I have heard many great things about this book so I was very excited to receive this book when I won a giveaway on another fellow blogger’s site (LIFE HACK alert: If you usually never ever win anything, try entering giveaways from bloggers! I never win anything and I have won about four books in the past one and a half years).
This book is an easy read (finished it in about 5 hours) and is a real page turner (perhaps more so than that psychological thriller book on your nightstand). The authors have studied the spending habits, background, and savings and investments of America’s wealthy for two decades, and what they found out is more surprising than you would think. America’s millionaires do not drive expensive luxury cars, nor do they were expensive Rolex watches (more like Timex!). They do not shop at Saks 5th Avenue, they shop at Sears and JC Penney. They are not the lawyers, doctors, or other prestigious professions, they are the small business owners. They do not hold 30% of their portfolio in stocks, they only hold about 20%.
In this book, they start off by giving the reader a baseline of wealthiness- are you a UAW (under accumulator of wealth) or a PAW (prodigious accumulator of wealth)?
Here’s how to tell if you are wealthy:
“Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This less any inherited wealth, is what your net worth should be”.
(I calculated- and I am not wealthy for my age- I am about $50,000 away from being wealthy.)
They then go on to talk about the differences between UAW’s and PAW’s. Those with prestigious job titles, the doctors, lawyers, and those who live in fancy neighbourhoods, tend to feel the need to keep up with the Jones’ and spend money to keep up this lifestyle accordingly. They are often UAW’s and not as wealthy as you might think.
The authors detailed seven factors that more likely lead to wealth accumulation:
- The wealthy live below their means
- They allocate their time, energy, and money efficiently, in ways conducive to building wealth
- They believe that financial independence is more important that showing off high social status
- Their parents did not dole out money to them aka “economic outpatient care”
- Their adult children are economically self-sufficient
- They are proficient in targeting market opportunities
- They choose the right occupation
One of the messages that really “hit home” for me was the idea of economic outpatient care. The affluent parents giving out money to their children, making sure they lead a good life, go to a good school, and not have to worry about money. Yet these actions are actual counter-beneficial. Those that are not economically self-sufficient come to depend upon their affluent parents because they are accustomed to their current living standards. The say that the gift receivers (adult children expecting handouts from their parents) do not distinguish between the wealth of their affluent parents and their own personal wealth, they establish a “what’s yours is mine” mentality when it comes to their parents wealth. Unfortunately, this can also lead to bitter battles of inheritance between siblings. This is probably one of the main reasons why Warren Buffett has declared that he will not give his children any of his 62 billion dollar estate–– and his children are fine with that, and wholeheartedly agree that Warren Buffett is making a good decision to not distribute his wealth to his children.
The authors go on to share a story of a father with two daughters- one who left home and refused to comply to her father’s vision of both daughters marrying “good husbands” and just bearing children and not working for themselves. One daughter went off to start her own business and became very successful and the other daughter stayed close to her father and continued to receive monetary assistance from him (in a sort of co-dependent sort of way) until his death. I think this idea of economic outpatient care is very prevalent in the generation Y. Take for example, my sheltered sisters. My parents didn’t want them to stray from studying well at school, so they did not encourage them to get jobs while in high school. I on the other hand, started working a few months before it was even legal to work in Canada. I am much more advanced in terms of investing my money and saving my money, whereas my sisters are unfortunately not. They are starting to learn though through baby steps- I got one of them a high interest savings account with ING.
In conclusion, I would definitely recommend this book. It’s not “preachy” at all (doesn’t tell you to go do this or that, or save 40% of your pretax income or anything like that), but it offers an objective glimpse into the lives of America’s wealthy and you can choose to emulate them or not.
Readers: Have any of you read The Millionaire Next Door? What did you think of it? Do you agree that children of affluent parents should not expect a hand-out from the ‘rents? Do you think Generation Y is dependent upon economic outpatient care?