Constructing A Beautiful Financial Machine
I find myself sitting across from Clarissa*, a 25 year old woman who appears to have it all. “College was a calculated financial decision” she says, referring to her choice to go to a state school to save money despite her acceptance into more prestigious programs. “And so was my major,” she continues.
Upon graduation she became a consultant at a well-known firm, among the most lucrative occupations awaiting an undergraduate with a business degree. “I was lucky I had no debt coming out of undergrad. I worked every summer. Before Freshman year, Sophomore Year, Junior Year to help pay for school. My mom helped some as well.”
Now, several years out of college, she’s gone back to get her MBA at one of the most coveted universities in the country. Her consulting firm even has a deal where she can get reimbursed for the entire cost of her program if she keeps working for them upon graduation. “I’m not sure if I’ll go back, but it’s nice to have that option. I also got an offer at the startup I’m interning with this summer.”
Did I mention that in between her college graduation and starting graduate school she bought a home in one of the most stable, growing cities in the United States? She is slowly watching her home value rise, renting it out to cover the mortgage as she’s away playing student again.
Learning To Become The Financial Machine
Clarissa and I have known one another for a long time now, so her financial history isn’t news to me. Still, as I write out the highlights of her choices above, I can’t help but look at how perfectly things have fallen into place for her. It isn’t as if making the right financial choices is like winning a lottery – it’s easy if you have the right information ahead of time. But so few 18 year olds have the wherewithal to say “College was a calculated financial decision.” It makes me wonder how Clarissa, whom I’m starting to think of as a financial machine, came to be.
“My parents and I came from China to the United States when I was very little. My mom worked so hard to get here.” Her story begins as many wealthy 2nd and 3rd generation immigrant stories do – learning to save from an early age, but with an unexpected twist. Her parents separated soon after she arrived in the United States, and Clarissa actually moved back to China to live with her grandmother while her mom found stability in America.
“In China we were very poor. I remember picking up cans and bottles off the street to sell. We didn’t waste food. Everything was saved.” First-hand poverty had a profound effect on Clarissa from a young age. She completed her first few years of elementary school in China before her mother beckoned her back to the U.S. At this point, she’d been taught exclusively in Chinese and had forgotten all of her English.
“The other kids made fun of me. Learning English became a priority,” she recounted with perfect tone and diction – no hint of an accent, no question about her distinctly American origins. It seems she’s always worked incredibly hard at what she deemed important, to the point you wouldn’t have a clue she wasn’t born here if you hadn’t heard her story. But the question remained – How on earth did she figure out what was important? Between shedding her accent to sound pristinely American to creating a lucrative career from a dirt cheap education, how does one make the choices to set herself up to become a financial machine?
Same Values, Different Generations
It became clear throughout our conversation that family held a big place in her life and choices. Her mother was a first generation college graduate in China and landed a job as an engineer in the United States. Watching her mother struggle and succeed had a huge impact on Clarissa. At some point in her early life she realized that poverty was not a given. Her grandparents may have been poor, but her mother had figured out a way to break that cycle. Clarissa was going to use that success as a springboard to go even further.
“My mom helped me with a down payment on my house. She helped with some of my MBA tuition one semester too.” Not being in debt is extremely important to both Clarissa and her mother, so her mother will occasionally provide low or even zero-interest loans to her if she deems the cause worthy – housing and education clearly make the cut.
At this point in our conversation it became obvious how this particular financial machine was born – over the past 80 years. Unlike many parents who rarely share their financial details with their children, Clarissa was acutely aware of her financial situation at every moment of her life. From poverty to palatial living, she saw how the generations before her turned circumstance into choice and the tools they used to make those choices.
“My mother bought a home for the school district. I don’t think she was very interested in having a house.” From personal experience of seeing Clarissa’s childhood home, I must admit it’s very sparse. Despite it’s size and location, very few material signs of wealth adorn the rooms. One old couch tries it’s best to fill an enormous living room. A small table you might find at IKEA awkwardly dresses down a kitchen dining area. Hearing her story about the house being a means to an end makes a lot of sense in a number of ways.
First, it was a calculated decision of the same type Clarissa has learned to adopt into her own life. Second, it put her on a path of success at one of the most cutthroat public high schools in the area. It prepared her to make a decision about college based on money rather than prestige. After all, she’d be successful anywhere. One high stakes environment led to another, preparing her for consulting and finally for an ivy league MBA.
Just as her grandparents made investments in her parents’ lives to get them to the U.S., Clarissa’s mother continues making investments in her, not as gifts, strictly as loans. I leave our conversation thinking, “This is powerful. This is how real wealth is created. A slow snowball turns into a powerhouse only a generation or two down the line.” However, my next thought is a little more forward thinking. It only takes one weak link in the chain to undo all that good. The first generation born with a silver spoon might ruin the machine this family has built and maintained over the past half century.
Maintaining the Financial Machine
So many things have had to go right for Clarissa to be where she is today. Yet her story should not be terribly unusual. Given the great economic powerhouse the US was in the majority of the last fifty years, many parents had the opportunity to provide their children with similar lessons, make similar choices, and build financial machines of their own.
However, there’s no doubt in my mind that sons and daughters of far wealthier people will not be as successful as Clarissa. And perhaps Clarissa’s children, if she chooses to have any, won’t find the same success. It’s easy to forget the machines that came before us, willing us into existence so we can build even better machines for ourselves.
Creating a fruitful financial life is all about having the right information to play the game, and that’s half the problem. Many of the poorest people are also the least informed. Yet Clarissa’s past teaches us it’s more than that. Willpower, drive, choice, circumstance, and information all have to meet one another in the right place at the right time to create a wealth generating machine. And each of those machines must be maintained or risk obsolescence in a changing, modern world.
I’m genuinely excited to see what Clarissa’s future holds, not only because we’re close, and I wish her the best, but because hers is a story that I believe will become increasingly common in the coming years. Some people will figure out how to build their machines, and their wealth will rise to proportions their grandparents and great-grandparents could not have imagined. Those who don’t figure it out will sink deeper into poverty as economic inequality becomes markedly starker. How can we make more Clarissas without relegating some unknown person to a perpetual life similar to the ones Clarissa’s ancestors lived?
Nathan is the Chief Financial Advisor at Monte Largo Financial
*Clarissa’s real name has been omitted for privacy