Few stories grip your attention quite as strongly as those that involve someone with a relative lack of advantage rising up and surpassing another that did, in fact, have superior advantages. Aesop covered it. Shakespeare covered it. F. Scott Fitzgerald covered it. A hundred years from now, stories will cover it.
With that narrative arc in mind, I have begun studying how the families of Korean immigrants, with next to no capital and the extreme social disadvantage of not having a strong command of the English language, arrive in the United States with nothing and die with fortunes estimated worth millions of dollars. What are they doing that a native-born American, born into a middle-class family, that dies with an average amount of $164,000 to his name, does not?
Based on my studies, with a particular emphasis on Korean immigrant wealth formation that began in the 1970s, there are three common characteristics that can explain their outperformance:
First, they tend to have an ownership stake in their own businesses. This is significant because it means that, when profits go up, so does the wealth that they create. If an employee earning $50,000 per year creates profits of $350,000 or $400,000, that original wealth or that extra value created does not immediately (or necessarily ever) accrue to him. But if you manage and own your business that grows profits from $5,000 per month to $7,000 per month, you immediately accrue that advantage. It all goes to you.
Secondly, there is a strong culture of anti-materialism that enables these profits to stick to the household’s balance sheet rather than get shipped out to consumer brands, banks and credit card companies, and so on. I could not find comprehensive data points on this issue, but I could find singular data points—the average American spends $18,000 on a car, whereas the average Korean spends about $9,200. The average American spends about $192,000 on a house, whereas the average Korean spends $143,000. These advantages compound, in that cars and houses require regular insurance and tax payments, and this cost advantage is unlikely to be limited to cars and houses.
This higher earning, lower spending lifestyle means that there is a monthly surplus leftover. My conclusion, based on reading Ivan Light and Edna Bonacich’s book “Immigrant Entrepreneurs: Koreans in Los Angeles” is that successful Koreans would relentlessly apply the same formula again and again, if it was successful. Buy a laundromat earning $50,000 and grow profits to $100,000? Save up, then buy another laundromat earning $50,000 and grow profits to $100,000. Next step? Save up, then buy another laundromat earning $50,000 and grow profits to $100,000.
Get fatigued reading the repetition of that last paragraph? Imagine actually spending your life repeating the exact same sequence again and again. But what the strategy lacks in excitement it makes up for in cold, hard cash. Creativity, complexity, ingenuity may or may not result in additional wealth—it is certainly not a prerequisite for doing so.
By assuming that a single proven strategy for success could be replicated over and over again, someone running a laundromat earning $50,000 could end their life with 30 laundromats earning $100,000 at each location, or $3 million in total profits per year, by the end of a lifetime. The execution of these three elements are the common threat that explain the wildly successful arc that many Korean immigrants experience over the course of a single lifetime. The fascinating cliffhanger is that the children of these individuals often eschew the clearly successful strategy of their parents and instead pursue white-collar jobs that result in comfortable financial lives but not quite as lucrative as what they grow up surrounded by day in and day out.