The rich get richer

Most people hear the popular saying, “The rich get richer and the poor get poorer,” and shake their heads. They say this is wrong. They say it is unfair. They say the rich are greedy. They say the poor just can’t catch a break.

But what if we step back from our judgment? What if we look at this systematically? Most people are ruled by their emotions so they cannot step back to view it objectively. They can only judge it based on their emotional response.

First, let’s talk about the truth of this sentence. Most people see super rich individuals and see them accumulate more and more wealth. It is easy to see that there might be some truth to it.

It isn't Absolute

But if it were completely true, then there wouldn’t be rags to riches stories. If it were that only the rich became richer, nobody poor could become rich. This isn’t the case. In fact, it isn’t difficult to see people’s wealth grow from nothing to significant over their lifetime.

This means that there is some truth to the saying but it isn’t absolute. It doesn’t ring true for everyone. To me, this is great news. This is a pattern that we spotted in the world. So, we have the ability to influence our own outcome if we can understand the underlying system.

In systems thinking, patterns tip us off to deeper structures and mental models. It points to underlying systems that are often outside of our awareness.

In this case, we can explore the underlying systems that seem to make this popular quote true. We can see what might be going into the system that promotes those that have instead of those that do not have.

The Feedback Loop

One of the most popular structures found in systems thinking is the feedback loop. The feedback loop occurs when the output of a system is fed back into the system as an input.

This could result in a magnifying effect. If the system grows something before it turns into an output, it will take the input (now magnified) and magnify it more. Over and over this occurs.

This could also result in a balancing effect. If the output turns into an input and signals to the system to change, it could result in the outputs being closer and closer to the same level. It balances out over time.

This could even result in a degrading effect. If the system reduces the output and then it is fed back into the input, where the system again reduces the output, the result will be a downward spiral.

If we take these three structures, we can start to see why the rich get richer and the poor get poorer. We can understand the systems and why this happens. This means that we can now gain control of these structures to set them up however we like.

Examples of Feedback Loops at Work

For example, there are reinforcing feedback loops magnifying the wealth of the rich. If they make more than they need every month, they put that money back into investments. Over time those investments grow more lucrative. Those additional profits go back to the investment and they acquire more and more over time.

There are balancing feedback loops that maintains the status quo. If a poor person comes across an influx of money, they tend to find ways to spend the money without investing. They feel deprived and use the money to buy things that they have always wanted to buy but were unaffordable. They don’t delay the pleasure of having something new. They don't put it towards investments. They use it to buy things that tend to lose value over time, but that they want now.

There are negative reinforcing feedback loops as well. When someone struggling to meet ends meet has an unexpected expense arise, such as automotive repairs, they use debt to finance it. They put it on a credit or borrow money from somewhere. But that borrowed money becomes debt that they owe. With debt comes responsibility to pay the money back with interest. So, the negative event turns into more debt. This makes it less likely that they have an emergency fund for the next unexpected expense. When that one hits, they rely on debt yet again.

There are even feedback loops that follow generations. When a wealthy family sends their children to school, they can afford the best schools available. That means that these children have an advantage. They get into better colleges because of their top-notch education. They get better jobs. Then, that generation can afford to send their children to better schools and the loop continues.

Patterns are Important Clues

These patterns are powerful. They give insight into the underlying systems. These systems are powerful. Some may argue that they are fair or unfair but from a systems perspective that doesn’t matter.

The systems exist. We can’t snap our fingers and change the world because we believe them to be unfair. But we can change ourselves to better align with the existing system.

It is like the principles of physics. If we wake up and decide that gravity is morally wrong, we can’t stop it from taking place. Gravity doesn’t exist because people got together and said it was a good idea.

If we don’t like centripetal motion, the system doesn’t care. It continues to behave according to the design of the system.

The systems around wealth are the same way. We might not like them. We might want them to be different. But they are what they are.

Control What You Can

From the feedback loop examples you can see that some feedback loops are within our control and some are not. We can’t go back and change our schooling. We can’t change the past and how we spent or saved money.

But we can change future behavior. We can see that the systems are set up and operate regardless of how we feel about them. We can break through the current limitations in our lives. But it likely takes a different mindset.

Wealth of Resources

There are plenty of books that discuss that exact idea. T. Harv Eker explains the mindset of millionaires in Secrets of the Millionaire Mind. Carl Richards talks about it in The Behavior Gap. Robert Kiyosaki presents his version in Rich Dad Poor Dad. Thomas Stanley wrote The Millionaire Next Door after studying the difference between millionaires and everyone else. George S. Clason wrote about it in The Richest Man in Babylon. Dave Ramsey explains how to break the debt feedback loop in Total Money Makeover.

The information exists. There are plenty of ways to start gaining the insight to better one’s financial position. It doesn’t mean you read a book and suddenly become a millionaire. But you will start to understand the systems around wealth. You will see the structures. You will witness the patterns.

Discipline Still Matters

It will still be difficult to be disciplined enough to follow the principles. There will still be instances of bad luck. Or, you will do all the right due diligence and things still won’t work out the way you intended.

But the key is that you finally understand the rules of the game you are forced to play. Instead of seeing the systems as fair or unfair you will realize that they are what they are. You can choose to work with them or fight against them. But fighting against them without first mastering them is a recipe for failure.

You may even realize that after seeing the systems, you don’t want to make the sacrifices necessary to be wealthy. You may just want to gain enough to give your children a better start. Or, you may just want to be able to retire. Or, you may realize that being in debt is making other people wealthy while keeping you from the life you deserve.

Learn to See and Use the Systems

The point is that the systems are the systems. If you are unhappy about something, learn how to operate within the systems to get what you want. This will set you free. It will give you the understanding to improve your life. It will allow you to reverse the negative feedback loops and change the balancing feedback loops holding you back. Then you can build positive feedback loops to take you towards the success and happiness that you deserve.

This is why the rich get richer. This is why the poor remain poor. Both groups keep going with the same feedback loops. It is just that one group has the systems and feedback loops working to help them grow their wealth over time. While the other group has those systems working against them.