The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko
The Millionaire Next Door is an old book, first published in 1996, with only the preface updated in 2010. (“The millionaire next door is still alive and kicking even today in this recession.”) Given the current slow recovery from our “Great Recession” and the hollowing out of the middle class, I thought it would be fun to read about how people amass unusual wealth.
I enjoyed the book and found the authors’ style easily drew me along in my reading. The book is based on surveys and face-to-face interviews with over 500 American millionaires. In addition to statistics there are case studies which add interest and a sense of the real people involved.
The authors feel that popular culture presents the wrong view of wealthy people. “Americans have no idea about the true inner workings of a wealthy household.” I can see why Hollywood avoids real life millionaires: they’re boring. “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.”
Stanley and Danko do not explicitly exam whether amassing wealth is “good”. But they note that millionaires have fewer fears and are more satisfied than those who live affluent lifestyles but save very little. Note that “affluent” means consuming a lot of stuff, while “wealthy” means owning a lot of assets. “Many people who live in expensive homes and drive luxury cars do not actually have much wealth.”
In general:
- Millionaires own their own businesses.
- Millionaires are self-made (though you are more likely to be a millionaire if your parents were.)
- Millionaires have only one marriage during their lives.
- Millionaires live in the same home for decades and keep the same car for many years.
- Millionaires live well below their means. “Frugal, frugal, frugal.”
- Millionaires do not chase after status and are more proud of their achievements than their possessions.
What really struck me as I read the book was the insight into raising children. While the book is never political, I could not help but wonder how these studies could help us craft successful social welfare programs.
The authors coin the phrase “economic outpatient care” to mean money given to adult children to support their living expenses and consumption. Millionaires seldom received much “EOC” from their parents.
Some economic subsidies for children, most commonly for a college education, lead to self-sufficient adults. But subsidizing living expenses (EOC) often leads to dependency, and even drives adult children into situations (like up-scale neighborhoods or private schools for the grandchildren) where they cannot support themselves. This does not mean parents can’t give money to their adult children and other heirs: Let them established themselves as competent adults before doing so.
A few caveats: the book deals mostly with adult children and only with healthy children. There is no discussion of children who, through illness for example, cannot be independent. I don’t think anything in the book argues that people, especially young children, should be allowed to starve. The authors discuss parents who give EOC so their adult children can maintain an affluent lifestyle, not so they can eat.
Given these caveats, I was reminded that in Jonathan Haidt’s book The Righteous Mind (http://bit.ly/1aFdtVs), he says that people, in their zeal to help others, often push for policies that weaken groups and actually hurt the people they are trying to help.
The Millionaires book makes me think that, for example, an increased minimum wage would be better for society than welfare. I’d rather pay more for my hamburger and nurture independent citizens than pay more taxes and nurture dependence. If you find this observation interesting, please read the book. You need to see the examples and statistics for yourself.
Returning to families rather than social policy, the authors offer much to consider. For example:
- Over 46% of affluent parents (who are usually not wealthy) give annual cash gifts (EOC) to children and grandchildren. Sometimes this continues through the “child’s” 40s and 50s.
- There are some fascinating exceptions to EOC creating dependent adults: Teachers are seldom made dependent by EOC from their parents.
- If you want your children to be financially independent, teach them to be frugal as they grow up by living a frugal lifestyle yourself.
- Children whose parents solve their problems for them or dominate their lives tend to lack confidence and become fearful.
- Don’t amplify a child’s weakness: if children show a personality-related weakness, a parent taking over that part of their life makes them weaker.
- Children (young and adult) who are sheltered from the economic realities of life become fearful about the future. One of those realities is that young adults starting out in life do not have the income and wealth their parents worked decades to achieve.
Despite its age, The Millionaire Next Door is still relevant. I recommend it.