Director, Ultra-Affluent Division
PNC Financial Services Group
Earners vs Heirs
Fitzgerald:The rich are different than you and me. Hemingway:Yes, they have more money.
This probably apocryphal interchange between America’s noted literati, may hold some simple wisdom. But PNC Financial Services Group has added to it another truth: not all the rich are rich in the same way. According to PNC’s fourth annual Wealth and Values Survey, those who have scrabbled and labored to amass their fortunes treat the green stuff in an entirely different way than those whose silver spoons blessed them with an inheritance.
In October 2007, PNC commissioned a survey of 1,509 adults with annual incomes over $150,000 and at least $500,000 in investable assets, or $1 million in investable assets if they were retired. They found that 69 percent of these were exclusively “Earners.” That is, they had gained their money only from occupation, employee stock options, investments (other than residential real estate), entrepreneurship, and/or business ownership or sale of a business. Another six percent were roughly termed “Heirs.” These folks came to their wealth exclusively by inheritance, trust funds, marriage, legal settlement, residential real estate, or another way. The remaining 25 percent gained their funds through a mixture of both. * Risk Tolerance. “What we saw in these two groups,” says Thomas Melcher, director of PNC’s Ultra-Affluent Division, “was an entirely different approach to what money stood for, and how it should be handled.” Interestingly, Earners proved to be the greater risk takers. Despite the fact they had won their wealth by their own time and hard labor, 39 percent of Earners described their investment habits as moderate to risky. Only 21 percent of the Heirs placed their investing style in this category.
Heirs tended to view themselves as stewards of their fortunes, and this, Melcher felt, led to their being more conservative in their investing approach. “On the other hand, among the earned wealthy there is a strong correlation between their willingness to take risks and their confidence that they can recover from a major negative financial event,” Melcher says. For the Earners, 77 percent agreed with the statement “I feel I have a lot of control over my financial future.” Only 67 percent of the Heirs agreed. Yet interestingly, it was 36 percent of Earners who seemed worried about recession, while only 27 percent of the Heirs listed it as a prime worry. Perhaps this is because while Earners feel in greater control of their funds, they also are more aware of market downturns, and those external fluctuations beyond their control. * Money & Happiness. Just how much joy has relative wealth brought the affluent? For the Earners, three quarters (76 percent) agreed with the statement “My financial success lets me feel less stress and worry,” as opposed to 50 percent of Heirs feeling this freedom. Along this trend, half (51 percent) of Earners, as opposed to only one third of Heirs said “As I have accumulated more money in my life I have become happier.” There is, of course, a greater tendency to link personal esteem with income when one is personally earning it. As Thorerau said, “Every man looks at his own woodpile with contentment and pride.”
Conversely, Heirs may often feel themselves placed in the position of unwanted guardian. Heirs in the survey were more than twice as likely to say “Having a lot of money brings about more problems than it solves” (20 percent vs. 9 percent among Earners).
* Passing It On. A strong majority of those surveyed saw themselves as the prime movers behind their fortunes. A resounding three-quarters of the Heirs did not believe that “the money I have made so far has come from being in the right place at the right time.” Unexpectedly, a smaller percentage of Earners disagreed (about two thirds), but they still comprised a substantial majority. One does not need to be a bootstrapping entrepreneur to feel that his own portfolio was mostly a matter of just deserts. Merely ask any well-settled divorcee if she did not earn every penny for putting up with that (fill in the blank here.)
Whether they came by their wealth through plain good luck, the sweat of Dad’s brow, or their own, everyone becomes suddenly very particular about how and how much of it should be parceled out to the next generation. This has long been a prime American concern. In his 1889 essay, industrialist, philanthropist and richest man of his day, Andrew Carnegie argued that no offspring should receive more than $33,000 in inheritance. (At that point the average American worker earned $200 a year.)
Yet however much the limit, everyone is aware that large amounts of unearned funds have truly life changing effects - both good and bad. When confronted with the statement, “Every generation should be responsible for creating its own wealth,” a rousing 68 percent of the Earners agreed. Only 28 percent of Heirs felt the same. And while most believed that “It is important for children to learn the value of money through hard work,” it was 92 percent of Earners, with only 71 percent of Heirs supporting it. Conversely, the importance of “growing up entitled,” was seen as considerably less valued, with only 25 percent of Earners and 14 percent of Heirs listing it as a concern.
It scarcely comes as news that Earners and Heirs might view their substance through different eyes. Those who have earned, saved, and invested money before, feel they have caught onto the process. They are less worried because they feel they can always go out, repeat the process and make more. Whereas Heirs, whose wealth came frequently as large-lump, less hand-on acquisitions, would naturally be concerned about losing what they see as unrepeatable.
At the same time, Heirs and Earners alike showed themselves very much part of the American culture, with many shared beliefs. The perceived advantage of character over seed money was shown by the strong support of children learning the value of money via hard work, versus the much more minimal concern for financial entitlement. Also, most survey respondents felt that while money did not buy happiness in life, it certainly relieved some of its stresses. So we will leave it to Fitzgerald and Hemingway to quibble out the differences, (both of whom would have qualified for this survey, by the way). And we will simply note that affluent or not, by whatever happenstance, the tool of money seems to give the best service when viewed as simply that - a tool. B4