Transcription
So, I want to start today with something that I think most of you have either experienced personally or watched someone close to you experience. Your father or your mother or maybe both of them, they woke up early every single day, they never missed work, they did everything right, they paid their bills on time, they didn't waste money, they saved what they could, they told you work hard, be honest, stay out of trouble and you will be okay. And they worked like that for 30, 35, 40 years. And at the end of it, they were okay, maybe if they were lucky. They had a modest house, a small retirement account, enough to get by, but they were not rich, not even close to rich. And if anything unexpected happened, a medical bill, a layoff, a car breaking down, suddenly even okay was in danger.
Now, here is what I want you to think about. Your parents were not lazy, they were not stupid, they were not bad people, they did exactly what they were told to do. They followed every single rule of the game. So, why didn't the game reward them? That is what I want to talk about today. Not to make you angry, not to make you feel hopeless, but because I genuinely believe that if you understand the real answer to that question, you will make very different decisions with your own life. And those different decisions will change where you end up, okay? So, let's get into it.
So, here's the first thing I want to say and I want to say it directly because I think most people dance around this. Hard work is not the path to wealth, it never was, it never will be. I know that sounds wrong, it sounds almost offensive, right? Because we have been told our entire lives that hard work is the key. Work hard and you will be rewarded. That is the promise, that is the American dream. But let me ask you something simple. Think about the hardest working people you have ever seen in your life. The people who work two jobs, the people who are on their feet for 10, 12 hours a day, the people who never take a vacation, the people who sacrifice weekends, holidays, sleep, health for their work. Are those people rich? Almost never, right?
And now think about the richest people you can think of. Elon Musk, Jeff Bezos, the Walton family who inherited Walmart, the Koch brothers, are these people the hardest working people in America? Are they working harder than the nurse who does a 12-hour night shift? Are they working harder than the construction worker who is up at 5:00 a.m. in the cold every morning? Of course not. That is not even a serious question. So, if hard work were really the key to wealth, if it were really just about effort, then the nurses and the construction workers and the factory workers would be the richest people in America. And we all know that is not the case. So, something else is going on. And that something else is what most people spend their whole lives never understanding, okay?
So, let me explain what is actually happening. And I want to use a really simple example first because I think it makes everything else much clearer. Imagine two people, let's call them Mike and David, okay? Mike is a great worker. Mike shows up on time every day. He works hard, he is reliable, he is honest. Over 10 years, Mike gets promoted a few times. He is now making $80,000 a year. He saves about $500 a month. He puts it in his savings account. After 10 years, he has maybe $60,000 saved up. David is not working harder than Mike. David is not smarter than Mike. But David understood something that Mike didn't. David understood one rule and that one rule changed everything. David took $20,000 he had saved and bought a small rental property, nothing fancy, a modest apartment. And that apartment generates $800 a month in rent after the mortgage payment. So, now David has $800 coming in every month that has nothing to do with how many hours he works. He can be sick, he can be on vacation. The $800 comes in. After 10 years, David has not just the $800 a month in rental income, he also has an asset that has likely gone up in value and he used that first property as collateral to buy a second one and then a third. Mike worked hard for 10 years and has $60,000 in savings. David bought one apartment and now has a portfolio of properties worth hundreds of thousands of dollars generating income every month without him working. Same starting point, same intelligence, completely different outcomes. Because David understood one rule that Mike did not. The rule is this, there are two ways to make money in this world. You can sell your time or you can own something that makes money for you. And these two things are not equal. They are completely different games. And the entire education system teaches you to do the first one, sell your time, while the wealthy have always done the second one, own things that generate income.
Okay, now I want to go deeper because the rental property example is helpful, but it only scratches the surface of what is really going on. Let me talk about the actual structure of how wealth works in America and in the world because once you see this structure clearly, everything else starts to make sense. In America right now, the top 1% of households own about 32% of all the wealth in the country. The bottom 50%, that is 165 million Americans, own about 2.5% of the wealth combined. Now, most people hear that statistic and they think, okay, that is unfair, that should be fixed. But they do not understand why it is like that. And without understanding why, you cannot understand what to do about it for yourself. Here is why. The economy is divided into two layers. There's the labor economy, so where most people live. You go to work, you get paid a wage. You spend that wage on things you need. You might save a little, you pay rent or a mortgage, you pay taxes. And at the end of the month, you have a little left over if you are disciplined. And then there is the asset economy. This is where the rich live. They own stocks, real estate, businesses, bonds, private equity stakes. And these assets, here is the critical thing, these assets go up in value every single year, not because the owners worked harder, but simply because they own something.
Now, here is the thing that most people miss. These two economies are growing at completely different speeds. In America over the last 40 years, wages have grown very slowly. For the average worker, after adjusting for inflation, real wages have barely moved. But asset prices, stocks, real estate, businesses, these have grown enormously. The stock market has gone up 10 to 12% per year on average for decades. Real estate in most American cities has tripled or quadrupled in value. So, if you are in the labor economy, if you depend on your wages, you are running a race where you take one step forward every year. If you are in the asset economy, if you own things, you are taking 10 steps forward every year. The gap between these two groups does not narrow over time, it widens. Every single year it widens. And here is the question nobody asks, why? Why do assets go up so much faster than wages? This is not an accident, this is by design. And to understand the design, you have to understand something about how money actually works, okay?
So, now I want to explain something that sounds complicated, but is actually very simple once you get it. Every year, the Federal Reserve, which is the central bank of America, creates new money. And when new money enters the economy, it does not land equally on everyone. It lands first on the banks and the financial institutions. And those institutions use that new money to buy what do you think? Assets, stocks, real estate, bonds. So, when new money is created, asset prices go up first and wages go up last or sometimes not at all. Think about what happened during COVID. The Federal Reserve created trillions of dollars of new money. What happened to the stock market? It went up enormously. What happened to real estate? It went up enormously. What happened to the wages of ordinary workers? For a while, they went up a little, but then inflation hit, which means the price of everything they needed to buy went up. So, even the small wage increase got wiped out by higher prices. Meanwhile, the people who owned stocks and real estate saw their net worth explode. Billionaires in America added trillions of dollars to their wealth during COVID. Not because they worked harder, because they owned assets when the money printer turned on. This is not a conspiracy theory, this is in the public record. You can look it up. The Federal Reserve publicly announces how much money it is creating. The billionaire wealth increases during COVID are publicly documented. The connection between money creation and asset price increases is standard economics. It even has a name, it is called the Cantillon effect, named after an economist from the 1700s who first described it. The Cantillon effect says simply this, whoever receives new money first benefits the most and whoever receives it last is actually harmed because by the time new money reaches ordinary workers through wages, prices have already gone up. So, ordinary workers find their purchasing power has decreased. In other words, the way money works in America systematically transfers wealth from people who earn wages to people who own assets every single time new money is created. And new money is created constantly. This is why your parents could work hard their entire lives and never get ahead because they were playing the labor economy game while the rules were being written for the asset economy, okay?
So, now I want to talk about something very specific. What do rich families actually teach their children? Because I think if you understand this, it changes everything. I have had the opportunity to work in schools where very wealthy families send their children. And I want to tell you, these children are taught things that are simply not in the curriculum at a regular school. The gap is not just in resources or in test scores, it is in the kind of knowledge being passed down. Here is what wealthy families teach. The first thing they teach is this concept. And I want you to really understand this because it is so simple and so powerful. They teach their children the difference between an asset and a liability. An asset puts money in your pocket. A liability takes money out of your pocket. That is the whole definition, that is all you need to know. A house you live in, in most cases, a liability. You pay mortgage, insurance, taxes, maintenance, money flows out. A rental property someone else pays rent on, an asset, money flows in. A new car, liability. A stake in a business that pays dividends, asset. Ordinary people spend their whole lives accumulating liabilities and thinking they are doing well because they have nice things. A nice car, a big house in the suburbs, expensive vacations, they feel successful. But their actual financial position is getting weaker every year because liabilities are draining their wealth. Rich families teach their children to accumulate assets obsessively, to live modestly relative to their income, to take every dollar of surplus and turn it into something that generates more dollars without requiring their time.
The second thing they teach is this, and this one is counterintuitive. They teach their children to use other people's money, debt. Now, for most ordinary Americans, debt is something terrifying. Credit card debt destroys families. Student loans follow people for decades. And so ordinary people are taught, avoid debt, pay everything off, get out of debt as fast as possible. And for consumer debt, credit cards, car loans, buying things you cannot afford, yes, absolutely avoid it. But this is only one type of debt. Rich people use a completely different type of debt. They borrow money at low interest rates to buy assets that generate returns higher than the cost of the loan. If I borrow $500,000 at 4% interest to buy a rental property that generates 9% returns, I am making 5% on money I do not own, and I can do this again and again and again, each time building more assets, generating more income, increasing my wealth using the bank's money, not my own. And here is something even more interesting. In America, the interest you pay on loans used for investment purposes is often tax deductible. The tax code literally subsidizes this behavior. It encourages wealthy people to borrow and invest. While ordinary workers who earn wages pay taxes at the highest rates with no deductions for their effort. The tax code was written this way by politicians who are funded by the people who benefit from it.
The third thing wealthy families teach is perhaps the most important, and it is the one that is almost impossible to get outside of those circles. They teach their children about networks. There is an old saying, it is not what you know, it is who you know. And most people hear this and they think it just means having connections, being friendly, knowing the right people. But it goes much deeper than that. Rich families send their children to specific schools, not just for the education, but for the relationships. Harvard, Yale, Princeton, Exeter, Andover, these schools are not just academies, they are networks. And the relationships formed at 16 or 18 years old in these schools last a lifetime. They become business partnerships. They become investment opportunities. They become backchannel information about what is happening in the market before anyone else knows. When you are inside the network, opportunities come to you. Someone calls you because they know you. An investment deal is offered to you before it is offered to the public. A job is created for you before it is posted. Information flows to you about which companies are about to be acquired, which neighborhoods are about to be developed, which industries are being targeted by government policy, all before that information is public. And when you are outside the network, you get whatever is left over, the public information, the public job postings, the investments that have already gone up in value before ordinary people even hear about them. This is not illegal, it is just how elite networks function, and it is one of the most important structural advantages that wealthy families give their children that money alone cannot buy.
Okay, so I want to be honest with you now because I think some of what I am saying might make you feel like, okay, the game is rigged, so what is the point? And I want to push back on that directly because I think that is exactly the wrong takeaway. Yes, the system is designed to benefit people who already have assets. Yes, the tax code favors ownership over labor. Yes, elite networks give advantages to people born into wealth. All of that is true, but here is also true. The rules of this game are learnable. The strategies that wealthy families teach their children, owning assets, using leverage intelligently, building networks, understanding the tax code, none of these strategies require you to be born rich. They require you to understand how the system works and make different choices. Let me give you a very concrete example. Most Americans put their money in a savings account. The average savings account in America earns less than 1% interest. Inflation in America over the last few years has been 6, 7, 8%. So if you have $10,000 in a savings account, you are losing purchasing power every single year. You are getting poorer while thinking you are being responsible. The simplest change, putting that same $10,000 into an index fund that tracks the stock market, has historically returned 10 to 12% per year on average. That is the difference between losing ground and gaining ground. And this is not a secret. This information is publicly available, but because it is not taught in school, because it is not the default behavior, most people never do it. Or take real estate. You do not need to be already rich to buy a rental property. You can do it with 20% down. So on a $200,000 property, you need $40,000, which is a lot of money, I know, but it is achievable if you understand that this is your goal and you orient your financial life around reaching it. And once you own that property, someone else pays your mortgage for you. And over time, that property goes up in value. The point is not that it is easy. The point is that it is possible. And the first requirement is understanding the rules.
Okay, so let me close with what I think is the most important idea from today. The reason hardworking people rarely become rich is not because they do not deserve it. It is not because they are not smart enough or disciplined enough. It is because they are playing the wrong game. They were taught to optimize for wages, for selling their time in a system that is designed to reward ownership. Hard work within the labor economy will make you a good employee. It will make you stable, maybe. It will earn you respect from your bosses, but it will not build wealth because wealth is not built from wages. Wealth is built from assets, from ownership, from things that make money whether you are working or not. The rich figured this out a long time ago, and they made sure their children learned it before they learned anything else. They do not tell the rest of us because, and I want to be direct here, it is not in their interest for the rest of us to know. The fewer people playing the asset game, the more assets are available cheaply for the people who already understand the game. But information spreads, and that is why we are here. That is what this channel is about. You cannot change the rules of the game overnight, but you can start playing a different position within it. You can stop putting all your energy into making someone else's business more profitable with your labor and start directing some of that energy into building something that belongs to you. That shift from thinking like an employee to thinking like an owner is the single most important financial mindset change you can make, and it starts not with money, it starts with understanding. Okay, so that is what I want you to take from today. Think about it. Let it sit and ask yourself honestly, am I in the labor economy or the asset economy? And if the answer is the labor economy, what is one small step I can take this month to start changing that? Because that question, honestly asked and honestly answered, is worth more than any amount of hard work in the wrong direction.