Are the Rich Smarter Than You?
by Alexander Green, Investment U’s Chief Investment Strategist
Friday, June 29, 2012: Issue #1805
Growing up, when I got into an argument with my mother, she would sometimes resort to the nuclear option, her tried-and-true conversation stopper.
Putting her hands on her hips and using the worst faux Southern accent imaginable, she’d say, “Well if you’re so damn smart, why aren’t you rich?”
I never knew how to respond to this. Of course, I was 12 at the time and the deadbeats on my paper route kept margins low. Still, it ingrained in me the notion that the rich must have a little something extra going on upstairs, otherwise we’d all be rolling in it. Right?
There is, in fact, some evidence to support this. According to a recent report from the U.S. Census Bureau, there is a strong positive correlation between income and education. Over an adult’s working life, on average…
- High school graduates should expect to earn $1.2 million;
- Those with a bachelor’s degree, $2.1 million;
- Those with a master’s degree, $2.5 million;
- Those with doctoral degrees, $3.4 million;
- And those with professional degrees, $4.4 million.
But here’s the rub. Studies show that those who earn the most aren’t necessarily the richest…
How to Determine Real Wealth
To determine real wealth, you need to look at a balance sheet – assets minus liabilities – not an income statement. Just ask Dr. Thomas J. Stanley, the bestselling author of The Millionaire Next Door and perhaps the country’s foremost authority on the habits and characteristics of America’s wealthy. Many of his findings are just the opposite of what you’d expect.
For example, we generally envision millionaires as Bentley-driving, mansion-owning, Tiffany-shopping members of exclusive country clubs. And, indeed, Stanley’s research reveals that the “glittering rich” – those with a net worth of $10 million or more – often meet this description.
But most millionaires – individuals with a net worth of $1 million or more – live an entirely different lifestyle. Stanley found that the vast majority:
- Live in a house that cost less than $400,000.
- Do not own a second home.
- Have never owned a boat.
- Are more likely to wear a Timex than a Rolex.
- Do not collect wine and generally pay less than $15 for a bottle.
- Are more likely to drive a Toyota than a Beemer.
- Have never paid more than $400 for a suit.
- Spend very little on prestige brands and luxury items.
This is certainly not the traditional image of millionaires. And it makes you wonder, who the heck is buying all those Mercedes convertibles, Louis Vuitton purses and $60-bottles of Grey Goose vodka? The answer, according to Dr. Stanley, is “aspirationals,” people who act rich, want to be rich, but really aren’t rich.
Many are good people, well-educated and perhaps earning a six-figure income. But they aren’t balance-sheet rich because it’s almost impossible for most workers – even those who are well paid – to hyper-spend on consumer goods and save a lot of money. (And saving is the key prerequisite for investing.)
This notion shocks many Americans. Dr. Stanley recalls an appearance on Oprah when a member of the audience asked the question, one he’s heard hundreds of times before:
“What good does it do to have all this money if you don’t spend it?”
She was angry, indignant even. “These people couldn’t possibly be happy.”
Keeping Up With the Joneses and Smiths
Like so many others, this woman genuinely believed that the more you spend, the better life is. Understand, we’re not talking about people who live below the poverty line. (Clearly, their lives would be better if they were able to spend more.) We’re talking about middle-class consumers and up, those who often live beyond their means and then find themselves under enormous pressure, especially in a weak economy.
Some were overly optimistic about their earning prospects. Others didn’t realize that they are up against an army of the best and most creative marketers in the world, whose job it is to convince you that “you are what you buy,” that you need to outspend – to out-display – others. The unspoken message behind the constant barrage of TV and billboard ads featuring all those impossibly good-looking men and women is that you are special, you are deserving, and you need to look and act successful now.
According to Dr. Stanley, “The pseudo-affluent are insecure about how they rank among the Joneses and the Smiths. Often their self-esteem rests on quicksand. In their minds, it is closely tied to how long they can continue to purchase the trappings of wealth. They strongly believe all economically successful people display their success through prestige products. The flip side of this has them believing that people who do not own prestige brands are not successful.”
Yet “everyday” millionaires see things differently. Most of them achieved their wealth not by hitting the lottery or gaining an inheritance, but by patiently and persistently maximizing their income, minimizing their outgoing and religiously saving and investing the difference.
You Aren’t the Car You Drive or the Watch You Wear…
They aren’t big spenders. They just recognize that real pleasure and satisfaction don’t come from the car you drive or the watch you wear, but time spent in activities with family, friends and associates.
They aren’t misers however, especially when it comes to educating their children and grandchildren – or donating to worthy causes. Although they are disciplined savers, the affluent are among the most generous Americans in charitable giving.
Just how prevalent are American millionaires? According to the Spectrum Group, there were 6.7 million U.S. households with a net worth of at least $1 million at the end of 2009. Very few of them won a Grammy, played in the NBA, or started a computer company in their garage. Clearly, thrift and modesty – however unfashionable – are still alive in some parts of the country.
So while millions of consumers chase a blinkered image of success – busting their humps for stuff that ends up in landfills, yard sales and thrift shops – disciplined savers and investors are enjoying the freedom, satisfaction and peace of mind that comes from living beneath their means.
These folks are turned on not by consumerism but by personal achievement, industry awards, and recognition. They know that success is not about flaunting your wealth. It’s about a sense of accomplishment… and the independence that comes with it. They are able to do what they want, where they want, with whom they want.
They may not be smarter than you, but they do know something priceless: It is how we spend ourselves – not our money – that makes us rich.
Good Investing,
Alexander Green
Editor’s Note: This column was excerpted from Beyond Wealth: The Road Map to a Rich Life, by Investment U and Oxford Club Investment Director Alexander Green.
The book – endorsed by Pulitzer Prize-winner Daniel Walker Howe and Whole Foods Founder and CEO John Mackey – is a fascinating exploration of the intersection between money, personal fulfillment and successful living. Beyond Wealth is available at bookstores nationwide. Or you pick up a copy from Amazon here.
Are the Rich Smarter Than You?,Any investment contains risk. Please see our disclaimer.
23 Responses to “Are the Rich Smarter Than You?”
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This is an article that certainly rings my chimes. To me, being successful isn’t so much what I have, but how I must treat what I have. In other words, having no debt frees me to decide for myself what the best use is for my resources. When I was burdened with debt, there was no doubt about the disposition of my paycheck — it went mostly to other people, leaving me too little to get by. Sacrificing for a time, putting off buying some things I could really have used, has freed me to give to my favorite causes, help my kids get out of debt, and still indulge myself occasionally. Thanks again for the article!
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I would like to post this article on my website listed above.
Is that possible?
Thank you,
Wayne Flaherty
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Wayne,
Feel free to post this article to your website, we only ask that you link back to the original somewhere in the article.
Thank you,
Investment U
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This article brilliantly sums up the thinking of like minded individuals who understand what financial freedom is. Invariably, it is the blowhards and spendthrifts that believe they are impressing others. However, in the end they are nothing more than “wannabes”, living month to month under crushing debt while simultaneously ridiculing those of us enjoying that financial freedom. One other point, many of the whiners out there are the same people that refuse to take responsibility for their own actions. P.S. I was using coupons when it wasn’t chic.
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Great article! Reminds me of J.Paul Getty’s book I read as a young man. Many of the same precepts in a new and improved presentation. Congratulations to Alex on this important new book!
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Good article!
Surprising that it had the true value and responsive attitude that it did.
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Good synopsis. I landed in Noth America with $40 in my pocket (mind you it was a “while ago”) Today I do belong to the 6.7 million mentioned and still wear jeans and checkered shirts (by choice). I truly believe that the only “worth” one should be compelled to prove is the “self-worth”.
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I used to live in America some years ego, my experience tells me it is still a good place to live in. Many thanks to Alexander Green from the other side of the Atlantic for his optimism .God bless You !
Don’t let socialists ruin your country,you are next on the list.
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Alex, your mother was a smart woman who used smart lessons to teach you with. I am staring age 71 in the face and am not a millionaire. I am confident I could have been had I started a proper saving plan earlier in life. I retired at age 70 and didn’t start saving in earnest until I was 58.
Far too many Americans have the wrong ideas about money. The lessons of how to make money work for us instead of us working for money is not that difficult if we learn them early enough. This clip from your book is very inspirational and I am going to sit down with my grandson and make him read it in front of me and we are going to discuss it. While it is too late for me, it is not for him. Thanks for the common sense wisdom.
Jim Nelson
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Mr. Green,
I am curious as to where you were raised. I’m born and raised in Kokomo,Indiana, and my mother hit me with that “if you’re so smart….” line innumerable times. Anytime I would use the phrase, ” I wish we had…”, my father would invariably reply, “Wish in one hand and s..t in the other and see which one gets full the quickest.” Pretty good advice. By the way, except for the $400 suits, your list of qualities of millionaire pretty much describes me. I have always enjoyed your approach to money. Please keep it up.
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I learned my frugal ways going to college on the GI bill. After a stint with Uncle Sam, some things that most consider bare bones feel like luxuries.
- Live in a house that cost less than $400,000.
$30,000 in 1978 – mortgage paid off long ago
- Do not own a second home.
True, but looking to buy a retirement place in Florida (no state income tax when it’s time to tap the IRA) during the dip.
- Have never owned a boat.
True – a boat is how you cross a body of water too wide for a bridge and too narrow for a plane
- Are more likely to wear a Timex than a Rolex.
Right on – it keeps accurate time and has a stopwatch and alarm when needed.
- Do not collect wine and generally pay less than $15 for a bottle.
Almost. A 92-rated Stag’s Leap Cab can be had for $19.99
- Are more likely to drive a Toyota than a Beemer.
One indulgence – my 1997 BMW is well maintained and should be good for another 100,000 miles
- Have never paid more than $400 for a suit.
Make that $200
- Spend very little on prestige brands and luxury items.
“Fashion” means it is not durable enough to last more than one season.
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This was a very nice and well written article. The last line says it best: “It is how we spend ourselves – not our money – that makes us rich.”
It’s unfortunate that the doomsters with the their tales of impending disaster, mostly rooted in fear and self-interest, can’t write something as useful as this.
Regards
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I do not think the rich are smarter. It is what they think that make them rich. If you think like the rich and behave like the rich, you will also be wealthy.
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I think this article is an eye opener. I became an instant fan of Mr Green’s writings the moment I read his wonderful article “Stock Market Investment Advice”. This time his advice concerns living one’s life fully. I shall grab his latest book “Beyond Wealth: The Road map to a Rich Life” as soon as it is available in Dhaka, Bangladesh.
I respect and admire his sincerity that can be felt while reading his articles. I wish he continues his contributions toward humanity, particularly for the common people of the world.
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good points, all… Only, an expensive education at a top school, or high-priced ivy – imitator school, of which there are many, does not produce a genuinely educated person for the last few decades. The curriculum has been greatly debased and those who uphold genuine quality in libearl arts are marginalized or used for a few years and discarded.
To save you have to have a position. Being a great teacher, not a panderer, a great generator and supporter of meaningful discussion of texts, is not a way to succeed at any level of postmodern academia.
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Mr. Green, I have followed you for a long time in the advertising for the Oxford Club, and was at one time a member. As you are now financial director of Oxford, I do believew you have the answer to your mother’s question —-”If you’re SO smart why ain’ you rich?????”
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Mr. Green,
I have always valued your advice. I enjoy them.Born in Indonesia and migrated to the Netherlands first then to the US it has been a very intersting experience that no money can buy. Sad to say though I am not a millionaire yet. But well on my way at 73 years of age. It’s never too late even after 2 full degrees and almost a 3rd one. I almost reached the 1 million, but it all swam away in the mess of 2008. Retired and widowed I’m not giving up.
All of you who have written in thank you for your insights and you Mr. Green think of me on my journey.
Regards,
Geraldina Howell
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Bought first new vehicle 1974, gave it to one of my kids 23 years later. Have driven 2 other vehicles over 250k miles. Bought home 30k 1976 still live there. Retired @ 61 after 28 yrs. as a heavy industrial mechanic. Never earned 6 figures; and yes I am one of the 6.7 million. It is possible!
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Alex,
Right on!!!
I am one of the 3.6 million folks and I never made over $50k/yr.
(I drive a 2002 Ford Ranger and don’t wear a watch.)
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Sorry, that’s 6.7 million
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Although, as I discovered recently while applying for a mortgage loan, my net worth is right on $1 mil mark, I do whatever Alexander Green said millioners usually do (exactly my approach), except that I am driving 2004 Lexus. I have other properties but not as a second home – it would be a waste. I’d rather put the tenants there to generate add-on income.
I do subscribe to Oxford Club exclusively ONLY because of my respect to Alexander Green’s wisdom.
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you seem to be confusing education with intelligence. (george dubya bush is a graduate of an ivy league school) my brother had his iq tested at age ten and i don’t remember the exact number since this was over 40 years ago, but i know it was over 160. he would often be sent to the principals office to be paddled for things like arguing with the science teacher about how eggs (as in chicken eggs that you buy at the grocery) are just a single cell. the “educated” teacher would make snide comments about how silly my brother was for thinking that such a large thing could be one cell.
the ability to deduce cannot be purchased
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There’s one problem with this analysis: having a million dollars might have made you rich seventy years ago, but now it’s barely enough to retire on.
Today with a hundred million you’re just starting to be rich.
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