Ramit Sethi: The 'Generational Wealth' Excuse Is Keeping You From Your Rich Life
Let's face it, money affects mentality, especially when it shapes how you grow up: Too much can be as damaging as too little, but what happens when you shift from one to the other?
In a recent YouTube video, financial expert Ramit Sethi spoke with a couple in their early 30s who bring in $278,000 a year and have a net worth of nearly $1.5 million. Despite this, they’re too scared to spend any money in case something unexpected happens later that calls for it.
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This view on money, Sethi said, is rooted in a scarcity mindset that comes from past challenges, including a health scare in the family. It’s also based on financial beliefs often starting in childhood. But there’s such a thing as using “generational wealth” as an excuse to keep you poor. And this view on money? It’s often more harmful than helpful.
What It Means To Use Generational Wealth as an Excuse
In the couple’s case, they didn’t come from money. They worked their way up to where they are today on their own. But because of this, they also have something of a hoarder’s mindset. Any small purchase made comes at a cost, even if they should be able to easily afford it.
Not only that but they’re worried about any unknown future variables that might destroy their financial stability. They want to spend money without guilt but can’t quite break free of the intensely frugal mindset they’ve had for years.
"An overly frugal or scarcity-based mindset can be limiting, even for individuals with significant assets,” said Matt Loveless, vice president of agency strategy, field training and talent acquisition at Western & Southern Financial Group. “When someone continues to operate from a fear of ‘not enough,’ they may underutilize their resources or make overly conservative decisions, like holding excessive cash or avoiding appropriate investment exposure.”
Some of this mindset is rooted in the idea that, if you don’t come from money, you don’t get to spend it. You might not even deserve the wealth you’ve built, so you can never truly enjoy what you’ve built.
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Consequences of Having a Scarcity Mindset
The scarcity mindset isn’t uncommon. A Wells Fargo press release found 56% of Americans are concerned about having enough money even when they objectively do. But because it’s so common, it’s worth discussing why people have it and its impact on their lives.
“A scarcity mindset is not just a behavioral pattern. It is a nervous system setting,” said Jenny Whichello, money coach at Bliss and Wealth. “When someone grows up without financial safety, the brain encodes ‘money is scarce and dangerous’ at a subconscious level.”
Even earning a high salary or inheriting money later in life doesn’t automatically change that belief. This can lead to financial decisions that keep you poor, like:
Hoarding instead of using money wisely
Underinvesting (which limits your ability the build true wealth)
Avoiding spending even on purchases that would result in genuine life improvement
In terms of building wealth without inherited advantages, Whichello added this:
“The research and my client experience both point to the same starting place. It is not a savings rate or an investment vehicle. It is the belief that wealth is available to you and that you are someone who gets to have it.”
Other Ways To Build Wealth Without Coming From Money
Not everyone has inherited financial advantages. According to Empower, only about one-third of Americans (32%) even plan to leave an inheritance.
If you don’t come from money, you can still save and build wealth.
“Focus on making more money before stressing too much about spending less,” said Kiki Kacobson, therapist, certified financial education instructor and founder of YourMoneyCounselor. “There’s only so much you can save by cutting expenses, but your income has more room to grow. Put effort into earning more.”
This might mean asking for a raise or getting a higher-paying job. It might even mean starting a side hustle.
As you start earning more, avoid lifestyle creep. This is when you spend more because you earn more. Automate your savings and, when your paycheck gets bigger, increase those contributions.
Don’t limit yourself to saving, since investing can help in the long term. If you have a 401(k) with employer-match, use that. Contribute to an IRA for those tax advantages and so you have something to turn to in your retirement years. You can also invest in low-cost index funds and let them grow over time. It might not be quick, but it’ll get you there.
Bottom Line
As for the wealthy couple, Sethi helped them to see that they're already living their rich life. He gave them the permission they haven't been able to give themselves to see that they have the resources to live how they want right now, but time is ticking on family and the ability to enjoy adventurous vacations.
When you've been conditioned to protect your resources, there's no magic number that makes employing them feel like a safe act. That's why Sethi tasked these two with creating new operating rules.
"It is now part of your job," he said, "to learn how to responsibly spend this money," rather than hoarding it. Whether it's a charity or an experience, or caring for an ailing mother, Sethi challenged them to commit to spending $1,400 a month on themselves. He helped them see that it's not irresponsibly flinging money away to enjoy life. Rather, it's squandering more money than they'll ever need without spending it that's the true waste.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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