What Role Does Luck Play In Accumulating Wealth?

I’m a pretty lucky guy, even though it doesn’t really translate into getting lucky, if you know what I’m saying. That was a sex joke.

I was born in Canada, which might be the best country in the world, with the exception of the crappy weather most of the country gets. I have great parents, who were kind enough to let me stay in their basement even after I turned 18. My Dad was, without a doubt, the biggest financial influence in my life. He taught me the wonders of compound interest, ways to use leverage to enhance returns, and the importance of living frugally, which should pretty much be a no-brainer at this point.

Because of a great support system and an education unlike most other kids got, I quickly took a shine to financial matters. While other 18 year olds were concerned with getting drunk and hooking up with strangers, I studied balance sheets and read every personal finance book I could get my hands on. I remember intentionally avoiding going out with my friends to stay home and watch the business channel on TV. I’m clearly a bummer at parties.

I’m the first to admit that, statistically speaking, I was set up to accumulate wealth.

Let’s compare my story to my sister. Without going into too many details, she is, shall we say, not as skilled at the art of wealth accumulation as I am. We are at two very different points in the financial spectrum. Why am I so good at accumulating wealth, while someone who had the exact same upbringing so bad at it?

This brings me to a post from Andrea over at So Over Debt, all about how being poor is more complicated than most of us think. For those of you who don’t know how to use a mouse well enough to click through, let me summarize. Poverty is complicated, most people who end up poor do so because of all sorts of factors. A series of bad choices, combined with a poor upbringing or whatever, and we end up with someone who’s poor. I’m painting in broad strokes here, since I kinda have to in just a one paragraph summary. Go check out the post for the whole story.

Since I’m at least 94% sure that post was directed at least in part towards me, let’s take off the gloves. It’s scrappin’ time! Hopefully Andrea doesn’t kick me in the balls or something if we ever meet. Because I wouldn’t put it past her.

Around here, I talk a lot about ways to accumulate wealth. I think that it’s really not that hard. All you need to do is spend less than what you make, do it consistently, and the results start to add up. If you can increase your savings rate by earning more, the results get accelerated even more. There are all sorts of examples of people from every economic background, from every sociological background, and from all sorts of broken homes that manage to accumulate wealth. Why is that?

I’m not sure what the answer is, but Andrea thinks she does. And she thinks it’s luck.

Frankly, the notion that luck plays anything but a small factor in my journey to become wealthy is an insult to all the hours of study I’ve put into the subject, all the hours I’ve spent researching potential investments, and all the hours I’ve busted my hump working hard, physical jobs in order to make excess cash to invest. Sure, I was lucky to win the ovarian lottery, but that’s where the luck ended. Everything else I’ve accomplished it’s because I’ve worked for it.

There are millions of people who are just like me. They were born in a first world country, to parents who raised them to the best of their ability. They had teachers who encouraged and challenged them. They are intelligent enough to go off and finish high school, and a large percentage of them ended up going to college as well. I’m hardly alone in getting these advantages.

And yet, a small percentage of us privileged folks are accumulating serious wealth, while the rest wallow in debt brought on by bad decisions. Some of us are buying stocks and real estate and other assets, while the vast majority buy crap that goes down in value every time they touch it. Some of us make every single major live decision with one goal in mind – how will it help me get rich? After spending the past 10 years working single-handedly towards one goal, it makes me upset that someone can just write off my efforts by declaring that the only reason I’ve been able to accomplish what I have is because I haven’t had any setbacks.

There’s a significant minority of the population that, for whatever reason, simply cannot get wealthy. They’re the types of people who are lucky to even stay gainfully employed. It may be cold up here in Canada, but we have a support system that ensures their basic needs will always be provided. I’m happy to exchange a slightly higher tax rate in exchange for that safety net, just in case I ever need it. We can’t simply flip a switch and make these people into middle class citizens with good jobs. But, at least from my perspective, I’ve never written a word that was intended for people in that situation. Those people don’t need a personal finance blog, they need someone to teach them the basic math skills needed to make a budget in the first place. To compare someone in that type of situation to a college educated person isn’t helpful.

Millions of people are smart, educated, and ambitious enough to put themselves in a position where, with years of hard work, they can begin to become financially independent. And yet, most don’t bother. It’s difficult to dedicate your spare time to learn how an investment really works. It’s hard to take your excess capital and invest it for the future when a MacBook Pro looks all shiny and pretty. The richest among us weren’t alone in being lucky enough to be put into a position to succeed, yet they are alone in succeeding. Why do they rise to the top, while everyone else suffers through mediocrity? Nobody can tell you the exact answer, because every situation is different. What I can tell you is that, while luck plays a factor, it’s not at the top of the list.

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