Got your attention there, didn’t I? I want to challenge the notion that net worth calculations are a good measure for where a person stands economically. It is my posit that net worth only reflects a fairly one-dimensional image of a person. Insofar that a person really is one-dimensional, and maybe this holds in a lot of cases, this is a good measure, but for people who have other ways of satisfying their needs and wants than just spending and earning, net worth is not that helpful.

Consider this:

  • Person A has $5,005 on his bank account.
  • Person B has $5,000 on his bank account and a potato plant in his backyard.

Who is better off? Surely a potato plant is cheaper than $5, so no matter how you calculate the market value of the plant, Person A has a higher net worth. I would, however, argue that person B is better off economically.

First, Person A had to go to work for the $5 and all other things being equal, person B did not. Second, if person A wants a potato, he has to go out and buy it. This costs time as well as money. Person B can merely spend time by going out in his back yard and dig it up, it will probably taste better too and the time spent in the garden probably feels better than sitting in traffic or standing in line at the supermarket. This leads me to my Third point which is that person A probably needs to pay for transport too.

In terms of costs of living:

  • Person A will write down $1 for driving costs plus $1 for the potatoes. That’s $2 which goes towards the annual cost of living. It is also 30 minutes of his life he could have spent doing something more interesting.
  • Person B will probably say the potato was free and that messing around in the backyard provided a little exercise and some stress relief.

Now multiply this line of thinking by a factor of thousand and have it cover all aspects of life. Also notice how person’s B more complex lifestyle has benefits that enter other aspects of his life whereas A is probably paying for a gym membership to exercise and a therapist to cure his road rage. Then you will see why person B will need less than a quarter a million to retire and why person B spends less than $10,000 a year, while person A will need millions while thinking that someone who gets by on less than $30,000 a year must surely live in squalor.

It is simply two different worlds.

Originally posted 2008-08-26 17:09:29.