I almost called this article: “The New York Times Gets the Valley… Wrong”, but I decided that there was both good & bad in the piece.
The article I’m referring to was the cover story of the New York Times, Sunday August 5th Edition:
The piece is designed to be inflammatory, like a lot of media pieces. It’s meant to get people to smack their heads and go, “My goodness, this is definitely in Bubble 2.0. How could people be so misguided to not be satisfied with millions of dollars!”.
Why can’t the Silicon Valley rat racers just kick back and enjoy their lives? As the article points out, many have contemplated moving “to a small town like Elko, NV and being a ski bum or to the middle of the country and living like a prince in a spacious McMansion in the nicest neighborhood in town.” But the need to reach the top of the wealth pyramid drives them to stay in their small houses, commute long hours to and from work, and put in 70 hour work weeks.
I’m pretty sure that’s exactly the reaction the New York Times piece was looking for. Too bad that is not actually reflective of what drives & motivates most of the people in the article or in Silicon Valley as a whole.
Dave Winer wrote this piece today, basically explaining that everyone in the Valley is after the almighty dollar, and that’s why he escaped to Berkeley. (As an aside, it’s an interesting implication that Berkeley isn’t part of Silicon Valley). Sorry, Dave. I’ve been reading your commentary since the early 1990’s, when I wrote my first Lasso scripts. But I think you were so eager to jump on your point here, you missed the actual truth behind the piece.
I guess I would be reacting a bit differently here if I didn’t have some personal insight here, but I do. Not only was I born & raised here in Silicon Valley, but I happen to have met the main character of the story. I don’t know him well, mind you, but my wife did work with his wife, and we even enjoyed a wonderful going away party at their house a few years ago. These are good people, solid people, with incredibly solid values. Painting them as some sort of money-hungry Silicon Valley spoiled brats who aren’t satisfied with a few million dollars is so far off-base as to be offensive. Now mind you, I don’t think the article actually did that. But it’s clear that the article was tilted to elicit that reaction.
But, to be generous, let’s start with what this article got right:
Real estate in Silicon Valley is expensive. Incomes here might be 50% higher than the national average, but housing prices are approximately 250% higher. The average home is over $780,000 now, and that’s not for some McMansion. That’s a pretty plain-vanilla, modest home. That’s more than 10x the average household income. I know I’m not going to get any sympathy from the New York, LA or Boston crowds here, but living costs are high. What’s more, that’s nothing compared to the prices of houses in good school districts.
Some people are always chasing the next “wealth” level. There are, in fact, people who are never satisfied. They want millions when they have hundreds of thousands, and they wants tens of millions when they have millions. I’ve worked with people before who were worth over $50M, but were aspiring for $100M+ where private jet ownership is realistic. These people are usually not from the Bay Area, and are rarely engineers, but they are definitely around. Fortunately, they are a relatively small minority.
A few million is not “Lifestyles of the Rich & Famous” by any stretch here. See above, but how can it be, when a fairly standard 2000 square foot house in Los Altos is over $1.5 Million? If you’ve read my other pieces about managing money in retirement, a “nest egg” of $2M might sound like a lot, but it really can only be reliably counted on for $80K – $100K of ongoing annual income. It likely guarantees a solid, middle-class lifestyle on an ongoing basis, and is something to be thankful for, to be sure. But it’s not an opulent Hollywood lifestyle by any stretch.
Now, a few thoughts on what this article go wrong:
Age matters when talking about wealth. A couple in their 20s and a couple in their 50s are in very different stages of their lives. When you talk about wealth, you can’t just compare stories from different age groups. A 20-year old with a couple million in the bank is in a very different situation than a 50-year old. Of course, both are in very good situations, but the 50-year old is likely thinking about whether or not they’ll be able to retire in 10 years in their current home, with their current lifestyle. A 20-year old has their whole career ahead of them, and likely sees the money as either a safety net or as a license to make career choices based on passion rather than money. The New York Times article throws together people from different age brackets, and thus yields misleading results. For the record, though, a 50-year old with $200K in income who is planning to retire in 15 years actually needs to have a couple million saved at that point to have a shot at maintaining their lifestyle in retirement.
Most people in Silicon Valley aren’t gunning for the next wealth level. This might be hard to believe, especially if you live in New York and you are used to seeing money in the hands of wealthy families, investment bankers, private equity partners, and hedge fund managers. But the truth is, most of the financially successful in Silicon Valley with a few million are likely engineers who worked for a company that grew tremendously in value. Thanks to the fact that Silicon Valley emphasizes a culture where employees are typically shareholders in their companies, sometimes your company grows in value 10x or even 100x or more in value. A stock option grant of 2000 shares in 1997 in Apple is now worth over $1 Million.
Most of the people who work for Silicon Valley firms are technical, and most technical people have spent a lot of time working long hours to earn degrees in engineering and the sciences. Most of these people cannot imagine anything more motivating that working on the cutting edge of technology, and creating new products and services that would have been impossible as recently as five years ago. That is the primary excitement and driver of so much of the innovation in Silicon Valley.
That is the reason why, in many cases, earning significant money, like the families in this article, doesn’t lead people to leave and rest of their laurels. In fact, for many, the money enables them to feel a little more secure about their families and their career choices. And that, ironically, it makes it easier for them to sign up to work even harder on the next opportunity.
That’s not true in all cases, of course. There are plenty of people who take their good fortune and build new lives in areas with lower costs, a slower pace, and more time. It’s common enough, but clearly not the majority case. There are also people who will never get enough, and are always looking for the next financial rung to climb. I feel like I met more of them when I was in venture capital than I do now, but they are certainly a visible minority.
Ironically, that type of drive is what makes costs in the Bay Area so high. Similar to Manhattan, you end up implicitly competing with these people for housing, services, and even restaurant prices.
Just to bring this rather length missive to a close, let me just say the following:
I recommend that people read the original New York Times piece. Despite the negative aspersions, there is a lot to be learned from a personal finance perspective by thinking about “what if” scenarios. I’ve posted here in the past about the notoriously terrible outcomes that await most lottery winners, professional athletes, and Hollywood stars who come into sudden fortunes.
Silicon Valley is no exception. People can make a lot of money here suddenly, with no real significant financial education or preparation for how to manage it. $1 Million is a lot of money, but spread over a lifetime it really doesn’t change a person’s financial position as much as you might think. In many ways, the people in Silicon Valley who make significant small fortunes and yet don’t let it fundamentally change their day-to-day lives are likely in a much better state of mind than those who treat their new found wealth like lottery winners.