THE MILLIONAIRE NEXT DOOR
Surprising Secrets of America's Wealthy
One of the best books I’ve read in years. Now it makes sense why wealth accumulators hardly last for a next generation.
12 Jun 2021
Many people who display a high-consumption lifestyle have little or no investments, appreciable assets, income-producing assets, common stocks, bonds, private businesses, oil/gas rights, or timber land. Conversely, those people whom we define as being wealthy get much more pleasure from owning substantial amounts of appreciable assets than from displaying a high-consumption lifestyle.
Victor’s well-educated adult children have learned that a high level of consumption is expected of people who spend many years in college and professional schools. Today his children are under accumulators of wealth. They are the opposite of their father, the blue-collar, successful business owner. His children have become Americanized. They are part of the high-consuming, employment-postponing generation. How many
Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.
Wealth is rarely gained through the lottery, with a home run, or in quiz show fashion. But these are the rare jackpots that the press sensationalizes.
The popular media enjoy touting abnormalities in buying behavior. As a consequence, our youth are told that buying expensive items is normal behavior for affluent people. They are led to believe that the wealthy have a high-consumption lifestyle. They learn that hyperspending is the main reward for becoming affluent in America.
Most millionaires measure their success by their net worth, not by their realized income. For the purposes of wealth building, income doesn’t matter that much. Once you’re in a high-income bracket, say $100,000 or $200,000 or more, it matters less how much more you make than what you do with what you already have.
It’s easier to accumulate wealth if you don’t live in a high-status neighborhood.
Parents should not suggest that their children drop out of college and start a business. Most businesses fail within a few years of their conception. Only a small minority of business owners ever earns a six-figure income. But those who do tend to accumulate more wealth than others in the same income cohort.
Another reason very well-educated people tend to lag behind on the wealth scale has to do with the status ascribed to them by society. Doctors, as well as others with advanced degrees, are expected to play their parts.
A household divided in its financial orientation is unlikely to accumulate significant wealth.
There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future.
Having adult children who are UAWs greatly reduces the probability that their parents will ever become wealthy!
If you acquire one status product, you will likely have to purchase others to fill up the socially conspicuous puzzle. Before long, your entire lifestyle will have changed.
In general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.
Conversely, what is the effect of cash gifts that are knowingly earmarked for consumption and the propping up of a certain lifestyle? We find that the giving of such gifts is the single most significant factor that explains lack of productivity among the adult children of the affluent. All too often such “temporary” gifts affect the recipient’s psyche. Cash gifts earmarked for consumption dampen one’s initiative and productivity. They become habit forming. These gifts then must be extended throughout most of the recipient’s life.
Gift receivers … the adult children of the affluent feel that their parents’ wealth/capital is their income … income to be spent.
One of the main reasons gift receivers typically think of themselves as being financially well-off is because they receive parental subsidies. And people who think they are financially well-off tend to spend. In fact, statistically they are just as likely to view themselves as being affluent as are truly affluent non-gift receivers.
Adult children who receive cash gifts are more likely than other adult children to live in anticipation of the sizable inheritance eventually coming their way.
Teachers and professors who receive gifts appear to remain as frugal or even more so than those who receive no gifts. They are much more likely to save and invest the money they receive as gifts than are gift receivers in other occupational categories.
What can you give your children to enhance the probability that they will become economically productive adults? In addition to an education, create an environment that honors independent thoughts and deeds, cherishes individual achievements, and rewards responsibility and leadership. Yes, the best things in life are often free. Teach your own to live on their own. It’s much less costly financially, and, in the long run, it is in the best interests of both the children and their parents.
Courage can be developed. But it cannot be nurtured in an environment that eliminates all risks, all difficulty, all dangers.
Parents with nonworking adult daughters and “temporarily” unemployed adult sons have a high propensity to provide these children with heavy doses of economic outpatient care (EOC). These children are also likely to receive a disproportionately large portion of their parents’ estates.
It is not unusual for the Type B housewife in her mid-fifties to still be receiving cash subsidies from her parents.
The Type A housewife differs significantly from her Type B counterpart. Type As tend to marry high-income-producing, successful men. They tend to take leadership roles in caring for their elderly, sometimes disabled, parents. The gifts and inheritance they tend to receive are, in part, compensation for these efforts—efforts their working brothers and sisters are more likely to shy away from.
Type A housewives receive substantial cash gifts throughout the early and middle stages of their lives, often from the time they are married. Later, gifts are associated with the purchase of a home and, in some situations, the purchase of investment real estate.
Affluent parents feel rather strongly that women, even working women, must have “money of their own.” They also contend that their sons-in-law “can never be fully trusted … to remain loyal … [to] support [and] protect” their daughters. Actually, the affluent are rather perceptive in this regard.
The “father works, the mother mothers and does everything else for her family” system is very often copied by the female products of such marriages. Many affluent parents actually encourage their daughters not to work, not to have their own careers, and not to be economically and psychologically independent. Affluent parents instill this “dependence” characteristic in their daughters over time with subtle cues.
Many unemployed middle-aged sons and daughters receive direct cash subsidies, often annually. Further, the incidence of unemployment is associated with larger and more frequent gifts. These adult children are also more likely than their brothers and sisters who are employed to receive inheritances in the form of personal real estate.
“Attorney relatives” typically advise their affluent parents on how to minimize estate taxes via annual gift giving to the children and grandchildren. Thus, the mere presence of a son or daughter who is an attorney increases the probability that all the children in the family will receive substantial cash gifts from their parents.
Never tell children that their parents are wealthy.
No matter how wealthy you are, teach your children discipline and frugality.
Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession.
Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
Stay out of your adult children’s family matters.
This same millionaire never wanted any of his children to be entrepreneurs. And, in reality, most of the children of the affluent never do become business owners. Money is second or third on their list of goals and achievements.
The affluent, especially the self-made affluent, are frugal and price-sensitive concerning many consumer products and services. But they are not nearly as price-sensitive when it comes to purchasing investment advice and services, accounting services, tax advice, legal services, medical and dental care for themselves and family members, educational products, and homes.
The affluent are not at all frugal when it comes to buying products and services for their children and grandchildren. Nor are the children of the affluent frugal when itcomes to spending the substantial gifts of cash that their parents and grandparents give them.
The character of the business owner is more important in predicting his level of wealth than the classification of his business.
Most affluent parents believe that the lifetime benefits associated with being a professional greatly outweigh the costs.