Last week, CNBC ran an interesting story on global wealth inequality.
It was based on the recent global wealth ranking by Bloomberg, which attempted to neatly slot in everyone in the world in 14 buckets.
Pictured below is the summary output of that exercise.
Global Net Worth Distribution
Now, there are a number of interesting observations you could draw from the analysis above.
There’s a striking number of people in the world with a net worth below $1000 (£819). If your net worth is above that threshold, you are already wealthier than 1.5bn people.
1.5bn people. Reflect on that for a moment.
Then there’s the “what you can afford” column. If I could make one edit to the table, I’d put quotations around “afford” instead.
For this first-generation immigrant, the concept of someone with a net worth of $10k (£8,190) being able to afford a new car is pure madness.
The same goes for someone with a net worth of $1m (£820k) being able to afford a “second home by the shore” (though I’m sure BoJo has one).
However, what I find most fascinating is the noise everyone starts making around the re-distribution of wealth every single time a piece of analysis like this gets published.
Now, I’ve only been around for 40 years, give or take. That’s not a massive sample size. Nonetheless, of the relatively short list of life wisdoms I accumulated in that stretch of time, here is the most important one.
“The Cavalry Isn’t Coming”
Fixing Wealth Inequality – A Real-Life Case Study
Let me tell you a little story.
Back in 1996, a husband and wife in one of the recently formed countries on the emerging market frontier have had enough.
They were 40 and 36 years old, with a teenage daughter and son. Well-educated and hard-working, they had nothing to show for their fifteen-odd years in the workforce.
Things were always just about to get better.
The new president would fix things. The next tranche of aid from the IMF would help with the infrastructure. The local police would finally do something about the rampant crime in their home city.
But days would go by, and the cavalry never showed up.
Frustrated, they sold everything they had (hint: it wasn’t much) packed it in and emigrated to a large, well-developed, English-speaking country.
Following a number of initial setbacks, they managed to pin down steady, unglamorous jobs. Then they slowly started to rebuild from zero.
22 years later, they are semi-retired. Their net worth puts them firmly in bucket #6 on the chart above.
At the same time, economically speaking, the country they emigrated from hasn’t moved an inch in those 22 years. Things are still pretty much the same.
In other words, the cavalry didn’t come.
Those people are my parents. Never in their life did they drive a car that wasn’t less than five years old. Last time I went over to check in on them, there was no mention of a “second home by the shore” either.
What there’s plenty of is what psychologists call self-authorizing behavior.
What it means is that you become the author of your own life.
It means moving to a new country if you have to.
Going back to school if you aren’t happy with your earnings potential.
Starting a business if your company just isn’t treating you right.
Or, in that wild idea of the day, taking charge of your personal finances.
Self-Authorizing Behaviour Is Your Only Option
Let’s get one thing straight. When it gets out of control, wealth inequality can be very BAD. That’s right, caps lock bad.
It stifles economic progress. It leads to increased crime levels. It undermines the fairness of our political institutions, our economic system and potentially even our democracy.
But wealth inequality is not going away anytime soon.
Yes, politicians wax lyrical about all the things they will do to fix wealth inequality.
Yes, many rich people acknowledge wealth inequality is an issue and commit to giving their wealth away.
But even if you believe some of those promises (and I do believe that at least some of them are made with the best intentions), the reality is that it will be too late to help you.
Fundamental changes like a peaceful, sustainable redistribution of wealth are incredibly complex – and will take many decades to play out, if they ever do.
So yes, by all means – exercise your democratic right to support the initiatives that have the potential to improve your life.
But remember – IF the cavalry ever comes, you probably won’t be around to see it.
Self-authorizing behaviour is your only way out.
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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