April 5, 2023

Are Most Millionaires Actually “Self-Made”?

Are Most Millionaires Actually “Self-Made”?

Causation vs...(un)correlation?

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“Luck” is where opportunity meets preparation, right? Fantastic financial outcomes are the culmination of a lot of factors coalescing in a very specific way, but we tend to only focus on one: effort.

So much American lore (and by extension, American…personal finance advice?) is constructed on the foundation of the self-made meritocracy. 

One such “statistic” that often gets touted in these conversations: Somewhere in the ballpark of 88% of US millionaires are “self-made.” But where does that figure come from? How was it determined? And where do its implications fall dangerously short?

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Transcripts can be found atpodcast.moneywithkatie.com.

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Speaker 1:Just work like hell. I mean, you just have to put in, you know, 80-hour, 80- to 100-hour weeks every week. 

Speaker 2:Gosh. That's a lot of work. 

Speaker 1:All those things improve the odds of success. I mean, if other people are putting in 40-hour work weeks and you're putting in 100-hour work weeks, then even if you're doing the same thing, you know that in one year you will achieve what they achieve…you will achieve in four months what it takes them a year to achieve.

Katie:Welcome back to this week's episode ofThe Money With Katie Show, my Rich Family. There is a specific strain of online discourse that loves to study the rich, and I spend a lot of time on FinTwit thanks to my profession, or at least that's what I'm telling myself. And I routinely witness this obsession with figuring out how rich people got that way. 

Often it involves a certain projection of wealthy people cosplaying poverty, or engaging in other quirky behavior that we kind of zero in on and assume it must be some trade secret of the billionaire class. We love to examine and highlight the ultra-frugal or otherwise extreme habits of wealthy people, and then imply a causal relationship, where it's not clear that one actually exists. This is a distinct shift from the way people used to obsess over celebrities and starlets for their glamorous lives and paternity scandals. No, now we're interested in—and let's be honest, a little bit in awe of—anyone with money, not just celebrities, which seems to be a clear line of demarcation between 21st century America and centuries past. The implicit suggestion is that mimicking the behavior of ultra-wealthy people will net the same outcome for the mimicker. You probably know the kind of content that I'm talking about. 

Speaker 3:That's why today, we're taking a look at some of the world's wealthiest and most famous one percenters’ morning routines. 

Katie:Yes, we're talking about headlines like “Here's how 9 billionaires start their mornings,” which is a real Business Insider headline, and “8 ways rich people view the world differently from the average person,” which is a real CNBC headline. This stuff is everywhere in business, in financial media, but hasn't always been this way. We'll be right back after a message from the sponsors of today's episode. 

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Katie:Okay, so let's back up a few decades. Because in the age of the robber barons—so think Carnegie, Rockefeller, Vanderbilt, JP Morgan—you know, the billionaire boys—we didn't study their morning routines; we didn't admire them; we didn't defend them when our friends went on the 19th century equivalent of a Twitter rant talking shit about Rockefeller's exploitative labor practices while sloshing bathtub gin at the local pub.

Because back then, the collective 99% kind of understood that the haves, or colloquially referred to as the 1%, were expressly not the champions of the have-nots. No, it was quite the contrary. There was a cultural understanding that the extreme haves oftenhadat the direct expense of the have-nots. 

History and culture writer Nicholas Gilmore wrote for The Saturday Evening Post, quote, “British economist John Stuart Mill referred to this kind of wealth in the mid 19th century as the ‘unearned increment.’ Divine right was unAmerican, but passive income was filling the wallets of a select few in the country while farmers and workers struggled. Men like Cornelius Vanderbilt, JP Morgan, and John D. Rockefeller acquired hundreds of millions of dollars in the 19th century by building monopolistic empires and strong-arming competition and their own workers into submission.” End quote. 

But somewhere along the way, over the last 50 years or so, that kind of shifted. Instead, we decided we might get further ahead if we just learned a little bit more about how the rich among us got all that money. And on its face, seems like a logical conclusion, right? Shouldn't imitating the habits of already-wealthy people net the same results? Perhaps all of this worship and admiration stems from the fundamental belief in a mostly meritocratic world—that most rich people did it themselves, and that replicating their behavior will produce a similar result. They must know some secret, right? 

But let's dig into where this belief comes from. Because there's usually one statistic that gets thrown around a lot when we talk about meritocracy: that most millionaires are self-made.Self-made. We love a self-made personal narrative. More specifically, that 88% of all millionaires are self-made. Now the claim seems to originate in a US News article that cites a 2017 Fidelity Investments study referenced all over the web. But oddly enough, no such study is ever linked in any of these articles. When I tried to find the original study in question so I could look into the basis and methodology used to substantiate the claim, it did not seem to exist. I enlisted the help of my pro fact check editor, Kate, to track it down. She was able to locate a PDF of a Fidelity slide deck that was buried somewhere in an old press release from 2021 that claims on slide 34 that 81% of millionaires they surveyed self-reported that their wealth was entirely earned alone. Only 19% checked the box for “inherited or increased by others.” So we dug into the appendix where the methodology was outlined. They surveyed 1,429 “affluent investors” with assets ranging from $50k to $10 million, and the results were that 81% of the millionaires in the sample claimed that they were entirely self-made.

This statistic is referenced all over the place, but the issue with, you know, a small sample size of self-reported data on this particular question or topic specifically is probably obvious. Another popular source for the claim comes from none other than Ramsey Solutions. In a nine-page pdf, they detailed the results of a survey they conducted with over 10,000 US millionaires who were asked, again, “Hey, are you self-made or did you grow up middle income?” among other things. 80% of the millionaires again reported that they grew up below middle income and had no inheritance. 

There's too much editorializing in the survey results for me to take it seriously as a reputable source of purely objective data, setting aside the very obvious incentive for a company who sells financial advice to market this dream. “So how did all of these people hit the million dollar mark? Most of them did it through consistent investing, avoiding debt like the plague, and smart spending.” All right, no qualms with that so far, but listen to the end of the quote. “No lottery tickets, no inheritances, no six-figure incomes. Really.” End quote. 

Okay, Houston, the math is not mathing. No leverage, no six-figure income, and no inheritance? Are all of the survey respondents 70 years old? Because without any of those tailwinds, especially with the cost of living today, I'm not sure how this is mathematically possible outside of a 50-year investing timeline, but let's suspend statistical disbelief. Even if we were to take it at face value and believe that only 12% of millionaires inherited any wealth, the claim itself needs to be unpacked a little bit. Are we talking about people who literally inherited millions? The US Bureau of Labor Statistics suggests 30% of American households inherited something between 1989 and 2007. And as we know about compounding, inheriting even a modest five- or six-figure sum early enough in life all but guarantees eventual millionaire status, if it's invested in real estate or an index fund and left alone for 40 years. There's a saying in investing that your first $100,000 is the hardest. Going from zero to six figures with no momentum is truly a slog. So receiving an inheritance of any size would supercharge this effort. 

But even generous inheritance isn't necessarily the only thing worth examining here. For example, I've never inherited anything, but that would be a gross oversimplification of the financial benefits that began accruing to me at a very young age in the form of financial investment from my parents. So it begs the question, what's really the difference? I didn't have student loan debt. My parents gave me my first car, and they funded my lifestyle until I graduated from college, including private school through 12th grade. Not to mention the generosity of a friend's family, who allowed me to live with them and raid their pantry for free for the first several months when I began working so I could save money. Sure, I worked hard at flapping my wings, not disputing that at all, but there was still a fair amount of wind beneath them, courtesy of other people in my family and community.

And there's nothing wrong with that. It doesn't seem fair, though, to claim self-made status when someone else bankrolled the first 20 years of your existence, does it? So it begs the question: What's a fair amount of permissible help, and when does your success become contingent upon it? Is it even possible to accurately apportion certain parts of your success to luck, and other parts to work? Or does it all kind of compound together in an inextricable soupy mess? 

It also introduces a slippery slope of, well then, what does count? And that's precisely my point. The millions of decisions and lucky breaks and opportunities that accumulate to form an individual life are far too varied and random to produce some reliably replicable path to great riches. For example, Bill Gates went to the Lakeside School in Seattle, which was one of the only high schools in the world that had computers. It's estimated that only 300 high school students worldwide had access to computers at the time Gates was in high school. That is a literal one in a million start. And he admits as much. He says quote, “If there had been no Lakeside, there would've been no Microsoft.” He told that to the school's graduating class in '05. There's no alternate reality wherein Bill Gates went to a public school in Cincinnati and didn't get exposed to computers until he was in his twenties. We just simply cannot know what would've happened otherwise. 

So does that mean one shouldn't try? Absolutely not. Luck is where opportunity meets preparation, right? It just means that attributing substantial outcomes to any one individual variable is not possible. Enormous outcomes are the culmination of a lot of factors coalescing in a very specific way, but we tend to only focus on one: effort. And I understand the temptation to believe in the purely self-made man myth, because a perfect meritocracy feels a lot more motivating. It's the only factor that we have direct control over. But when I look at many, not all, but many of the prominent people in the world right now, they seem to have something in common. It's…wait for it…the nepo baby discourse. I'm sure you knew this is where we were headed. 

This is sweeping social media trends, as it seems that our collective consciousness suddenly woke up to an interesting revelation, kind of about the same time, about the similarities between most of the famous wealthy people among us. Seemingly overnight, the nepo baby discourse spiked. But I wasn't sure if my own perception was skewed. So I asked Shannon McNamara, the host ofFluentlyForward, a pop culture and entertainment podcast, what she thought about the seemingly sudden microscope on nepotism fame. And she had an interesting take on why nepotism as a concept has reached fever pitch at this particular cultural moment.

Shannon McNamara:I think one part of the reason for this that not a lot of people are talking about is, it's kind of a sexy word, like “nepotism” sounds cool. Nepo baby has a ring to it, and certain words get picked up in trending vernacular, you know, like “gaslighting,” “narcissist,” “nepo baby.” And I think sometimes certain words kind of have this highbrow sound to them that make people wanna use it more. 

And then I think the other reason is just timing. I think this has kind of been gearing up for a while, I think all the way back with the Olivia Jade getting into college with your fake rowing scholarship scandal, right? She's technically a nepo baby. Her mother, Lori Loughlin, we looked at that. Okay, that's interesting.Euphoriacame out with Maude Apatow. Okay, who's this actress I don't recognize inEuphoria? Oh, okay, it's the daughter of Judd Apatow and Leslie Mann. So I think it's kind of been brewing for awhile, and we almost kind of reached this perfect point where both the celebrities who are becoming famous today are also in line with the way that social media is ramping up. Because nepotism has been around since forever, but Google and TikTok haven't. And we're finally at the first point in history where nepotism coincides with things going viral overnight. 

Katie:Hailey Baldwin Bieber, daughter of Stephen Baldwin and wife to Justin Bieber, for example, is on the cover of the Forbes 30 under 30 issue this past year for being, and I quote, “a mogul thanks to her new skincare line,” and 5’3” Lily Rose Depp (yeah, you know that last name) is a runway model. A world in which the niece of an immensely wealthy actor and the wife of an even more enormously wealthy pop star is heralded as a business mogul is simply not a perfect meritocracy. Kylie Jenner received a lot of flak when she was named Forbes's youngest female self-made billionaire, and people rightfully balked at the “self-made” qualification, as she was born into the most famous family since the Jackson Five. 

Not that the Forbes 30 under 30 list should be a preeminent source of who's successful. Sam Bankman-Fried, Elizabeth Holmes, and Caroline Ellison all made the list in recent years. So that was pre-criminal convictions, but I rest my case. And perhaps nobody embodies the questionably self-made more than the other young Kardashian Jenner sister, Kendall Jenner, the highest-paid model in the world, who has said in interviews that her success as a runway model is due to her own hard work and not the genetic and reality TV lottery that she won. She's on record saying she thinks her family's fame has actually made things tougher for her. She reassures her viewers that she did in fact have to fly all over Europe for auditions, but omits that it was in a private plane that her family owned, and for auditions she would not have gotten without Chris Jenner’s supernatural pull. 

Kendall Jenner:I had a platform and I never took that for granted. I always knew that that was there, but that almost made my job a little bit hard... 

Katie:Here's Shannon breaking down these dynamics a little bit further. 

Shannon McNamara:Kendall Jenner's a very interesting case, too, because she doesn't say that her family got her modeling jobs. Every time she's asked about this, she says that it's because of her “platform” on the show, and the show is calledKeeping Up with the Kardashians. Like she's so removed from nepotism that she doesn't even think she got on the show because of her family. She's like, well, I happened to get on the show, and then the show happened to get me a modeling gig, which obviously is just nepotism across the board. And what's really interesting is that when she comments on nepotism or being handed certain advantages, she always talks about the offensiveness of the comments. 

And you know, Maude Apatow has said before that she's sad to be called a nepotism baby. And I think a lot of us find that really confusing, because people and celebrities out there think that a mention of their privilege is offensive, and it's not. So I think already from the beginning, we're just looking at these situations from completely different pages. 

Katie:And to be very clear, I don't think either of us are mad at people who have transmuted their familial name and social status into meaningful careers. Honestly, good for them. We are all working with the resources we have available to us, right? And they're all different. It would be easy to rest on your laurels and skim off the top of your trust every month and not do much of anything. I'm sure they are working hard, relatively speaking. I'm merely trying to make the point that I don't think we'll ever live in a world where your last name or who you know or how much money your family has or what connections you have don't matter. And I don't even think that would be a realistic goal. What I am proposing is that we confront this reality head-on and we accept it for what it is: that people born into wealth or status are born on third base. Whether it's wealth that ensures you don't have to pay for your own college, like me, or the wealth and notoriety that accompanies being Johnny Depp's daughter. And if we do that, that means we don't need to seek out Kendall Jenner's modeling advice. 

Kendall Jenner:I'm kind of here to talk to you guys about modeling and talk and give you guys some tips on it, 'cause I know there are a lot of girls out there that are around my age and wanna become teen models. And first off, I just wanna start off saying it is so fun. I love it. I'm having a great time. It is hard work sometimes, but I love doing it. 

Katie:Because we'd acknowledge that you could do literally everything she does and still not generate the same outcomes, because you're missing the key ingredient: Your mom isn't one of the savviest and most well-connected business sharks of the 21st century. Jenner's approach to modeling and her success as a model may not be entirely uncorrelated, but they're certainly not correlated in any meaningful way that's deserving of replication. We'll be right back after a message from the sponsors of today's episode. 

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Katie:Of course, our fascination as a society is not limited to the KarJenners. It used to be that people became rich because they were celebrities. Now people become celebrities because they are rich. This is no more apparent than with the “entrepreneurlebrity” class. This brand of trustworthy, ultra-rich person is especially dangerous, because these are individuals who do have an extraordinary amount of influence over decisions that impact millions of people. Jeff Bezos, Elon Musk, Mark Zuckerberg, Bill Gates—these four horsemen of the techpocalypse are permanent fixtures in our news cycles. The pedestalization of the entrepreneurlebrity has reached fever pitch as well. Here's Shannon again. 

Shannon McNamara:There's almost like three different groups of people that we worship. It's people with a lot of money, people with a lot of talent, people with a lot of beauty, people with a lot of followers in the past couple of years, right? Some of those have stood out more than the others. I think worshiping business moguls is definitely new, and I think it's because they just feel more accessible now. Like I don't know if you ever listen to theAll-Inpodcast, but that's the only time once a week where I'm able to listen to a conversation that has four billionaires talking about something. Elon Musk is tweeting out memes and replying to people on Twitter, and I think it makes a lot of people think, “Okay, if I have the same breakfast habits and the same meme preferences as them, could I also have the same bank account and the same lifestyle?” It just seems more within reach, and I think sometimes it is warranted. I really admire Tim Ferris because he's one of those people that kind of got famous by being rich, but he also puts out content, he makes books, he does podcasts, he has blog posts, he gives you helpful advice, he's doing video content. So he is kind of like a celebrity. But then there's rich people like Jeff Bezos and Bill Gates, and anyone who worships them, I'm like, that is kind of weird 'cause they're a business, they're not a person. 

Katie:Speaking of Elon, it's probably fair to say that he's entrenched in his “emperor has no clothes” era, but despite that, people still vehemently defend him on Twitter—the same social media app that he recently purchased for $44 billion. A phenomenon that has generated bountiful memes like theSimpsonsscreengrab of a man labeled “Weird Nerds” diving in front of a gun labeled “Valid Criticism” to save Elon. 

And my favorite defense is very telling. It's, you know, “If you don't like how he's running his companies, why don't you go make $44 billion and do it yourself?” Man, I wish I would've thought of that, right? The stan culture for this billionaire, especially, is pretty bewildering. 

Shannon McNamara:The fact that Elon Musk has fanboys, but you don't really see fanboys for Jeff Bezos, you know, I find that interesting in terms of which entrepreneurs and billionaires have devoted fans, versus people who are like, “Ah, I just don't really connect with them.” So I think it's interesting that even businessmen want and cultivate those parasocial relationships, and I think that's really fascinating. 

Katie:But stan retorts that suggest his actions are inherently justifiable, because he's the one who has $44 billion to spend in the first place, betrays some straw man logic and underpins the broader problem. This presumption that “having a metric dickton of money absolves you of all personal responsibility must render all of us perpetually accepting of whatever you choose to do with it, because you must have done something spectacular in order to come into possession of it” is built on the foundation of this same meritocratic, self-made logic. That if you become very wealthy, it must be because you are inherently smarter, better, more deserving, more scrupulous, therefore insulating you from any criticism or questioning. This is troublesome because, well, I'll let a video from the production house Second Thought take it from here. 

Second Thought:Here's where the problems start. If they can successfully convince you that one, they have earned their wealth, and two, that you can do it, too, they can use those two assumptions to convince you of some far more nefarious things. For starters, they can convince you to act against your own self-interest, and the interest of the vast majority of Americans. 

Katie:Sure, there are a lot of people that came from wealthy families that did not go on to achieve massive success, but the amount of financial alchemy that has to occur for one to become a billionaire in a single human lifetime often has to begin with a rather lush start. Elon Musk is on the record—in a mysteriously since-deleted Forbes article from 2014 that's now only accessible via the wayback machine, which is a site that archives webpages—stating the following: “I've been in physical danger before. The funny thing is, I've not actually been that nervous. In South Africa, my father had a private plane. We'd fly in incredibly dangerous weather and barely make it back. This is going to sound slightly crazy, but my father also had a share in an emerald mine in Zambia.” End quote. Again, the article has since been taken down. Now I'm not necessarily suggesting that his family's money is the reason he became successful. I think that would be empirically difficult to prove. I'm just simply noting, again, there's no alternate reality where we can see Elon grow up in a different context to determine if he would still achieve the same things. Much like Bill Gates being one of 300 kids worldwide with access to computers, we just don't know the exact extent to which one's fortune early in life impacts their success later.

What we do know is that the internet happens to be a double-edged sword, and with great power comes great exposure to people who have nothing better to do than comb through your public court records from lawsuits which reveal that the degree you claim to hold from Penn in computational physics does not actually exist. 

Shannon McNamara:There's a great quote by Bill Murray where he's like, “If you wanna be rich and famous, try being rich first, and then see if you want the famous as well.” And it's basically just saying that it's so much better to be rich than it is to be famous. But for some of these billionaires, right, just being rich seems to not be enough. 

Katie:The point is, we have to be careful about equating wealth with boundless competence and capability, and honestly, vice versa. And that's partially why the self-made millionaire myth is a bit of a slippery slope, because it likens wealth to deservingness, and it strips success of context. It suggests that everyone begins playing the game of life with the same hand of cards, and those who win have demonstrated an ability to consistently outplay everyone else. Even though we mostly know this isn't actually the case, our collective hive mind tends to default to that heuristic that wealth and success equals goodness, which can explain, well, a lot of what's happened in the last couple decades. 

The other reason the self-made myth has questionable consequences is because it implies that outcomes are perfect representations of capability and willingness to work hard, thereby creating a powerful self-loathing cocktail when things don't go according to plan, and that tends to reinforce the way things are already trending. If more power, money, and opportunity flow to those who already have power, money, and opportunity, the advantages compound. And more importantly, the momentum of disadvantages becomes more difficult to stop, too, because there's an assumption that if you're not traditionally successful, it's because you must not deserve to be. 

At the end of the day, the myth has dicey implications, and is ultimately empirically unfounded. There is no empirically rigorous way to validate how many millionaires are truly “self-made” without further defining what's meant by self-made. So at the very least, the claim deserves some skepticism overall. Regardless, the data around who is a millionaire in the US is telling. It's comically difficult to get a straight answer. Most sources just refer to one another without any one source clearly citing the original data set, likely because there is no official source, unlike data around income that can be obtained from official tax documents. You don't have to report your net worth to the IRS. Small sample size self-report survey data often metastasize around the web. 

That said, depending on the source, it appears approximately 90% of global millionaires are male, which to me is one of the clearest indications that “self-made” is a myth, if only because half of the world population is female. It stands to reason that if only the hardest-hustling people became millionaires, your global millionaire count would be a lot closer to representative of half and half.

The most important takeaway is to be particularly conscious of whether we are internalizing these narratives around what it takes to be successful. Bring a healthy level of cynicism to the metaphoric “billionaire morning routine” and be careful not to impute too much significance to what time you wake up in the morning, whether you're working hundred-hour weeks, as Elon likes to recommend, or any other habits that are purportedly the key to becoming a “self-made millionaire.” Because upon further inspection, much of this advice is at best, too generic to actually be helpful, or at worst, patently counterproductive. 

Kendall Jenner:No, but yeah, just, I like playing my favorite music. It just makes me happy and gets me into a good mood. Oh, and sometimes people have like their better side. Just like, I guess, feel comfortable with all your sides, but I mean, if you feel good with one side, go with that one side. I guess. I don't know. 

Katie:The fact that the highest-paid celebrity model in the world's advice is to “just look good from every angle” feels like the modeling equivalent of the financial advice to “just stop being poor.” The truth about headlines, like the “8 Ways rich people see the world differently than poor people,” is that they suffer from the classic chicken or egg mix-up. They attribute generating wealth to certain characteristics, when in fact these are merely attributes of someone who is already rich.

Number two, on one of these lists, “Rich people believe starting a business is the fastest way to make money, while the average person believes starting a business is risky.” Well, who is able to more easily take on risk? Someone who is already wealthy or otherwise has a safety net, or someone who is feeding a family on a paycheck-to-paycheck income? Beingableto take risks without seriously jeopardizing other aspects of your life is a privilege that is not afforded to many. And the survivorship bias inherent to these success stories kind of obscures the reality of how disastrous outcomes can be when a business isn't successful. And we can't forget number six on the list, that “Rich people believe money is earned through thinking, while the average person believes money is earned through time and labor.” Well, yeah, you can't quit your job and sit on the couch andthinkyour way to your rent payment. What would happen if doctors and construction workers and farmers and truck drivers heeded this advice and decided sitting around and thinking would be a more lucrative use of their time? 

It's absolutely wonderful to believe that anything is possible if you work hard. Some degree of naivete is useful in business and in life, but we would be wise to interrogate these socioeconomic, sociocultural tropes around wealth, deservingness, and the idea of being self-made. If nothing else, the word itself, self-made, betrays its most fundamental flaw. It focuses on the self. It ignores the scores of people, communities, and systems that are required for anything of consequence to be built. Recognizing the variety of inputs that are important, like our relationships, luck, timing, hard work, perseverance, can help us focus on the true needle movers of financial progress, not just the stereotypical “work longer hours and wake up earlier” billionaire mindset advice. 

All right, y'all, that is all for this week. I will see you next week, same time, same place, onThe Money with Katie Show. Our show is a production of Morning Brew and is produced by Henah Velez and me, Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our chief content officer, and additional fact checking comes from Kate Brandt.