Robert Frank On Richistan

wealthymattersRichistan: A Journey Through The 21st Century Wealth Boom and the Lives of the New Rich” is a book by Robert Frank who writes “The Wealth Report,” a Wall Street Journal weekly column and  blog.The book is an eye-opening, educational and at times amusing summary of Frank’s years of analysis of the “new rich”.They came to his attention in 2003 when he noticed that statistics from the Federal Reserve Board showed a curious pattern: the number of millionaire households in the U.S. had doubled since 1995 and showed no sign of slowing.

So what is Richistan?  Frank  defines it as the domain–effectively an exotic country(stan)-of the world’s households that are worth $1 million or more.

So who are the denizens of Richistan?

According to Frank, less than 10 percent of Richistanis are from Old Money -the community of bluebloods whose ancestors made their money in the first Gilded Age-and only 3 percent are celebrities. The rest are:

1.Founders: This category includes the Big Enchiladas we hear about every day in the Media — the Bill Gateses, Michael Dells and Ted Turners. They are entrepreneurs who started their own companies and sold their shares to investors through an initial public offering.

2.Stakeholders: These are the lucky executives and employees who are not founders but have stakes in a private company, then cash out when it goes public — the “Microsoft millionaires,” for example.

3.The Acquired: Companies have made more than 108,000 acquisitions totaling $11 trillion since 1985 and these are the executives who benefit by selling their firms to another buyer for stocks or cash.

4.Money Movers: They direct and invest the vast river of cash flowing throughout the world and keep a share for themselves.Eg. hedge fund managers.

5.Salaried Rich: Executives of established companies can now amass the kind of wealth once reserved for risk-taking entrepreneurs. That’s because the pay of U.S. CEOs has ballooned to more than 170 times the average worker’s pay (up from 40 times in the 1970s).Even managers two or three levels down the corporate ladder are racking up millions in pay.

According to Frank,the  inhabitants of Richistan  are a diverse lot who are not always happy with their wealth nor respected by their peers.Most Americans think $1 million would make them rich, yet in Richistan, $1 million only just gets you in the door.Being a millionaire is considered somewhat common; after all, there are 9 million of them today.The nation of Richistan  is sharply divided between the haves and the have-mores  thus:

Lower Richistan — The chief source of wealth in this group ($1 million to $10 million) is salary, small business and/or equity. The group comprises approximately 7.5 million households with a typical home value of $810,000.It comprises affluent professionals.They are politically conservative.

Middle Richistan — Source of wealth ($10 million to $100 million) is business ownership, equity and/or salary. There are 2 million of these households with a typical home value of $3.2 million. The 1.4 million – in 2007 – middle Richistanis are politically more liberal than lower Richistanis.

Upper Richistan — Sources of wealth ($100 million to $1 billion) are business ownership and/or equity; number of households are in the thousands and residences are valued at $16 million.Most upper Richistanis made their money by starting, then selling their own business. The billionaire portion of upper Richistan are even fewer in number in 2007 – only one thousand.

Each year, the richest half percent of American households–around 730,000 families–spend about as much as all Italians combined–about 24 million households. And this has lead to a great deal of aspirational consumption.So even though many Richistanis insist they’re really simple, middle-class folks, they indulge in competitive consumption of 500-foot yachts (with such amenities as basketball courts, submarines, stripper poles and helipads), $736,000 watches and art collections to fill their 70,000-square-foot mansions etc.This has lead to new phenomenon such as a rise in demand for butlers  to manage the increasingly complex personal lives of the Richistanis and academys to train them etc.The New Rich are als0 more ostentatious and consume different brands from Old Money.They are also gate crashing the exclusive clubs and social circles and entertainments of Old Money and where integration is not possible, they are creating their own new hierarchies.The Richistanis also are changing the landscape of philanthropy by applying business metrics to measure success in giving.Further the Richistanis are banding together to impact political elections and public policy.The lesser Richistanis mostly go for Republicans and billionaires often support Democrats.

However,all this keeping up with the neighbors has led to a surprising level of  indebtedness and insecurity. When polled, most millionaires say it would take double their wealth to make them feel financially secure.That’s not all there are other woes of the wealthy.Richistani parents worry about their children not having the skills, character and self-discipline required to manage the money they stand to inherit.Having their children turn out like Paris Hilton is a nightmare many parents wish to avoid.Indeed to deal with coping emotionally with the problems inherent in their wealthy lifestyle Richistanis have their exclusive  “support groups”.

Do read this book before reading the sequel:”The High-Beta Rich: How the Manic Wealthy Will Take Us to the Next Boom, Bubble, and Bust”






About Keerthika Singaravel

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