Just finished The Millionaire Next Door, an interesting book about a study done to find the “average” millionaire. The authors (Thomas Stanley and William Danko) set out to discover what the average millionaire really looks like, as opposed to the opulent playboys that the media tells us they are. Their findings reinforce the good, old-fashioned qualities of frugality, hard work, responsibility and fidelity.

Here are a few of the (more interesting) attributes the authors list as a “portrait” of the average millionaire:

• A 57 year-old male, married with three children. About 70% of them earn 80% or more of their household’s income.
• About 20% are retired, and of the working, 2/3 are self-employed.
• Many of their businesses could be classified as dull or normal: contractors, rice farmers, owners of mobile-home parks, owners of janitorial services, pest controllers, coin and stamp dealers.
• Their total annual realized income is less than 7% of their wealth (net worth), meaning that they live on less than 7% of their wealth. (Now that’s frugal!)
• About 80% are first-generation affluent (self-made millionaires, not inheritors of wealth).
• Only 17% of them ever attended private elementary or high school, but 55% of their children do.

The book contains many more generalizations about the wealthy, but these were some that I found most interesting. I thought that many of the millionaires would be in flashy sectors of the economy, such as lawyers, physicians, stock brokers and the like. But they aren’t. (This study was done in 1996, so some of the data may have changed since then.) In fact, the authors call these types under-accumulators of wealth because they should be wealthy (high-income) but for some reason they aren’t.

The main reason the authors found for the under-accumulation of wealth in these high-earners is that they don’t play good defense. They earn lots (good offense) and they spend lots (bad defense). Why do people in flashier occupations spend more than the millionaires in dull sectors? Because it’s part of the image that comes with their occupation. To be seen as a successful lawyer, they have to have a large house. If they have a large house they have to have nice cars to park in front of it. If they live in a nice neighborhood then their neighbors send their kids to private school, so they have to send theirs as well. Their employment creates a cycle and culture of consumption.

The truly rich, those who play a good offense (high income) as well as a good defense (frugal, thrifty) are often business owners in dull sectors. Being in these less-flashy markets, their peers are less flashy. The owner of a janitorial service does not have to wear a $3,000 suit to work. In fact, if he did, many of his employees might feel he is not paying them enough or that he is a “snob” of a boss. It will have the opposite effect for his image because he is in a blue-collar environment.

Interesting stuff, and very different from what the media tells us about the wealthy.

Tags: average millionaire, Millionaire Next Door, Thomas Stanley

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