending category (including money given to charities). Thus, if you make more money, and your expenses remain the same, the total fraction of your money that you spend each month must goes down.

Of course, as people make more money, they also spend more money (bigger houses, fancier cars, nicer clothes, etc), but it also becomes much easier to save more money at that point too, because you don't have to spend all of your money just on surviving. So smart people will try to save more of their money as their income grows because it's easier to save more money, as they make more money.

Also, I think a lot of people who make a lot of money think that the reason that they have a lot of money is because they've worked very hard for it (which is often true), and sometimes those people will assume that other people who do not have money just haven't worked hard for it (which is not necessarily true).

Thanks for the thoughtful insights so far.

Are you confusing cause and effect? If you're cheap, you spend less and save more. Over time, you may be able to save up a significant amount of money. Obviously, not all cheap people are wealthy, but pinching pennies certainly doesn't hurt in trying to build up a fortune.

Experience from the bike shop: The more expensive vehicle they drive up in and the more expensive bike they're looking at purchasing, the more they haggle on the price. I wish they'd let me make a generous living at it, much like someone obviously made theirs generous.

Does anyone ever haggle over the price of a cheeseburger & fries for lunch? But I bet most people go back & forth a couple times when buying a car or a house. Unless you have disposable income in the billions, high-ticket items are best purchased through negotiation as there's ALWAYS a range that the seller will accept. It would be folly not to haggle and in many cultures, you would insult the seller tremendously by not negotiating.

I think you first need to define what you mean by "The richer you get, the cheaper you become? ".

And just having more money isn't the instant panacea that a lot of people think it is; it doesn't automatically solve your problems. In fact, having higher net-worth brings a lot of headaches and overhead that you simply do not have to deal with at lower levels. For example, having to pay income-taxes that are higher than your previous salaries or property-taxes that are higher than what you used to pay in rent+utilities can make quite a few people grumpy and stingy.

The other issue mentioned in several previous posts is are you comparing the same person before and after they got rich? Or are you comparing different people, some who are and aren't rich? Because if you're comparing different people, that's not a valid comparison at all because they may have always been a cheapskate their entire lives even though they were born into a $500mil inheritance. On the other hand, I know rich folks who are extremely giving. Then there's plenty of people who aren't wealthy, but are very generous with their money and even more important, their time and energy.

I think it leans more the other way: "the cheaper you ARE, the more likely you are to become rich."

The first rule of financial success is: to make money, stop losing it. So when someone haggles on ordinary stuff, they are laying the groundwork for success. (Or, at least, they're trying to.)

I won't be one of those; too much effort for something I'll leave behind when I die. (I'd rather leave behind a cluster of people who miss my sparkling, boyish charm!)

I feel like being rich would be something like having 2011 income in 1932. Yeah, it takes less to meet the needs of life, and when the WANTS are so easy to get, they look less desirable (I notice that every tax season, LOL), and you just don't see the why of acquiring them. In THAT respect, money is good -- it can free you from materialism (or maybe that's just me....).

Does anyone ever haggle over the price of a cheeseburger & fries for lunch?

Yes, believe it or not, some do.

They'll also scream and yell at the poor schlub trying to help them if it's not exactly to their liking. Go figure.

Nope. The more money I make the more I spend. I remember when getting pizza on pay day was a splurge.

I would like to suggest that someone read "The Millionaire Next Door"
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206

I thought the general theory was that the richer and more wealthier you are, the more generous you become.

But I been hearing and soon realizes that it's the opposite.
Is this because you know how hard you work to become rich, therefore is more conscious of how you spend?

The richer you get, the cheaper you become.

Discuss. Thanks.


Yes, I believe that is quite true but nowhere close to applying to everybody. I also think the big distinction to make however is that a lot of timese those rich people didn't splurge when they were poor. Thus people are often times comparing the spending habits of the rich versus the poor.

Experience from the bike shop: The more expensive vehicle they drive up in and the more expensive bike they're looking at purchasing, the more they haggle on the price. I wish they'd let me make a generous living at it, much like someone obviously made theirs generous.

Yes, but aren't they haggling on a 6-10K Pinarello, instead of a Giant TCR??? Seems like you would still make more $$$ off the rich dude.

I would like to suggest that someone read "The Millionaire Next Door"
http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206That's a great book! Also shows the contrast between "old money" versus wannabe "nouveau riche" types.

Make me rich and I'll get back to you on this...

Yes, but aren't they haggling on a 6-10K Pinarello, instead of a Giant TCR??? Seems like you would still make more $$$ off the rich dude.

Ya know anything about margins?

Poor people pinch pennies because they have to. Rich people do it because it makes good business sense.

I also experienced the majority of poor people willing to pay retail and the majority of wealthy people haggling the price.

Make me rich and I'll get back to you on this...

Yeah, I'll be a guinea pig on this; a $5M interest-bearing trust will do.....

Poor people pinch pennies because they have to. Rich people do it because it makes good business sense.

I also experienced the majority of poor people willing to pay retail and the majority of wealthy people haggling the price.

The real issue seems to be what the definition of 'cheap' is.

Frugality is an admirable trait, in my opinion defined by having money and choosing not to spend it. Useful at any income level.

Cheapness can also come at any income level. One guy I worked with seemed to always come up short a buck or two whenever we went out to lunch. Once or twice is understandable, but since we were all at relatively the same income level, and after a long while it became apparent that he was out to get the same value as the rest of us without paying the full price...that constitutes being cheap.

The one thing I can see changing as one's income reaches a certain level: money can buy influence and power over others, in essence making others do what they do not wish to do, but may have to due to their perceived economic state. The more one is capable of exerting influence over others, the greater the temptation to do so must be.

Yes, believe it or not, some do.

They'll also scream and yell at the poor schlub trying to help them if it's not exactly to their liking. Go figure.


http://www.youtube.com/watch?v=KNQRqAoT-2c

The real issue seems to be what the definition of 'cheap' is.

Frugality is an admirable trait, in my opinion defined by having money and choosing not to spend it. Useful at any income level.

Cheapness can also come at any income level. One guy I worked with seemed to always come up short a buck or two whenever we went out to lunch. Once or twice is understandable, but since we were all at relatively the same income level, and after a long while it became apparent that he was out to get the same value as the rest of us without paying the full price...that constitutes being cheap.

I have a simple solution for dealing with people like that, I don't associate with them. Either that, or I start only bringing enough money to pay for my own meals/drinks/whatever, and when the other person is short a dollar, I just tell them "you work it out for yourself" before leaving. Yes, it might cost me a "friend" or two, but that's one "friendship" I can live without. I don't mind occasionally treating someone or occasionally helping someone out, but if a pattern emerges, I'm not going to ignore it.

In answer to the OP's question, I'm going to add my voice to what others have said, people become rich by being "cheap", or at least they're a lot more likely to do so. Have you ever wondered why the majority of people who win large sums of money in lotteries usually end up broke within two years? If they were "cheap", I suspect their winnings would last a bit longer. The same goes for people who earn high incomes or make money in the stock market. People who save and invest their money tend to more of it than people who don't. Why this is considered a bad thing by the rest of society I don't know, but I suspect vested interests has a lot to do with it.

When I look around, when I see all the people up to their eyeballs in debt, I see people defaulting on mortgages and then going cap in hand to the Government for a bail out, I see clients at work getting in trouble with the Tax Office because they spent their money on new cars and McMansions rather than paying their dues (ironic how the people who overspent and can't pay their tax then want the Government to bail them out of their mortgage). I say to hell with the people who call me "cheap". At least my bills are paid for another month.


The one thing I can see changing as one's income reaches a certain level: money can buy influence and power over others, in essence making others do what they do not wish to do, but may have to due to their perceived economic state. The more one is capable of exerting influence over others, the greater the temptation to do so must be.

And is this necessarily a bad thing? Let's say, for example, that I was wealthy enough to afford a housekeeper, and I decided to get one. Ok, so I'm using my "influence" over this person to make them clean my house, and maybe some might consider that to be "bad" in some way, but has anyone considered the alternative? If this person is only cleaning my house because they need the money, aren't I doing them a service by giving them the opportunity to earn that money and improve the financial situation? This is one of those damned if you do and damned if you don't situations. If I don't spend the money, I'm "cheap", and if I do spend it, I'm "exerting influence over others".

I don't necessarily agree with, "the cheaper you are, the more likely you are to become rich." A cheap person may not want for money, may even become fairly well-off, but a truly "rich" person had a novel idea, got in on the ground floor, and bet all of his (and vast amounts of other peoples') money on it.

A "cheap" person would never bring himself to that level of capital investment; thus, will never be "rich."

What amazes me is how many poor people pass on fairly easy ways to get a little more money. Case in point: I'm poor, live in a poor neighborhood. Whenever I have to walk somewhere anyways, I always bring along a plastic grocery bag, to pick up all the Al cans (at $0.025 per), and I never fail to get a dozen. Seems to me, if you're scraping by, you'd (at the very least) pick up the 5 cans *visible from the bus shelter* while you're waiting for the bus.

And is this necessarily a bad thing? Let's say, for example, that I was wealthy enough to afford a housekeeper, and I decided to get one. Ok, so I'm using my "influence" over this person to make them clean my house, and maybe some might consider that to be "bad" in some way, but has anyone considered the alternative? If this person is only cleaning my house because they need the money, aren't I doing them a service by giving them the opportunity to earn that money and improve the financial situation? This is one of those damned if you do and damned if you don't situations. If I don't spend the money, I'm "cheap", and if I do spend it, I'm "exerting influence over others".
It depends. Is the housekeeper willing to work for less because they're an illegal alien? Can you short a workman on his wages because you know he doesn't have the money to sue you?

All I was saying is that the opportunity is there, where it wouldn't be for someone with lesser means.

It depends. Is the housekeeper willing to work for less because they're an illegal alien? Can you short a workman on his wages because you know he doesn't have the money to sue you?

All I was saying is that the opportunity is there, where it wouldn't be for someone with lesser means.

It's not just "illegal aliens" who work for less (incidentally, I've always considered that term somewhat racist, but each to their own), but pretty much anyone who needs a dollar. The cash economy, which is virtually impossible for any Government to regulate, thrives on it. It's actually very common for people on low incomes to work for lower wages in exchange for payment in cash. For one thing, their cash earnings can never be traced by government welfare agencies or the taxman. Heck, I did it myself when I was unemployed some years ago, and I didn't think I was being exploited or unduly influenced. As far as I was concerned, I was offered the chance to make some extra money and I took it. Yeah, it was below the "award" wage, but I wasn't complaining when I spent the money, and nor, I suspect, are the majority of people who take advantage of the cash economy.

When you think about it, pretty much anyone who works for a living is being "influenced" by someone with more money than they have. I think my job today pays quite well, but if my boss wasn't offering me money to come in everday, do you think I'd be here?

Just in time for this thread, the Atlantic has an article entitled "Secret Fears of the Super-Rich (http://www.theatlantic.com/magazine/archive/2011/04/secret-fears-of-the-super-rich/8419/)." One relevant bit:


His recent papers, many co-authored with John Havens, the associate director and senior research associate at the center, have done much to exonerate the rich from the charge that they are more tightfisted than the non-rich. (They’re not, Schervish and Havens say: as individuals move up the wealth scale, they give away a greater share of their assets.)