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Why are some people rich?

There was a time before each of us had any concept of wealth and money. Unfortunately, as the world becomes ever more filled with gadgets, celebrity and possessions, the age at which children become aware of wealth gets younger and younger. Especially if you work in a setting which draws children from a variety of home backgrounds, you may find yourself faced with the tricky question; “why are some people rich?”. (Of course, you might equally be asked, “why are some people poor?”)

The Grown-Up Answer

The first thing to recognise in answering this question for adults, is exactly what the child is asking. Being “rich” or “poor” is not always easy to define. Some people might say that it’s about how much money you earn, or how high your income is. However, there are people who would be universally considered to be very rich, and yet have next to no income at all. These are the people, generally, who inherit enough money that they don’t need to earn any more. Being “rich” is therefore more about wealth, than income.

A person or families' wealth is built up through high levels of disposable income. This is the term for the money which is left over from after necessary costs are paid for things such as a home, food and energy. When people have a modest level of disposable income, most of it tends to be absorbed by consumable luxuries. Things like holidays, meals in restaurants, and nice clothes. These are described as “consumable” because once the money has been spent on them, you can’t get it back again. Real long term wealth is only created when people have such a high disposable income that they are able to invest large amounts of money in assets such as property, shares in reliable companies, and possessions of high and secure value such as jewellery or exclusive vehicles.

Once wealth has been built up, it can be handed down from one generation to the next in the form of inheritance. This has meant that some families have been “rich” for hundreds, and in rare cases, thousands of years. In more recent times, the dramatic increases in the value of houses in the UK has generated considerable wealth for families who own their home. In the 1960s, a person could buy a house for about £4,000, equivalent to about £70,000 today. At the start of 2018, the average price of a semi-detached house reached £225,000. This 220% increase in the value of property owned by the generation who are currently in their 80s is central to why some people are “rich” today.

Although the level of inequality in wealth is still too high, it is worth understanding how far things have changed over the last 120 years. In 1900, it is estimated that the wealthiest 1% of British households owned 70% of all the land and property in the country. By the 1980s, that had decreased to below 20%. However, with many young people struggling to get onto the housing ladder today, there is a risk that this progress could be reversed.

The Children’s Answer

Talking to young children about money and wealth is a complicated endeavour. On the one hand, it's crucial to teach children to value people for their personalities, relationships and behaviour rather than how much money they have. It is also important that children do not grow up feeling that the wealth of their family will either prevent them from achieving their dreams, or make their wishes come true automatically.

That said, we should be teaching children to be ambitious and aspirational individuals. Understanding from a young age that a key reason some people are “rich” is because they work hard and earn money can be valuable. The challenge is finding a way to nurture children’s ambition, without encouraging negative attitudes or values about money and wealth.

For the purposes of this post, we will assume that this question would not be asked by a child younger than 3 years old. A nice way to begin answering this sort of question can be to ask one back to the child; “what do you think means a person is rich?” or “who are you thinking of?” can be good options. Hearing from the child about what they think it means to be “rich” or “poor” can help guide the rest of your answer.

Central to your answer for a young child should be the idea that although people can have different amounts of money and possessions, it’s how happy they are that’s most important. You can explain to children that people earn money by going to work, and that people earn different amounts of money depending on what job they do. A simplistic way to explain this can be to talk about how jobs which anyone can do earn less money than jobs which only a few people can do. (It is often best to avoid talking about the jobs which children’s parents and family do, and instead talk about some common jobs in general.) For example, you could talk about how to be a firefighter you have to be especially brave and strong and not many people would be able to be a firefighter. That means that they get paid more money than a waiter in a café, because lots of people could do that job.

You can also briefly talk about how some people are rich because their parents, or even their grandparents worked really hard to earn lots of money. It's ok for children to understand that sometimes people benefit from wealth which they didn’t earn themselves. It is even more important though that children develop an appetite to strive and achieve, regardless of their families financial circumstances.

Once you’ve been able to satisfy the child’s initial interest in financial wealth, any answer you give should pivot to talking about what is really valuable in life. Young children are at the perfect stage of their life to understand the idea of being rich in life, regardless of money. Ask the children how much money they have – the answer will of course be none, or a little bit of pocket money. Talk about whether they are happy, even though they have no money. By having a conversation about all the things which make them happy, and all the people that are important to them, you can turn a potentially tricky question into an opportunity to appreciate the real value in life.