Higher returns are usually associated with risks and imho. one of the main reasons we have limited social mobility is the inability of poor people to take risks and people born into money taking risks.
There's risk as measured by volatility. This is exemplified by the stock market - it's highly volatile, but has a higher expected return than the bond market. People who can't afford the risk of the stock market (because it's too volatile) put their money into the bond market, which has less expected returns.
There's risk of not meeting your retirement goals. There's risk of unemployment. There's risk of permanent loss of investment. There's risk that you can hedge with insurance.
> rich people there is very minimal risk since they usually have a safety net to fall back on.
Rich people have minimal _overall_ risk because they can afford to take large risky bets with positive expected return. This is because they have so much capital they can afford to take these bets over and over until the reward arrives (Kelly criterion). Poor people can't afford the risk, and therefore have to do things like pay for more insurance coverage, pay for extra warranty, or have a (relatively) large emergency fund.
Suppose that you're offered an opportunity to bet $10 with a 90% chance of $0 return and 10% chance of $1,000. That's a good bet, especially if you can keep making it. Put $100 at risk and you've got a reasonable chance of ending up with $1000.
Now let's multiply all of the dollars by 1,000. The numbers still work, but how many people can afford to put $100k into 10 bets? There are far more people who can afford to lose $10 than there are people who can afford to lose $10k.
For the poor there are scarcely any opportunities, because they can't afford to take risks. For the rich however there are less opportunities to learn from mistakes, because of the lack of consequences.
This is why the middle class is important, the lower class is usually pinned down by reality, and the upper class is hardly affected by it. Neither is a healthy relationship with reality.
Citation needed there. Even though it's not as bad as homelessness, I can't imagine it being easy to tell your rich, successful parents that their child is a fuckup.
- a wrecked sports car because of carelessness when I was young with more dollars than sense.
- they never complained about me being a graduate school dropout.
- a dumb first marriage and a financially draining divorce
- a side real estate business that ended around 2010 (do I need to explain?)
This was all before I turned 35. I got better. I would have been in far worse shape if it weren’t for them.
That's a lot more to risk than a few months of savings.
I've worked a lot as a teenager, and amassed a modest sum. It allowed me to take a lot of risks, even after I moved out.
It allowed me to go freelance and wait a long time to get paid. It allowed me not to work in university. It allowed me to easily relocate to another country.
A decade later, this cushion has compounded many times and funded many more risks that paid off.
Without those savings, I would have taken many more conservative decisions that would have left me in a very different situation.