Friday 16 May 2014

How to become a millionaire

The coffee in my cup was still warm when I spluttered over a story in the morning papers, purporting to show that:

One person in five who receives university education becomes a millionaire, according to the office of National Statistics (UK).

The figures showed a stark gap in wealth between people with different levels of education. Only three per cent of people with no formal educational qualifications have assets worth more than £1 million.

10% of UK citizens are millionaires.

The figures also show an increasing wealth gap between rich and poor. The richest 10 per cent of British households own 44 per cent of total household wealth, and this share has increased under the Coalition. This group owns about five times as much as the poorest 50 per cent of the population, who between them account for just 9 per cent of overall wealth.

more evidence of why going to university is a very good deal

At this point I should say that the story was covered in many newspapers but I thought it best to aim my criticisms at the Daily Telegraph version shown above, which is right wing in orientation, so it should not seem that I was picking at an argument because it was left wing.

Look at each statement in term, and then we can start the test. Assume for the moment that the basic figures are right, even though they do not allow for personal and mortgage debt, do not mention inflation adjustment, do not show housing wealth and inflation separately, and only later in the article is there any allowance for age. Usual messy type of data, in fact.

Which statement do you consider the least validated?

Clue: one statement was made by a government minister in charge of universities.

These statistics show that by late working life there is a 7 fold difference in reaching £1 million in marketable wealth according to levels of education. Categorization is not causation. My gripe (which if you are reading this blog you will already have anticipated) is that prior differences in intelligence and diligence very probably account for a large part of this variance. In this story the differences between tribes of intellect are seen as something which wider access to university education will reduce. It implies that if all citizens had tertiary education the stark gap would be reduced. Would it? I do not doubt that everyone would know a bit more. I am certain they would have drunk more. But I doubt  that individual differences would have been annihilated by this benevolent intervention. The current 40% or so participation in university education might add to the discrepancy somewhat, but at marginal universities the occupational benefits are very small, probably lower than having started work earlier and risen up the ranks.

Before I get back to my rapidly cooling coffee, here is a minor little technical note: what percentage of the national wealth should a particular percentage of the population own? The implication of this damn fool statistic is that 10% of the population should own 10% of the wealth, and if they own more, something is wrong in that society.

So, try thinking about it. In a move likely to enrage Daily Telegraph readers, and possibly gain the approval of Guardian readers, let us put every citizen on the same wage, regardless of their talents. Then allow those who are inclined to do so to save some of their income, which usually pays 7% per annum, judged from historical records. Allow 40 years to transpire under this egalitarian wage regime. How much wealth will the top 10% own at the end of that period?

Clue: it will be more than 10%.


  1. If your nation's immigration policy is to import large numbers of poor people, you will likely end up with more poor people, after a few years.

    If those immigrants-now-citizens tend to have children who grow up into poor adults, you will again likely end up with more poor people than would otherwise have been the case.

    This logic doesn't seem particularly convoluted or hard to grasp. Yet, despite the concerns over rising inequality in the US (justified IMO), to my knowledge, no effort has been made to gather the statistics that would allow any anti-equality effects of the 1965 and later immigration reforms to be estimated.

    There may be a similar dearth of information for the UK.

  2. I don't think you have given us enough information James to compute the answer to your question. It depends for example on what proportion of their income that they save. However, 7% compounded for 40 years yields £14 for every £1 of capital initially saved.

    1. Agreed, we need to simulate it under different assumptions. The Economist did this 40 years ago. I will look up the results again next week, but we should do some more work on this. Point is, the X% of population have Y% of the money, or the illnesses or whatever is a very tricky statistic, apt to create misunderstanding.

  3. The top 1% have a little more explaining to do however.

    The same people who are importing cheap labour to drive down wage rates and weakening education to stop us noticing.


  4. My current workplace has a call centre, and a large minority of the staff are young graduates earning minimum wage.

    Marx - "The main purpose of the bourgeois in relation to the worker is, of course, to have the commodity labour as cheaply as possible, which is only possible when the supply of this commodity is as large as possible in relation to the demand for it"

    1. A very relevant quote. Great article too. Dr Simon Bignell

  5. Even without heritable differences in intelligence expanding the number of graduates will generate diminishing returns. There are only a limited number of positions for doctors, lawyers, hedge fund traders etc therefore expanding the number of people qualified to apply for these positions would at best drive down the wages of associated with these positions. Obviously on top on this we have the normal distribution of GMA and we must face the reality that many graduate jobs have a cognitive threshold. All of this seems so obvious and uncontroversial but unfortunately it's not. Instead of focusing on an endless expansion of university places we should be focusing on excellence and equity. My mother grew up in a very poor family, just after the war, but went to Cambridge, about twenty years later (living outside the UK) she became a professor at Oxford. She felt that equitable access to elite universities had actually declined in this period.

  6. Also you can tend to purchase available for sale internet websites, renovation all of
    Millionaire Society them, and in some cases increase the buying price of the products for sale. Using this type of, you obtain a good looking earnings.