September 06, 2010

The Hidden Nature of Wealth

KS_2010a By Karen Sternheimer

During a recent in-class exercise, I had my students play a game. Each of them got cards denoting a certain point value, and the object of the game was to negotiate with one another to trade cards and end with the most points.

After the game was over, we talked about the strategies they used to try and maximize their points. Some people felt like they had enough and decided not to trade with their classmates at all. Others wheeled and dealed to get points and sometimes lied, even to their friends. A few students felt like they had plenty and gave cards away for fewer points than they received in return.

While at first it might seem like the game only revealed individual differences, as they talked about the cards they started off with many students were stunned to find out how many more points their classmates had at the start of the game. The game’s “winner” had doubled his points, but he also started off with far points more than most of his peers.

Just as in real life, people started this game with far more than others, and no one was told exactly how much anyone else had. Students had to learn during the game that having a lot of cards did not necessarily mean the cards had high point values. And just like in real life, we tend to think that people who have the fanciest cars, most expensive clothes, and extravagant homes are the wealthiest. But wealth is often more hidden than we think.

While many people attempt to convey status through consumption, most of us keep our true net worth a secret. We learn early on not to share our annual income with others, even close friends and family members. It’s often considered tacky to talk about how much wealth we have accumulated, or shameful to mention our debt. Instead we use consumption as a proxy for displaying signs of wealth, but it isn’t an accurate measure.

Your friend with the new car and brand-name everything might have a mountain of credit card debt. And the third richest man in the world, billionaire Warren Buffett, lives in same suburban home he purchased in 1958 in Omaha, Nebraska.

Buffett’s wealth isn’t exactly a secret, since his net worth is a mainstay on Forbes magazine’s list, but most Americans aren’t aware of exactly how much money the wealthiest among us have accumulated. Nor do we tend to know how concentrated wealth in America actually is. In 2007, the wealthiest 1% owned 35% of Americans' total net worth, while the bottom 80% owned 15%.

You’ve likely heard the phrase “a rising tide lifts all boats,” meaning we all benefit from a good economy. When times are good, some boats (or yachts) rise far higher than others. During the economic boom of the 1990s, a time we now often look back on with nostalgia considering the sluggish economy we have today, the vast majority of the gains went to the top 1%. According to a study by the Congressional Budget Office (CBO), between 1979 and 1997 the average annual after tax income rose 157% for the top 1%, but actually fell by 1% for the poorest 20% of Americans.

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Source: Center on Budget and Policy Priorities

The disparity between the wealthiest 1% grew even bigger during the 2000s. According to economists Thomas Pikkety and Emmanuel Saez, the incomes of the top 1% grew on average more than $521,000 per year between 2002 and 2007. According to their research, during this time the top tenth of one percent grew by an average of nearly $3.5 million per year. In the same five year period the average annual income of the bottom 90% grew by about $1,200 per year.

During these tough economic times, many people might be thrilled to have any income and would be even more excited if their incomes grew at all. As the Los Angeles Times reported earlier this year, the recession has touched just about everyone, even the wealthy. In 2008, the number of millionaires in the United States declined…but soon rebounded in 2009 as the stock market rose.

By contrast, the unemployment rate has hovered near 10% for better than a year, and home values remain depressed. Most Americans’ economic well being stems from income from work and from home equity, while the wealthiest 1% typically gets most of their income from investments and are less impacted by a bad job market or by real estate fluctuations.

The Times article also reports on a study that showed an increase in the concentration of wealth between 2007 and 2009:

“The recession is going to end up accentuating the inequalities of income and wealth we've seen for 30 years,” said Larry Mishel, president of the Economic Policy Institute in Washington. “This requires attention if we're going to see robust wealth growth going forward.”

The hidden nature of wealth enables inequality to flourish. Some of my students felt angry when they learned that their classmates had started the game with so much more than they did. Others admitted that they began to look down on their classmates who had little to trade during the game. Overall they demonstrated a variety of different strategies and reactions to the way the game was structured. But it is much easier to play if you know how the game works.

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Comments

Your card game sounds like an interesting way to grasp the concept of stratification using a hands-on method. Would you be willing to share how you developed the game or where you got it from? I would love to use it or adapt it for use with my classes to help us further our discussion about inequality.

Here is the basic premise of the game:

Each student is given a set of cards at the start of class with pictures of items representing food, shelter, material goods, and money; the cards also have point values printed on the bottom. Students are told to count the number of points they start the game with and not to reveal their cards or points with anyone. They are told the object of the game is to finish with the most points and to have at least one card denoting food and another denoting shelter in order to qualify as the winner. Students then have the opportunity to trade cards to maximize their hand. However, they must determine who they will negotiate through nonverbal cues and cannot end a negotiation until a trade is completed. They are also given a green, blue or orange sticker to wear during negotiations, to which they ascribe different meanings, but they soon learn that there are visible markers of who has cards worth trading. At the end students tally up the points they have and compare with the points they started out with.

This game seems to be a great way to study and experiment with kids.It can show how kids think about how much points or money they think they need. It also shows the kids that even if someone has the most cards they necessarily don't have the most points. Its a great game for kids.

This card game seems great for kids and sounds like it would help them see in a different way. It could also show how the students think in different ways then adults may think.

Hello, I am commenting on this as a part of an online sociology class. I found it interesting how you said people use materialistic objects to display wealth. Especially when this is often very misleading. This reminded me of how many times I have seen new Mustangs or Cadillacs...parked in front of trailers that seem to be collapsing on themselves. I know that appearance of ones home cannot accurately measure wealth either, but I can't imagine anyone who would want to live like that if they had the money to change it somehow. I do not mean to sound like a snob, these are just things I have noticed.

I find your game fascinating. What made you want to do this experiment? I think it represents the idea of wealth quite accurately. Also, the statistics about the wealthiest 1% and the people in the poorest 20% are astounding, and honestly, slightly depressing. But you're right, people try so hard to create an image of wealthiness that they actually are distancing themselves farther and farther from it.

This was a rather interesting way to look at how children act and can behave. I enjoyed it a lot, as well as the game itself. It shows kids how to plan ahead, and strategize.

an interesting article

A very creative way to make a game that demonstrates your own naive prejudice for socialism. A great way to make kids believe that wealth is evil and normally gained by taking from others. Both of these are dead wrong of course, but nonetheless an effective brainwashing exercise.

Your data about the poor losing income are shamefully misleading. They leave your hapless students to believe that the poor’s “share” was taken by the “rich”. A conclusion that is popular with those still stupidly trying to explain how well collectivism works in spite of the consistent lessons of history.

Teachers who have integrity instead of just a social “cause” to promote, normally would want to learn before they teach. If you every get such an inclination Karen, before you teach about economics, wealth creation, etc, you might want to read Milton Freedman for example. Start with Freedom to Choose.

I agree with Curt - this game has nothing to do with reality and teaches all the wrong lessons. This represents the same old mythology about economics: that it's the study of a few fat people at the table eating from a fixed pie. The essential elements that we should be teaching about economics are about production, wealth creation and realizing one's potential. I feel sorry for the poor students in this class whose "education" will be the main impediment to their success.

The game sounds really interesting to see how kids would strategies. I liked your blog because of it, it shows new ideas on how people see wealth. What is hidden, what is really there.

Rachel makes the case regarding what you are teaching.

There are three sentences with five grammatical errors. I assume language skills and economics knowledge are at about the same priority level at USC?

Rachel, new ideas on how people see wealth might be stimulating, but true ideas on how wealth is created and how it fuels our society are far more valuable. Come out of the dark side for just a while and read Free to Choose (Friedman). It will serve you well.

Hello, I am commenting as a part of a sociology class. I love the idea of this game. I think in a world where appearance captures a big part of our identity, this activity is eye-opening and thought provoking. I am from Beverly Hills, and while I was reading this, it reminded me of many large families in my community who would live uncomfortable in small houses just to be able to wear the latest brands and drive the best cars-- which is an inaccurate measure or display of their wealth.

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