Let's talk about money

There are different pathways to achieving financial stability. And they're not all equal.

Credit: Thomas Gainsborough

I’ve been wanting to write about money here for a long time. Simply put, money increases an individual’s happiness up to a certain point, and it should go without saying that families with more money tend to have more doors open to them. Whether this is the way the world should work is a different discussion. But the whole American Dream idea is based on the idea that anyone is supposed to be able to get enough money to build a happy life. (Obviously only a privileged few actually do get that chance, but that’s at least the theoretical ideal.)

I was thinking about this recently while reading two articles that propose radically different methods for achieving that dream. The first comes from the newsletter The New Fatherhood and is titled “How to choose where to live.” The thesis is that you figure out what’s important to you, look at a big map of the world, and then choose a place to settle.

The post captures the ethos of the professional class. In other words, the pathway to a successful life is via a well-paying job that affords you nice amenities, for example like being able to live wherever you want.

But a recent piece in the Atlantic explores an alternative framework: the gentry.

The article goes over how across time periods and cultures, there have often been lower-level rich people who owned resources. They aren’t billionaires or oligarchs, but rather the people who have farms or real estate. Today a member of the “gentry” might own a handful of McDonald’s franchises or a construction company. And the key is that this group of people doesn’t derive their wealth from hourly wages, like the professional class, but instead from assets that generate money (e.g. rents, dividends, etc.).¹

So, in the world as it currently exists², we see two alternative pathways for achieving — or aspiring to — financial stability and a middle class life:

1. The wage-earning pathway

2. The asset-owning pathway

I don’t know about you, but in my experience wage-earning is the overwhelmingly dominant idea driving American culture. So much so that becoming a high wage earner is kind of synonymous with “success.”

But here’s my thesis for today: Becoming a high wage earner is the wrong aspiration. Instead, it’s better to aspire to asset owning, to become a part of the gentry — as stuffy and regressive as that particular word might sound to most American ears. The risks are lower, the rewards are greater, and — counterintuitively — it’s more egalitarian. In the end it’s better for families too.

The biggest weakness of this idea is that most of us were simply never taught how to do anything except pursue wage labor jobs.

Wage labor is portrayed as the pinnacle of success

If you already agree with me that American culture valorizes high wage earning over asset owning (the professional class over the gentry), you can skip this section.

Otherwise, consider the cliche from a thousand romantic comedies: The dream is to marry a doctor or lawyer, which are at the top of the professional class pile. Sometimes movies subvert this idea, or they present it as the overbearing values of parents. But I have never seen a character in a romantic comedy say something like “find you a man who owns 15 Jiffy Lubes.”

Here’s a funny clip from Seinfeld that captures this idea:

Here’s another example: The recent Hulu movie Vacation Friends is about a couple on the verge of getting married. The groom, Marcus Parker, owns a construction company that is doing major projects in the middle of a large American city³. He’s a member of the gentry and would have a net worth at least in the seven figures.

However, the movie portrays Parker as having to fight for approval from his soon-to-be father-in-law, a successful professor. Obviously this is fiction and there are a lot of other components to the story I’m leaving out here, but the point is that the professional class is portrayed as occupying a position of supremacy over the asset owning class. I don’t think that’s just a quirk of this particular movie, I think it’s a reflection of a broader value.

This idea is pervasive. Politicians constantly talk about the need to create jobs, but almost never about helping Americans buy their first rental property or bodega. My own experience with teachers, guidance counselors and professors is that they’re quite invested in helping people choose which job to pursue, but never question whether the job paradigm itself is functional in the first place. No one ever told me, for example, that you could invest in stocks that pay regular dividends. Or that some people live entirely on those dividends. Or that you can use debt to buy things like businesses or real estate.

I wish I had some data that definitively proved Americans as a whole are taught to strive for the middle class via wage labor but not via asset building. Alas, I’m not aware of any survey that asked people about these competing ideas. Still this reality seems apparent to me to the point of obviousness. And in any case, I’d also point to my previous posts on the rise of wage labor, which actively undermined the previous asset/gentry model that existed earlier.

The professional class idea is not egalitarian

One of the most appealing things about the professional class idea is that it’s supposedly more meritocratic.

But that idea downplays the high price tag people pay to climb the professional class ladder. Take law, for example. According to US News and World Report, Yale currently has the top law school in the country. And right now, it currently costs more than $93,000 per year to attend the school. If you attend for three years, that’s going to run close to $300,000. Other prestigious law schools have similar, and sometimes higher, costs.

Or lets say you want to get an MBA. Well, one year at Wharton will set you back $115,464.

Needless to say, these are not opportunities that are open to everyone. And even cheaper schools like the one I attended require a vast amount of knowledge — most of it passed down generationally — and at least some financial resources. A ticket into the professional class has a massive price tag⁴.

How does that compare to the price of entry to the gentry?

I cover the real estate industry for my day job, so let’s look at that: Suppose you want to build a small real estate empire that you can live on. Right now the median cost of a home in the U.S. is $380,271 according to Redfin. So, if you wanted to make a 20 percent down payment on a single family rental, you’d need a little over $76,000. (In practice many people put down less than 20 percent.)

That’s a lot of money. But it’s less than a single year at a top law or business school.

One rental property won’t generate enough income to live on, but I know many people who have borrowed money against one rental property to buy more. And in the time it would have taken their peers to attend law school and pay off the resulting debt, they’ve built portfolios of dozens of properties. And they didn’t have to take the LSAT, win the approval of an admissions board, or have an expensive bachelor’s degree already in their pocket to boot.

Real estate is just one example, but there are many others. The Atlantic article mentions franchises, for example, so I did a bit of Googling and discovered you can open a 7-Eleven franchise for as little as $80,000. A Chick-Fil-A is just $10,000⁵.

My point here is not that everyone should abandon law and instead buy rental properties or Chick-Fil-As. Do what you love. But it’s worth keeping in mind that between these two elite classes, the professional and the gentry, it may actually be easier to elbow your way into the one with the more aristocratic sounding name⁶.

Asset owning is better for families

According to Northwestern University, the median salary for a person with a bachelor’s degree in 2020 was $64,896. In much of the US that’s a viable middle class income, and most of those college grads are probably working professional class jobs. That’s the whole point of going to college⁷ after all!

But what happens when a person making the median income wants to put their own kid through college? Most of my friends grew up in solidly middle class families… and almost all of them graduated college with debt. Their parents forged good lives for their families, but didn’t make enough as wage laborers to pay for a subsequent generation’s education.

On the other hand, a few years ago I was interviewing a guy in real estate about his brokerage. After the formal interview ended, we got to talking about other parts of his business and how his son would be going to college soon. And I’ll never forget what he said: “I have twenty rental properties. I could sell one of them and pay for my son’s entire college.”

This was a guy who started out with nothing and had no formal education himself. It took him two decades to climb into what might be reasonably considered the gentry. But once he was there, he was able to give his son a significant head start. His son would graduate from college debt free. He’d have a position at his dad’s business waiting if he wanted it. If he didn’t, the income generated from the family assets would provide a safety net that would allow him to take unpaid internships or to pursue rewarding-but-lower-paying jobs.

Meanwhile, that son’s peers who came from professional class families would have to choose from one of a very limited handful of professions — medicine, law, technology, engineering, etc. — or experience downward mobility due to debt.

What has always stood out to me about the guy I interviewed was that he is a relatively middle class guy. He worked hard, but probably no harder than the parents of my many friends who ended up with large student loans. In other words, he effectively gave his son a head start with the same amount of effort that members of the professional class put in. The returns on the way he invested his time and energy will just be vastly greater. And these effects will compound over time; in theory, he could pass his rental business down to his son at some point, creating a safety net that has no expiration date and which appreciates over time.

There’s nothing wrong with being a wage laborer. I am, and I’m one of the lucky few who has an interesting and fun job. I never stop marveling at my good fortune. I also think there’s a different conversation to be had about billionaires, oligarchs and extreme concentrated wealth — all of which are beyond the scope of the comparatively middle class gentry.

But in any case, when I think about how I want my own kids to approach the world, I at least want them to be aware that a wage earning job isn’t the only option. There’s a better way that will give them more freedom, and which for the same amount of effort can reverberate across multiple generations.

Thanks for reading to the end of this post. If you’ve enjoyed Nuclear Meltdown, considering sharing it with a friend.

Note: My posts have were regular lately for a few reasons, including that I had covid. I was vaccinated and it wasn’t life threatening, but it was difficult to find the motivation to write in the evenings after work amid coughing fits, fevers and grogginess. So, bear with me here. Also, this post was updated after publication fact to reflect that I recovered from covid.

1. Two other important points: First, because the gentry’s assets are physical, they’re typically tied to a particular location and are thus less mobile than the professional class; and second, members of the gentry often inherit their resources.

2. Again, I’m not here to argue that this is the world as it should exist. I’m stressing this point because the most common rejoinder I hear when talking about this is that we should be striving toward a world with greater equality. I agree. But until that dream arrives, we have to make due with what we have.

3. I believe Vacation Friends was shot in Atlanta, though I don’t recall if it’s explicitly set there.

4. You can certainly go to cheaper schools and still have a good wage-labor life. That’s what I’ve done. But that also limits opportunities; my college had a law school, for example, but few attendees end up in the prestigious white shoe firms that epitomize professional class success.

5. I know that franchising can be complicated, and Chick-Fil-A in particular is known for having a very selective process when choosing franchisees. On the other hand, Yale Law School also has a selective process. The point is just that there are many options out there.

6. Not everyone who invests in assets becomes a franchise impresario, and not everyone who goes to college is looking for a gig at a New York law firm. There are degrees to these elite classes, and certainly lower price points for entry. I myself went to a very inexpensive college. But the gentry class also has lower entry points. For example, I recently saw someone post a real estate listing for a cabin in Ohio. The cabin was asking around $125,000, and according to the listing would turn a profit as an Airbnb rental. That means for a down payment of about $25,000 — less than the cost of most cars — someone could embark on the path to earning income via assets rather than wages.

7. As a humanities grad, I lament the decline of the liberal education, which was about learning to be a citizen of the world and reading the classics and stuff. That said, the college industry right now is very much oriented toward getting people jobs. C'est la vie.