My copy was a fourth printing, published in 1997. Although statistics have changed, the principles the book promotes continue to rest easily on the conscience. The authors, Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D., begin by saying, “Most people have it all wrong. It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes. Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and most of all, self-discipline.”
The authors contrast wealth and income. A key point of the book is that some big earners are also big spenders; consequently, they do not necessarily have much wealth. The authors create three classifications of people: PAWs, UAWs, and AAWs, the initials standing for prodigious, under, and average accumulators of wealth. Teachers, firemen, and others government holds up for workforce subsidy, have become millionaires. In fact, in 1997, over 80 percent of millionaires were first-generation. The same was true in 1892.
Wealth is attained by trading off other things, like leisure time, friendships, and parties. The authors admit wealth may not be the end-all and be-all for everybody. Different strokes for different folks. However, anybody wanting to be a millionaire and stay that way long enough to leave something to the kids, would be advised to make certain choices.
The book is a compilation of twenty years of research. The authors interviewed, surveyed, and conducted focus groups with over 500 millionaires and 11,000 high-income persons. “What have we discovered in all our research? Mainly, that building wealth takes discipline, sacrifice, and hard work.” In answer to the obvious question, why the authors aren’t millionaires, they suggest spending so many of their productive years getting advanced degrees might have had something to do with it.
One key finding is that millionaires live well below their means. They live in more middleclass neighborhoods, buy discount suits and shoes, wear affordable watches, and typically don’t drive new cars. They let somebody else take the steep depreciation for them. They don’t buy much on credit, and the credit cards they own are more likely to be from JC Penney and Sears than Bloomingdale’s and Nordstrom.
“Lifestyles of the rich and famous” are more typical of high-income UAW’s. The authors observe, “The press loves to tout freaks of both nature and economics.” They tell how Don King, the boxing promoter with the big hair, made headlines by spending $64,100 on 110 pairs of shoes from one store in one day. They contrast this to the boring lifestyles of millionaires.
They illustrated with a mock TV program showing how lame it would be to interview a millionaire, whose rewards would be “more intangible than product-related.” Audience members tuned out as the guest bored them with stories of his first and only wife of forty years, fully funding his well-behaved children’s college, household stability, employing scores of people, scrimping and saving, paying off the mortgage, etc.
A lot of millionaires can avoid keeping up appearances because they have mundane jobs. They can drive old Ford pickups and go around in jeans. Youngsters trying to strike it big in more jet-setter roles may feel pressure to conspicuously consume. They would like a nice house for entertaining, and they don’t want to embarrass potential clientele with a jalopy.
One unnamed millionaire rejected a Rolls Royce grateful associates had special-ordered for him. “I can’t throw fish in the backseat of the Rolls,” he said. He considered two vehicles excessive, and he liked to go fishing. He was also concerned his employees would feel exploited if he were to brandish such a sign of wealth.
The authors told how they did not at first catch on to the pragmatism and frugality directing the paths of thrifty businessmen into financial stability. They hosted an interview of decamillionaires in a “comfortable, posh” Manhattan penthouse. They offered four pates, three caviars, and two wines; but the guests at most nibbled on crackers. One, when offered a drink, said he only drank scotch and two kinds of beer: free and Budweiser.
As for passing wealth from one generation to the next, one may as well forget it. It is common knowledge that family businesses seldom make it past the third generation. The authors examined what happens to children who get something for nothing from their parents, and found subsidized children were not as ambitious as unsubsidized children.
It is not uncommon for wealthy parents to give gifts to their kids to help them keep up appearances. When the children get a new home in a nice suburb, they then feel they must keep up with the Joneses by getting an SUV and a boat, sending the kids to private schools, and vacationing in Europe. One story was told how parents gave their children a $9000 rug, which compelled them to upfit the entire dining room. Wiser parents, rather than giving children money, have opted to pay for their education or set up trusts that don’t disburse funds until they are old enough to be set in their ways.
Lastly, the authors were savvy enough to understand that the IRS would be after whatever caused wealth to agglomerate. They concocted a “Screwtape Letters” scene between a new IRS agent and his superior. They concluded, “The government will likely place increased pressure on the affluent, possibly by creating innovative ways to tax wealth in addition to income.”
Government uncertainties were some of the very few things the financially-independent feared. “We believe that in the next twenty years,” they wrote, “the affluent will have to use every option within the law to remain affluent. It is a segment of our economy that will be under siege by the liberal politician and his friend, the tax man.”