How you feel about your wealth can have a huge effect on your financial future. It is a well known fact that when people feel wealthy, they spend more, take on more debt or take more risks. We’ve seen this during property booms where people increase their mortgages as their property values go up so they can renovate the house, buy a car, or take an overseas trip. On the other hand, people who feel poor can sometimes fall into a mindset where they believe they can never be wealthy. That can become a self-fulfilling prophecy because they don’t even try to get ahead.
Wealth is very much a relative concept; that is, you can describe one person as being wealthier than another, but you can’t really say that there is a cut off point of an amount of wealth above which people are wealthy and below which they are not. On a global scale most New Zealanders would consider themselves to be wealthier than people in poverty-stricken third world countries, and poorer than people in wealthy oil-producing countries. However, most people tend to view their wealth on a local scale rather than a global one. The way we define how wealthy we are is by comparing ourselves to the people we mix with socially. This creates an interesting situation where a person who is worth several million dollars might consider themselves to be relatively poor, because they are comparing themselves to someone in their social group who is worth a billion or two. Conversely, there are others who might have an average level of wealth in terms of the general population but consider themselves to be wealthy because they have much more than their friends or family. How wealthy you are is really defined by how wealthy you feel.
Liz Koh is a financial adviser. Her disclosure statement can be obtained free of charge by calling 0800 273 847. Author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press, March 2008. [email protected] www.moneymax.co.nz
