Geoffrey Holt lived in a trailer park in Hinsdale, a small New Hampshire town with a population of four thousand. He was the caretaker of the trailer park. Before moving to Hinsdale, Mr. Holt had worked in a grain mill in Vermont. When he died in June of 2023, he was worth $3.8 million, and he had left all of it to his town.
No one had any reason to think that “grain mill worker who moved into a trailer park” had that kind of money. How did he do it? His friend, Edwin Smith, for whom Holt did occasional jobs, said that he lived “very frugally”. From his job at the grain mill, he had saved a small nest egg. He invested in stock mutual funds, which allowed his wealth to compound fast over time. His friend Mr. Smith also said, “Geoffrey didn’t change when he found out he had seven digits in an investment account.”
Terry Kahn worked at the Veterans Administration for three decades. He lived in a modest home in south Indianapolis, drove an old Honda, and refused to own a cellphone due to its cost. He did not want money to be spent on an obituary upon his death. He was, in his lawyer’s words, “unbelievably frugal”. When he died in 2021, his estate was worth $13 million, all of it directed to charity.
John Willard, a reporter for the Quad-City Times, a daily newspaper in Iowa, and his wife, Carol, a secretary, left a $3 million estate to various charities. Upon their death, Scott Reeder, a colleague of John, wrote an article titled: “Frugal reporter left millions to charities”. In it, a colleague of John said, “I’d be shocked if John ever made more than $35,000 or $40,000.” John’s brother had confirmed that John did not have a significant inheritance, going on to say, “He just saved and invested really well.”
The stories above may remind you of similar stories that you have heard before. They are inspiring and memorable. These people and their stories (which were reported in newspapers) have a few things in common. First, they all gave large sums to charity, which brought their story into the limelight. However, it is entirely possible for such a person to leave their wealth to non-charities, in which case they may never be discovered. Second, the word “frugal” appears in every article describing these people. They were exceptionally frugal. In fact, when married, their spouses were frugal too. Finally, they invested well over long periods.
Without frugality none can be rich, and with it very few would be poor.
Samuel Johnson
What is the lesson in all this? If someone said that “working in a low paying job, saving ferociously, depriving oneself of popular comforts, only to leave all of it to the benefit of strangers upon death” is not their idea of happiness, they would simply be expressing how they felt. The lesson, however, is not to mimic these people exactly. These people had a kind of personality that consistently derives more satisfaction from deferring gratification than from spending. Most people are not like that. Instead, think of them like extreme athletes in the way that they control their wants and exercise investment discipline. Their lives can be a source of inspiration for others.
In the journey of wealth: Dependence > Earning > Financial Freedom (D > E > F), the people above are champions of stages E and F. They were low-earners however, which means that they did not train themselves to earn a lot in stage D (the Dependence stage). In stage D, they were below average or just average. Having a low income may not have been a big deal to these people since they were frugal by nature. And for those of us who reach adulthood without training for a high-paying job, this is a message of hope: you can still end up rich. By the end of their lives, these people were in the top 5% of Americans by wealth.
What happens if a person is a champion in all the three stages of wealth-building? I will share an example in a future post.
What I have written above can be summarized as “anecdotal observations about frugal low-earners who became rich, and what we can learn from them”. In writing about them, I noted how vital it was that they could save on their income. This led me to write the following note on the role of wage policy.
In a free market, wages are determined by the forces of demand and supply. If the supply of labor for a particular task is high and its demand is low, then the wage can be very low. Wage for unskilled labor is usually very low. In this setup, having a mandated minimum wage makes it illegal for employers to pay less than the minimum wage for any job. Having a minimum wage means that the lowest paid workers are paid more than they would in a free market. It also implies that businesses will hire fewer workers as a result. This is a common, and legitimate, criticism of minimum wage.
Is it okay to pay someone a wage less than what is needed for subsistence? Some would say yes, based on the principles of free market capitalism. But as human prosperity grows, there is a growing realization that we have more than enough for all, and it is perhaps unfair to subject an honest worker to below-subsistence living due to their lack of valuable skill. After all, how much we earn in stage E (Earning) is determined by what we learned in stage D (when we are Dependent)), and it is undeniable that none of us chose the circumstances of our birth. Many governments therefore stipulate a minimum wage that is at least as much as a subsistence wage.
Does having a minimum wage not mean that fewer people will be employed? It does, but business adapts and a new equilibrium is reached. Economic freedom, as extolled in capitalism, is not the only form of freedom. A few hundred years ago, many argued that slavery was good for economics. Yet it seems offensively out of place in a modern world. When slavery was abolished, businesses surely had to adapt. To be paid less than what is necessary for subsistence is a kind of economic slavery. An honest worker earning less than a subsistence wage will not be able to save, and therefore never break out of poverty.
The point where policy errs is in setting a minimum wage that is too high. A minimum wage should not be less than that needed for subsistence. However, a minimum wage where an extremely frugal person earning that wage can retire comfortably is a very good threshold to stop increasing it. Having a high minimum wage not only interferes with markets, it also leads a worker to believe that the work they are doing is worth significantly more than the economic value it adds. This, in turn, leads to a variety of social and economic problems.
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References:
- He Lived a Frugal Life. Then He Left Millions to His New Hampshire Town. Sopan Deb. The New York Times. Nov. 23, 2023. https://www.nytimes.com/2023/11/23/us/new-hampshire-hinsdale-millionaire-geoffrey-holt.html
- “Unbelievably frugal” Indianapolis man left $13 million to charities. Steve Hartman. CBS News. December 8, 2023. https://www.cbsnews.com/news/terry-kahn-frugal-13-million-dollar-estate-charity-nonprofits-indianapolis/
- Commentary: Frugal reporter left millions to charities. Scott Reeder. The State Journal-Register. Dec 15, 2020. https://www.sj-r.com/story/opinion/2020/12/15/frugal-reporter-invested-wisely-and-left-millions-charity/3904575001/