While we often look at wealth in terms of haves and have nots, there’s more nuance than that. In particular, discussions of old money vs. new money reveal wealth’s complexities.
Keep reading as I dive into this comparison and explain how the differences between old money and new money can influence your financial planning for the better.
What is old money?
The term “old money” describes wealth sustained and passed down within families over many generations. People also use it to reference those families and their individual members themselves (i.e. “Tom is old money; he’s a Rothschild”).
In America, meanwhile, old money is a bit different.
For starters, the country is young. When Europe’s old money families were amassing wealth, Columbus was still many centuries away from being born, let alone “discovering” America. Also, America notably lacks Europe’s fondness for royals and aristocrats. Consequently, America’s old money families rose to prominence fairly recently through successful commercial ventures.
Think of the Vanderbilts, who developed a railroad empire in the late 1800s. Another classic example of American old money is the Rockefellers, who gained their fortune through oil production in the 19th and 20th centuries.
While this distinction between old money on either side of the Atlantic Ocean might seem pedantic, it’s actually very helpful for contextualizing wealth. Later in this article, you’ll see what I mean.
What is new money?
The term “new money” describes recently acquired fortunes. Celebrities, entrepreneurs, and other wealthy individuals who became such within their own lifetimes fall under this category. As with old money, people also often use this term to describe those possessing the fortunes (i.e. “Jeff is new money; he was born relatively poor and started a successful company”).
Interestingly, as Vocabulary.com points out, new money is typically seen as inferior to old money. The implication is that new money lacks the values, traditions, and prestige accompanying generations of inherited wealth.
For example, the Vanderbilts and Rockefellers have institutions named after them. Jeff Bezos just has lots of money.
It doesn’t matter that he’s vastly richer than any individual old money heir (and often their entire families). Society’s true elites will always consider him (and all other newly rich people) to be of a lower class.
When does new money become old money?
You might be wondering where the line between old money vs. new money is. In other words, how many generations must wealth pass through before it’s considered old?
Personally, I’d argue it’s a moot question as conventional old money is going extinct.
For starters, developed nations aren’t minting new royals and aristocrats. Existing nobility’s influence around the world has been waning for centuries. This is worth noting since generational status is a defining characteristic of old money in Europe.
Further, many of society’s new rich (including Warren Buffett, Bill Gates, Mark Zuckerberg, and Michael Bloomberg) have explicitly stated they won’t be establishing generational wealth dynasties. Instead, they’ve pledged to give most (sometimes all) of their fortunes away.
Simply put, wealth’s nature has changed and I don’t think there will be many future iterations of old money. There’s still enough existing generational wealth, however, to draw valuable comparisons between old money vs. new money. Keep reading as I do just that.
6 things we all can learn from the distinction between old money vs. new money
1. No amount of money buys universal approval
Intuitively, it’s hard to fathom anyone looking down on Jeff Bezos (currently the world’s richest man, according to Forbes). Yet the reality is that money only buys status to a point. Certain clubs (figuratively and literally) will always be off-limits to anyone not born with access.
The good news? If you’re building wealth for the right reasons, this doesn’t matter. Consider goals such as:
- becoming financially independent
- earning money doing something you love
- leaving an inheritance for your children
- enjoying a fulfilling life
In most of the developed western world, class systems won’t prevent you from achieving these objectives. They’re well within social mobility’s limits. In fact, you can pull it off with a surprisingly attainable amount of money.
This should be a wake-up call if you’re currently chasing status through wealth. It’s a never-ending quest, the only benchmark on which is other people’s success. You’ll have a much happier life pursuing your own goals.
Check out this post from Cent by Cent for a deeper look at why comparing yourself to others financially is such a bad idea.
2. Sustaining wealth over many generations is very difficult
Those of us born into poor families often view old money with disdain. “Those trust fund babies never have to work a day in their lives,” we might say disparagingly.
Here’s the thing, though. While old money is certainly privileged, maintaining wealth across multiple generations is a great accomplishment. Research shows 70% of wealthy families lose everything by the second generation. By the third generation, that number jumps to 90%.
Common reasons for this include:
- neglecting family relationships
- failing to address signs of financial irresponsibility in the next generation
- marrying people with the wrong intentions
- poor financial planning
New money is particularly susceptible to these faults. Just think of all the athletes and celebrities you’ve seen plunder their wealth.
Meanwhile, old money is justifiably proud of overcoming common pitfalls. It’s how these families are still wealthy centuries later.
Even if you have no intention of making your family name an institution a la the Rothschilds, following old money’s lead in this regard offers many benefits. You’ll manage money competently and avoid unnecessary stress in life.
3. Old wealth lasts because it’s rarely flashy, unlike new money
It’s impossible to compare old money vs. new money without highlighting the contrast between how each group manages wealth.
Old money typically buys properties, companies, and other productive yet boring assets designed to keep them rich.
New money, meanwhile, often chases flashy cars, luxurious private residences, and other status symbols that scream “LOOK AT ME, I MADE IT” yet obliterate wealth in the long run. The Cambridge Dictionary actually defines “nouveau riche” (a synonym for “new money”) based on this behavior.
The British Royal Family is a classic case study in how old money manages wealth. Its assets include farmland, mineral quarries, stocks, and towns held in a private estate called the Duchy of Lancaster.
And then there’s Mike Tyson, the epitome of reckless new money. Forbes pegs his career earnings at $685 million. That’s more than individual members of old money families often pull in throughout their entire lives.
The problem? Iron Mike bought cars, jewelry, clothes, tigers, and expensive gifts for friends. In 2003, he declared bankruptcy.
This happens more often than you might think. According to Investopedia, a whopping 78% of NFL players file for bankruptcy within two years of retirement Among NBA players, the number is 60%.
Indeed, the new rich often don’t stay rich for very long.
The key takeaway? Follow old money’s lead. Keep your wealth hidden in productive assets. If strangers on the street can see your wealth, it’s not growing.
4. America offers unique opportunities for new money
Among western nations, America is arguably the capital of new money.
According to a 2014 study, only 29% of America’s billionaires inherited their wealth. Here’s how the rest earned their fortunes:
- founding companies (32%)
- being company executives (8.4%)
- politicking (3.8%)
- working in the financial sector (26.8%)
In Western Europe, meanwhile, roughly 50% of billionaires inherited their wealth.
This is no accident. America is quite new relative to Europe. Consequently, it needs more innovation than old money heirs could possibly provide. Instead, America relies on business-friendly regulations and a unique breed of hyper-capitalism, both of which foster new money.
This makes America a great place to invest and do business. Indeed, as Bloomberg reports, the country’s economy grew 9.9% annually between 2007 and 2016 while Europe’s climbed just 2.8%.
5. Money itself doesn’t equal institutional power
No matter how rich an otherwise ordinary person becomes, they’ll never achieve institutional power quite like someone whose family essentially owns the checks and balances.
For example, while simple shifts in public opinion can rip American presidents (most of whom are new money) from power after four short years, royal families in countries like North Korea, Saudi Arabia, and Iran rule indefinitely, with or without mass approval.
Further, extrajudicial killings and other blatant human rights violations go largely unpunished when ordered by royalty. America’s Constitution contains mechanisms for ousting presidents under far less ominous circumstances.
This institutional power gap between old money vs. new money has implications beyond politics, too. Responding to an NPR poll, 65% of African-Americans earning $75,000 or more reported being subjected to racial slurs while 73% reported being discriminated against (including intimidation from their own white neighbors). Money isn’t enough to shield them from institutional barriers.
In other words, African-American new money deals with self-obtained wealth’s inherent shortcomings and its accompanying racial stereotypes.
This is a valuable lesson on two fronts.
First, if you’re black new money, it’s worth remembering self-obtained wealth will never place you above attacks from ignorant people. It’s still in your best interest to fight racial inequality.
If you’re white with self-obtained wealth, the institutional power gap between old money vs. new money still affects you – just not in a racial context. You’re still at least one rung down on the food chain, which is worth keeping in mind if only for humility’s sake.
6. Wealth management isn’t all about accumulation
New money is often obsessed with accumulation. They’re not unlike America itself – very much focused on growth.
Old money, meanwhile, typically prioritizes wealth preservation. Just as Europe is content leaving rapid expansion to younger countries such as America, old money often has little desire to compete. They’re bastions of economic stability with nothing to prove.
On a personal level, both approaches (wealth preservation and accumulation) are important. New money often misses this, staying in the accumulation phase even after acquiring more wealth than they’d likely ever spend.
In my opinion, this only makes sense when additional wealth accompanies other achievements. Founders and majority shareholders of publicly traded companies, for example, grow wealthier as their firms succeed. I’m sure that’s incredibly fulfilling.
At a more relatable scale, people often slave away in uninspiring careers simply because accumulation is all they know. They’re chasing money for its own sake, which I believe is pointless.
I prefer the idea of adopting old money’s wealth preservation strategies eventually.
I hope this discussion of old money vs. new money has helped you think about wealth differently.
In my opinion, the main takeaway is that wealth building should be a personal endeavor shaped by your goals and values. There’s no point in competing. Even the most successful new rich fall short of old money’s status and prestige.
Perhaps you got something else entire out of this article. Whatever the case, I’d love to hear your thoughts! Hit me up on Twitter here.