Borrowing Shoes to look Rich
In 1888, in Curacao, a Dutch Caribbean island, A bridge was built to connect two parts of the city. A toll tax was proposed but officials wanted it to be a “progressive” tax. So, they decided rich people will pay more to cross the bridge.
So how to identify rich and poor quickly?
They had an idea, rich people wear shoes (its 1888, remember), so they decided to charge a tax based on that. If anyone cross the bridge wearing shoes, he pays a tax, but if he is barefoot, he can cross the bridge for free. This format was Simple, Easy and Brilliant idea… But it failed miserably.
Why? What happened to this progressive idea? A good learning here, the rich always wanted to avoid tax so they simply took off their shoes and crossed the bridge. Paid no tax.
While the poor did not want to be seen as poor. They wanted to show off their status by crossing the bridge wearing shoes, so they wore shoes by buying it or borrowed the shoes to cross the bridge.
The lesson is… Rich stay rich by awareness on cash outflow. Poor stays poor by spending more. Interestingly even in today’s time, we find humans are irrational in spending habits.
The entire behavior is called Hyperbolic Discounting…
Those who are not Rich still wants to show their status to the world. They live by one line ‘Live as if no tomorrow’. They reward their own selves on instantaneous and short term achievements. This zest keep them in a trap of continued borrowing stuff which they actually don’t need.
While Rich people have thought process based on vision and wisdom. They only think of long term and think about their tomorrow irrespective of their social status. This behavioural psychology is the key of successful investor.
Are we wanted to be a rich & wealthy through investments or a person who just “borrows shoes” to cross any “bridge?”
Nishit Siddharth Shah