I just finished reading The Millionaire Next Door, and even though it’s about how America’s wealthy become wealthy, I started to notice just how many of the mistakes mentioned in the book described the new rich in China. In contrast to what we have heard about the Chinese savings rate (around 30% for households), it seems that many of those struggling to reach the middle class are spending massive amounts of money on luxury goods to appear rich (or here).
One of the ideas in the book is that there is a difference between being rich (usually a high salary) and wealth (the accumulation of investments above what would be typical for the salary). An example of this would be that a person making $70,000 a year who accumulated 1 million dollars is much “wealthier” than a person who makes $1,000,000 every year, but has only accumulated $1,000,000.
The author describes a number of traps people fall into which requires them to maintain an appearance of being rich, but prevents them from becoming truly wealthy. In China we might call this trap “face”.
My favorite example of this is that many of the doctors who work at the hospital wear a Rolex (which starts at $2,500 on Amazon), which would be almost 9 months salary for a factory worker. The watch though only comes after they have bought a new apartment, a car, and paid to get their child into the best schools. The watch must also match your expensive suit, shoes, and I-phone. If anyone of these pieces were missing, people would “know” that you weren’t really rich.
Interestingly most of the Chinese people I talked with agreed it was better to have a knock-off of a famous brand, than to own a decent quality product from an unknown company.
However, these are just things that rich people have, and according to the author, this isn’t true wealth.
When I shared this thought with a co-worker today, she was genuinely surprised to learn that I thought a lot of these status markers were a waste of money. To her money was something that should be spent more than saved (which I talked about in re-thinking stability). When I commented that Taiwanese people joked that Mainland Chinese are more concerned with looking rich than being rich, she laughed because it was so accurate.
To Beijing this isn’t so funny. China’s growing disparity between rich and poor is another item on China’s increasingly long list of worries. The wealth gap is something the gov’t has been trying to sweep under the rug by banning certain luxury phrases from advertisements, but conspicuous consumption has already been established as a requirement for those seeking even middle class status.
Fun side note: When talking with my co-worker it became clear that to her there was no division of wealth in a family. If your parents were rich, then that was your money too. Conversely she was also impressed by the idea of the elderly in the US striving to be financially independent of their children.