Are You the Millionaire Next Door?
One piece of advice that has served me well, and I often repeat, is: “When what you see and what you hear are in conflict, believe what you see.” However, one area where that advice does not hold up is in judging how wealthy people are. We often see people who appear wealthy but are not, and vice versa. The book that really demonstrated this, with research, statistics, and stories, was Thomas Stanley and William Danko’s The Millionaire Next Door. The book’s major argument is that the vast majority of millionaires do not look or act like we would expect based on popular culture. They look more like your unassuming neighbor.
How do you define “Wealthy”?
Most Americans would define “wealthy” the same way as Webster’s dictionary: “people who have an abundance of material possessions.” It is hard to believe that most millionaires do not have fancy watches, sports cars, or extravagant homes. In a word, they are frugal, living on an average of 7% of their net worth. In other words, a household who has a net worth of $1 million, on average only spends $70,000 per year.
“These people cannot be millionaires! They don’t look like millionaires, they don’t dress like millionaires, they don’t eat like millionaires, they don’t act like millionaires—they don’t even have millionaire names. Where are the millionaires who look like millionaires?”
The person who said this was the trust officer of a bank who was hosting a dinner for ten first-generation millionaires. The trust officer had an expensive suit, an expensive watch, and a nice car. He was not a millionaire, but he thought he was looking the part. Naturally, he was surprised when the bank’s wealthy clients did not look the part.
Interesting facts and figures about the millionaire next door:
- About 8.8% of American adults are millionaires. Most of them—about 95%, have between $1 million and $5 million.
- More millionaires identify as Republican 38%, Democrat 30%, and Independent 29% according to a 2014 survey.
- Many do not drive luxury cars. The top 5 brands driven by millionaire households are Toyota, Ford, Honda, Lexus and Subaru. In addition, cars are typically not current model year and are rarely leased.
- 86% are married and typically (65% in their first marriage).
- 88% have college degrees. (Note: only 33% of U.S. adults have graduated college)
- 97% are homeowners and have (on average) lived in the same home for more than 20 years.
- 80% are first generation rich and self-made. Less than 20% inherited significant money (10% or more of their wealth).
- Most millionaires who own their own businesses are in dull, low-tech businesses, such as construction trades, auctioneers, farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, etc.
- On average, they save/invest 20% of their realized household income.
- The highest concentration of millionaire households (in order) live in 1) New Jersey, 2) Maryland, 3) Connecticut, 4) Massachusetts, and 5) Hawaii
- There are approximately 22 million households with a networth of over $1 million, 1.45 million households with a networth above $10 million, and around 90,000 that have a networth of at least $50 million.
- Also, in case you are wondering, to be in the top 1% of income, you need to earn approximately $600k per year, and to be the top 1% in terms of accumulated wealth (networth) you need approximately $11 million.
Still the land of opportunity:
I find the truth about “the millionaire next door” to be much more motivating and inspiring than the myth. The myth is that most wealthy Americans inherited their money, or had a large windfall (e.g., stock options). The fact is America is still the land of opportunity, where poor people can (and do) go from having nothing to significant wealth. Many hard-working Americans create life-changing opportunities for their children and grandchildren through hard work, systematic saving, and investing. We celebrate it, write movies about it, and our libraries are full of books about it.
So, if you are the millionaire next door, I applaud you! And even if you are not…let’s still be friends.
Have a great week.