Wealth Ladder Requires Tailored Strategies Based on Net Worth

Key Quotes

"So I think medical advice is given patient by patient, right? It's like, hey, we wouldn't just say, hey, you know, just give out generalized advice to people. We have to kind of do it based on where they are in their life today, like their symptoms, all those types of things. I think a lot of financial advice is kind of given blanket statement. It's like, oh, you should never do this, you should never own that, you should max out your 401k. Like, all this advice is very generalized."

Nick Maggiulli argues that financial advice should be as individualized as medical advice. He contrasts generalized financial recommendations with the personalized approach taken in healthcare. Maggiulli suggests that understanding an individual's current financial situation, similar to a patient's symptoms, allows for more tailored strategies.

"The inspiration was, you know, your strategy needs to change over time. Like the analogy I use in the intro is like, you know, a fitness coach is going to give different advice to someone who's morbidly obese versus someone who's a well-trained athlete, right? That seems very obvious to us. Like, of course, you're not going to tell, you know, the morbidly obese person to do something that you might tell a well-trained athlete to do, right?"

Maggiulli explains that the core idea behind his "wealth ladder" concept is that financial strategies must evolve with an individual's circumstances. He uses the analogy of a fitness coach adapting advice for different fitness levels to illustrate this point. Maggiulli emphasizes that just as a coach wouldn't give the same workout plan to an obese person and an athlete, financial advice should differ based on one's net worth.

"So there are six wealth levels. Level one is less than $10,000 in net worth. And by the way, when I say net worth, I mean I'm using household net worth and I'm doing, you know, all of your assets minus all your liabilities. So Level one's less than $10,000. Level two is $10,000 to $100,000. Level three is $100,000 to a million. Level four is one to $10 million. Level five is $10 to $100 million. And finally, Level six is $100 million plus."

Maggiulli outlines his "wealth ladder" framework, which categorizes individuals into six distinct levels based on their net worth. He clarifies that net worth is calculated as total assets minus total liabilities. Maggiulli provides the specific dollar ranges for each of the six levels, from less than $10,000 for Level One to over $100 million for Level Six.

"For example, you're right, most people just stay in their level. So over a 10-year period, 72% of people in Level three are going to still be in Level three. Right? Over a 10-year period, 72% of people in Level four are still going to be in Level four. Right? So once you get into one of these levels, it can be hard to break out, especially Level three and four."

Maggiulli discusses wealth mobility, noting that a significant majority of people tend to remain within their current wealth level over time. He cites statistics showing that 72% of individuals in Level Three and Level Four remain in those same levels after a decade. Maggiulli concludes that breaking out of these middle wealth tiers can be challenging.

"So the tweet, which was a little bit controversial, was like, the poor own cars, the middle class own homes, the rich own businesses. Now, of course, that doesn't mean the rich don't also own their home or they don't own a car. That's not what I was saying. It's saying disproportionately, if you look at their assets, like they have the largest share of business interests if they're rich."

Maggiulli explains a controversial observation he made about asset composition across different wealth levels. He states that disproportionately, the poor tend to own vehicles as a large percentage of their assets, the middle class owns homes, and the rich own businesses. Maggiulli clarifies that this observation refers to the largest share of assets, not exclusive ownership.

"The first is like for your future self, which is what you talked about. And it's very difficult to imagine your future self. As you said, they actually did these experiments where they took people's faces and they like age-rendered them to look older, and like those people ended up wanting to invest more and actually saving more money just by like reminding people that this is going to happen."

Maggiulli identifies three primary reasons for investing, starting with saving for one's future self. He notes the psychological difficulty in envisioning one's future self and mentions studies where aging rendered images of individuals led to increased saving and investment. Maggiulli suggests that visualizing one's older self can motivate better financial planning.