Tragic lament of the lucky few

LAST Sunday evening I watched a group of telegenic twenty-somethings absolutely fall to pieces. Otherwise referred to as “Blockheads”, they worked tirelessly for an entire 20 weeks, and yet failed to walk away with hundreds of thousands of dollars in profits.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

LAST Sunday evening I watched a group of telegenic twenty-somethings absolutely fall to pieces.

Otherwise referred to as “Blockheads”, they worked tirelessly for an entire 20 weeks, and yet failed to walk away with hundreds of thousands of dollars in profits (well, actually, two teams did but that’s beside the point — the whole outcome was a “tragedy”).

The losers — who only pocketed between $10,000 and $40,000 tax-free (and the prospect of spin-off businesses, home reno book deals, and lucrative public speaking gigs) appeared genuinely shell-shocked, devastated and later ... angry.

It gripped the headlines for days afterwards: “what the hell happened?” Enough already.

As I’ve said before, compared to the rest of the world, we Aussies are the equivalent of the Kardashians: incredibly rich, not particularly sharp, and yet we get away with it because we have attractive assets that everyone wants (though, admittedly, those assets have gone down a notch or two in the last couple of years. Blame Kanye).

This week we got another taste of the truffle when we were crowned the richest people on the planet, according to a global study by investment bank Credit Suisse.

The median Aussie adult is now worth more than $258,000 ($US225,000), well ahead of the second wealthiest population, Belgium, at $US173,000.

Honestly, Belgium is our closest competitor. Don’t they make waffles?

So, anyway, we’re rolling in it. Right? Maybe. There are actually a couple of asterisks to note.

First, the report found that about 60 per cent of our wealth is tied up in our (very expensive) houses.

The International Monetary Fund has suggested that Australia and Belgium have the most expensive housing in the world, using the measure of debt to income.

And there’s the rub: you can have hundreds of thousands of dollars in equity in your home (wealth!), but still owe a heap of dough to the bank. Honestly, how wealthy are you if you’re worried about losing your job, stressed about the impact of higher interest rates, or annoyed your kids will never leave the nest and buy their own home?

In fact household debts have increased almost twice as fast as the value of household assets over the past 25 years, according to the ABS.

Economists call this a “wealth effect”: your house increases in price and you feel wealthier, which encourages you to borrow and buy more of everything. The problem is that you’re buying and selling in the same market, so you don’t really get ahead until you eventually downsize.

How wealthy are you?

SO let’s take a look at how the figures break down world wide.

Globally, wealth has increased from $US117 trillion in 2000 to $US263 trillion this year. A quick back-of-the-envelope calculation shows that comes to $US56,000 for each adult on earth. Obviously, that’s not divided equally — Warren Buffett’s wealth would account for whole of Indonesia.

So according to the report, all you need is a net worth of just $4170 ($US3650) to be among the richest half of the world’s population. Which means you could be on Centrelink benefits and still be ahead of three billion people.

If you’ve got $88,000 ($US77,000), you jump forward into the wealthiest 10 per cent of people. And if you’ve got $911,000 ($US798,000), you’re officially in the top 1 per cent!

So in light of this, here’s my take on The Block outcome.

The real definition of wealth is being able to spend your time doing something you love, and in that regard, each of the contestants were able to do that.

It was hard work, but everything worthwhile is. And each of them walked away with enough money to create a healthy Mojo account and continue down the road of doing what they love.

That’s a good deal if you ask me.

Tread Your Own Path!

QUESTION OF THE WEEK

Hi Barefoot,

A good friend of mine recently won a large sum on the lotto. She is a dedicated single mum who is separated from her husband, who was emotionally abusive.

I am a big believer that good things come to good people and I’m SO excited for her future now. But what should she do? And will her ex be entitled to any of the money?

Kind regards, Melissa

Hi Melissa,

Karma is beautiful, isn’t it?

If they were separated when she bought the ticket, he won’t be entitled to a share in the spoils. However, never underestimate a dirtbag (and his lawyer) — he’ll try his luck if he gets wind of it. There have been similar cases before the courts and, while they’ve found in favour of the lotto winner, it’s an expensive barney to win.

Bottom line: the fewer people who know about her win, the better (names have been changed for this column).

What should she do with the money?

Not blowing it would be a good start.

After all, repeated studies have shown that a high percentage of lotto winners become lotto losers within 10 years. And if she’s been repeatedly abused by this jerk, she’s likely to be vulnerable.

My advice to her would be to treat herself with some of her winnings (a nice holiday, and a good lawyer — but keep everything off Facebook and on the down-low), and lock the remainder into a 12-month term deposit.

Then do this very simple but very effective exercise: keep a notepad by her bed and, each night, write down her top five goals for the money.

Make a new list each night. It’ll change a lot in the first week, but then it will magically become very, very clear what she wants to do with her life, and her money.

Originally published as Tragic lament of the lucky few