Saturday, June 07, 2008

Redistribution Of Wealth

Taking money from those that have managed it well and giving it to those who don't manage money well doesn't makes any sense to me. The process is commonly referred to as "redistribution of wealth," which I think is a misnomer since it is only dealing with one aspect of wealth, money. Here are my thoughts on this matter:

  • Wealth is a mindset. Money doesn't create wealth, people do. Wealth results from the excellent stewardship of one's money. Giving someone money doesn't not guarantee they will be able to manage the money well. In many cases, the money will be managed in the same way as before. A good example is the subprime crisis. People who didn't qualify for prime mortgages didn't become better managers of money when they receive sub prime loans.

  • Money transfer may cause other behaviors that reduce wealth. A colleague told me a story about a high school student he was tutoring. She was doing very well and was on track to get a 4 year college scholarship. However, during her senior year she became pregnant and dropped out from school. She explained to him that she wanted to leave her home and having a child would enable to get an apartment and support so that she could live on her own.
  • In my experience, building wealth is about developing plans, making choices and doing the work to achieve the goal. Money redistribution is about meeting qualifications (e.g. income, dependents, etc.) to get "free" money. Of course, I am not opposed to short term safety net for people who have fallen on hard times. However, I also believe there are people who build "free" money payments into their plans and lifestyle. Unfortunately, "free" money often doesn't change the recipients mindset, which is the real improvement needed to truly redsitribute wealth.

    For more on Reflections and Musings , check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    1 comment:

    Kristin said...

    Giving someone money is very similar to the old parable about giving a man a fish. When given to them, they will become dependent. Whereas teaching them how to fish or providing education or skills training to the individual allows them to develop, earn their own money and become independent.