Wealthy Thinking versus Poor Thinking

Wealthy Thinking versus Poor Thinking


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If you’re reading this, great news: You’re wealthy! Or you’re on your way to being wealthy. At the very least, you have wealthy thinking versus poor thinking, a wealthy person’s temperament, which is the first step toward being wealthy. By virtue of reading this educational—and I might add highly edifying—blog post, you are exhibiting a trait that sharply separates the wealthy from the poor: reading educational material, which 88% of wealthy people do versus just 2% of poor people.

You may remember this statistic from a previous show that explored disparities in habits between the rich and the poor. As a brief recap, here are a few of the previously discussed habits, and a breakdown in the percentages of wealthy people versus poor people that practice them:


  • Focus on accomplishing single goal; 80% of wealthy versus 10% of poor
  • Exercise aerobically 4+ days a week; 75% of wealthy versus 23% of poor
  • Maintain a to-do list: 81% of wealthy versus 19% of poor
  • Believe they create good luck for themselves: 84% of wealthy versus 4% of poor


But there are some categories in which poor people excel:


  • Say what’s on their mind: 6% of wealthy versus 69% of poor
  • Watch reality TV: 6% of wealthy versus 78% of poor


This selection of habits illustrates the temperamental difference between the wealthy and the poor. This is not to suggest that if poor people exercised more and maintained a to-do list they would magically be wealthy. Rather, it suggests that one who is naturally the kind of person who would exercise and watch less reality TV is also the kind of person who would be wealthy. Wealth, along with exercising, efficiently prioritizing time, and being disciplined enough to not always says what’s on one’s mind, are all the result of thinking about the world in a certain way.

On this week’s show, we delved deeper into the thinking patterns of wealthy and poor people. By understanding how these two groups see the world, it is easy to understand why each group adopts different habits, and how these habits ultimately determine their financial fortunes. Consider the below examples of Rich Thinking versus Poor Thinking:

I create my life vs. Life happens to me

I play the money game to win vs. I play to not lose

I am committed to being rich vs. I want to be rich

I focus on opportunities vs. I focus on obstacles

I admire rich and successful people vs. I resent rich and successful people

I am willing to promote myself and my values vs. I think negatively about selling and promoting anything

I am bigger than my problems vs. I am smaller than my problems

I gladly receive constructive criticism vs. I do not accept criticism of any kind

I choose to get paid based on the results of my work vs. I choose to get paid on the time I spend on my work

I focus on my net worth vs. I focus on my working income

I can always learn something new vs. I already know everything I need to know


The differences in these modes of thinking demonstrate key personality differences between rich people and poor people. Primarily, it is the difference between being confident yet humble on one hand and insecure yet stubborn on the other. Rich people are optimistic about their potential to thrive in the world; poor people are pessimistic, and believe outside factors inhibit their potential.

These differences affect not only where these groups are but where they’re going. If your general outlook is that the odds are already against you, and you refuse to learn new things or acquire new skills—like investing skills—because you believe you know all there is to know, you have prevented yourself from not only discovering but pursuing new opportunities. You have lost the game before you even tried playing.

In the second hour of this week’s show, I used the example of renters versus owners to illustrate the differences between rich thinking and poor thinking. The impatient, imprudent, and undisciplined thinking that typically results in deciding to rent an apartment exhibits all the classic traits of a poor thinker. These will be recurring themes over the coming months, and one of the key advantages of Rich Thinking will become starkly apparent: It is able to adapt to changing circumstances, while Poor Thinking is not.

The Economics of Millennials living with their parents

Staying in the Basement

Staying in the Basement: The Spending & Borrowing of the Millennials and the Slight Edge

For a parent, the only thing worse than a grown child leaving home is a grown child not leaving home. It’s natural that children, once matured, leave the nest to build nests of their own. Today’s economic conditions, however, have kept many young adults living at home well into their twenties. This, in turn, has left both the economy and parents everywhere depressed. We spent this week’s show discussing this phenomenon, its causes, and its effects.

In 2012, according to Pew Research, 36% of Millennials were living with their parents (aged 18-31 ). This is up 4% from 2007. Of these Millennials living at home, 61% had either some college or a bachelor’s degree, and a full 50% were not in the labor force. The dismal job market, particularly for young adults, drives both these numbers. Few can find a satisfying job, and those who can’t stop searching. They either remain out of the labor force or go to college in hopes of bettering their prospects.

Unfortunately, the return on investment for college degrees has been diminishing for years. The disparity in earnings between those with and without college degrees has started to close, and the bulk of the difference can be attributed to differences in temperament rather than in the benefits of a degree; that is, an individual who would pursue a degree is one who is naturally driven, disciplined, and hard-working. They would likely make better money than their undisciplined counterparts even without a college degree.

These facts have not discouraged individuals from pursuing degrees, however. Nor has it stemmed the tide of individuals going severely into debt to pay for them. Student loan debt has increased 300% in the last 10 years. It is now worth $1 trillion and continues to grow exponentially. Student loans are the fastest-growing sector of debt in the country, and tuition has increased along with it. We are now in an inflationary spiral in which tuition increases to lower demand while student loans increase to increase supply.

Once students attain a degree and enter the workforce—or not—they are burdened with massive debt. Many cannot afford rent, let alone a mortgage, because of high debt servicing payments. And unlike other forms of debt, the US government has ensured that student loans cannot be discharged in bankruptcy. Students are committed to decades of payments.

At Garvens Mortgage Group, we see instances of this every week. Individuals either looking to buy their first home or refinance one they’ve had for years find themselves unable to qualify because of their student loans. Loan servicing can easily consume 10-15% of their gross income. Homes, cars, clothes, virtually all consumables are unattainable because of the cost of these loans. Resources are being diverted from the productive economy to colleges and loan servicers—which, increasingly, means the federal government. The quality of economic growth provided by colleges and the federal government for the broader economy is not high.

After school, with so few job prospects, Millennials increasingly take advantage of the free or low rent offered by their parents to pay down their student loans, often with wages far below what’s needed to successfully support themselves and their loans. The mythology surrounding college degrees convinced them that any degree—from political science to mime studies—will provide lucrative job opportunities after graduation, when this truly is not the case. They not only have high debt and a worthless degree, but they have forfeited 4 to 6 years that could have been spent gaining desirable skills.

Granted, many of those Millennials living at home do so not out of desperation but to build a strong financial foundation for their future. Many are paying cash for college, working part- or even fill-time, and saving money so that when they do leave home they are in stronger financial positions than most of their counterparts. This approach brought us into the second hour of the show, which discussed ‘the slight edge,’ or those with financial or personality characteristics that give them a slight edge over others in their personal and professional lives.

Undoubtedly those without student loans have a significant edge over those who do. Student loan debt will be the financial story of the next decade, and will play a prominent role in determining the successes and failures of an entire generation.

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The American Dream…The American Home

The American Dream The American HomeThere is something unique about the American home. In no other country or culture is the home—a mere structure—imbued with such meaning as in America. We project our hopes and dreams onto it; we depend on it for security; we leverage it to pursue our goals. We take for granted the ease with which anyone can own a home in this country; we forget that America, and America alone, has the perfect combination of ownership laws and free-market financing by which anyone can not only purchase a home but own the land beneath it. Especially in the last five years, the reputation of the American home has been tarnished. It was my hope this week to rehabilitate its reputation by speaking on its behalf.

In 2008, the American housing industry was a victim of its own success. It had promised the possibility of homeownership to virtually every American. Private banks were anxious to lend, and generous government programs ensured practically anyone, regardless or credit-worthiness, could qualify for almost any home they wanted. But, as I’ve said before: although everyone should be able to own a home, not everyone actually should. Too many people who lacked the discipline to own a home had bought one (or two or three), and eventually the entire system collapsed.

The 30 year fixed mortgage is essentially unique to America, as is the opportunity to actually own the land beneath your home. Throughout Europe and Asia, the most common mortgage products are 10-15 year adjustable rate mortgages. In many European countries, homes are purchased under leasehold agreements: the buyers owns the structure, but the land beneath the home is leased from its own, typically for 99 year terms. These facts explain why homeownership rates in the United States are far higher than in any other industrialized, modern nation. Our laws give you the opportunity to own your land, and our financial culture allows you to afford it.

In the years preceding the 2008 housing crisis, lending laws and practices were relaxed far beyond reason. Borrowers were placed into exceptionally risky products, or lent far more than they could afford. Today, people generally feel it’s homeownership itself that is risky! They have lost faith in the promise and potential of homeownership, and have instead chosen the less-risky, but less-rewarding, practice of renting.

I have taken thousands of mortgage applications throughout my career. I’ve met hundreds of past, present, and future homeowners who have shared their financial dreams, financial aspirations, and even their financial fears with me. I understand the deep distrust people have for the housing and mortgage industries. Most of that distrust is, unfortunately, well deserved. But I believe their distrust is misplaced. The financial institutions, real estate agents, and homebuilders who were responsible for the housing crisis merit most of this mistrust; and, fortunately, most of these institutions, agents, and builders are no longer in business.

I understand this mistrust and the reasons people have it. I also understand trust and the benefits people reap for placing it in the right people. I have sat through loan applications with clients in which people display the whole gamut of human emotion: worry, fear, joy, excitement. They worry about the present—about the late mortgage payments and dwindling financial reserves. They fear the future—the imminent foreclosure and the prospect of losing their home. They feel joy at the possibility of refinancing their mortgage and restructuring their debt to free up money and save their home. And, in the best cases—which also happen to be most cases—they’re excited about their new future and their brightened prospects.

These emotions only appear when dealing with a home. Few apartments can invoke such emotion. Homes can because they are significant enough to warrant such emotion. People truly put their hopes in their homes. They project their wishes for the future onto their home: of marriage, children, and all the memories that happen inside a home. But because their home cannot speak, it cannot remind them of the innumerable ways, both conscious and unconscious, that they tie their lives and their futures into the fate of their home.

This is why I spent this week assuming the personality of a home on the show. I wanted to speak as a home to homeowners everywhere. My hope is that people will consider what I said—what their own home would say, if it could speak—and appreciate the blessings made possible by homeownership.

Click Here to listen to the show.

What in the World is Deflation and How does Deflation Effect You?

deflationFor the past several years, the greatest fear of policy-makers, investors, and bankers has been inflation. With the Federal Reserve’s unprecedented QE programs, and its massive printing of money to purchase debt, many worried whether this excess of dollars would spark a similarly unprecedented inflationary cycle. This, however, has not come to pass. Rather, there is now fear of a more pronounced, and more prolonged, deflationary cycle in the American and global economy.

The pedantic definition of deflation is: A reduction in the general level of prices in an economy. This means, for example, that a gallon of milk or gas will cost less next week than this week. A humorous indicator of deflation is: When an economy sells more adult diapers than baby diapers. That is, when an economy’s population is weighted more toward the elderly than the young, deflationary pressure will exist.

I believe we are soon entering a deflationary period. As Baby Boomers retire and downsize their lives, our economy will lose the single-greatest productive demographic it has ever seen. There will be less demand for homes, cars, furniture, and electronics, and there will be a marked shift in demand away from tangible goods and toward services. With decreasing demand, the general price level will fall.

One negative effect of a falling price level is that the real value of debt increases. Borrowers will owe more in real terms for any debt taken out when their loan comes due. This makes borrowers less likely to acquire debt, which, in turn, means fewer loans, less investment, and slower business growth. The worst-case, and not-uncommon, scenario is a deflationary spiral. The negative effects of a decrease in the utilization of debt cannot be overstated.

Japan, for example, has been in a deflationary spiral for nearly 25 years. After tremendous growth through the 1970s and 1980s, their economy went into recession in the early 1990s. They had acquired massive levels of debt, particularly in global real estate, but were unable to service this debt. Changes in demographics—namely, they weren’t having children and their population was rapidly aging—created an absence of inflationary pressure. Domestic demand was falling along with the general price level. To keep their exports competitive, Japan pursued one stimulus program after another throughout the 1990s and 2000s to keep their currency low. Their debt, while increasing in real terms, was being serviced with yen that were falling in nominal terms.

Japan’s error—which, unfortunately, is the prescription every advanced economy pursues during every recession—was to attempt to fight the natural business cycle. After a spectacular rise throughout the 1970s and 1980s, Japan was destined for a spectacular correction. The Bank of Japan’s actions in the subsequent 25 years attempted to soften this correction, but ultimately prevented organic market corrections from materializing. They essentially condemned themselves to this period of deflation rather than risk a quick but acute period of economic hardship.

With the latest financial crisis, I fear the US has pursued a similarly faulty course. We have embarked on a series of programs, from the stimulus to several rounds of quantitative easing, that were meant to keep the market from naturally correcting itself. But as history shows time and again, you cannot alter the business cycle; you can only prolong it. We have condemned ourselves to a prolonged period of low growth and high unemployment rather than endure a quicker, but more severe, course.

To prepare for this deflationary period, I advise people to do three things. First, if you’re planning to buy a new home or downsize to a smaller one, do so this year. This will be the last year that interest rates are this low, and as interest rates and deflationary pressure both increase, the value of a home’s debt will increase astronomically in both real and nominal terms. Second, diversify your portfolio. Speak with an investment firm on where to invest and what kinds of assets to hold to hedge against deflation. And finally, educate yourself on the topic. Strive to understand the mechanics of inflation and deflation, and what both can mean for your financial security both, present and future.

As always, I will discuss these topics in more detail in the coming weeks. If you haven’t yet, I encourage you to listen to this week’s show in the archives, as I went into more detail than this post allows. And stay tuned over the next few weeks as I explain how today’s news and current events are affecting, and will be affected by, the demographic changes we’re seeing today.

New Home Buyer

New Home Buyer Seminar




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