The Millionaire Next Door by Thomas J. Stanley Ph.D. Book Review

The Millionaire Next Door eBook

My rating: 4 Stars

The Millionaire Next Door Review:

This book is about those frugal people, who are millionaires; but they aren’t flashy about their wealth. They are mostly first generation of self-made millionaires; and they are focused on increasing their net worth.

If you are finding yourself like this type of people, than you might find this book very helpful. More on my thoughts on this book later.

I have to say right from start that, this book does offer so many valuable information from which you can learn a lot. I’ve rated it with 4 stars only because I already know majority of things written inside the book.

There are so many things that you learn through life and experience, and there are many common sense things shared.

Like I said it in the beginning, the book is about living bellow your means, and frugal living. 

You need to start saving as much as you can from you current paycheck, in order to be able to invest that money, and eventually becoming successful millionaire. What I like is that book in the end share a list of industries where you can find out on what kind of industries are profitable; and you can start research more about the industries (niches) that you feel like you might succeed in one of those.

I already know that I need to cut my spending habits if I want to make something out my life; and that is what I’m doing already for years. There are times when it’s frustrating and difficult, and I just want to give up; but I quickly put myself together.

I am one of those person who is working to create wealth, but not to be flashy and show it around. I see myself as one wealthy man one day, who have a good net worth, but majority of people wouldn’t notice, or know it.

There are two types of customer for this book:

  • If you are also someone who is interested in making wealth for yourself, and for your family – than, you will find this book a great content for you.
  • But if you are someone who want wealth, so you can show it around to everyone – than, you might want to skip this book, because it won’t be helpful for you.

You might also want to look into other related books to this subject (click on titles bellow to find out more):

  1. Think And Grow Rich
  2. The Law Of Success
  3. The 7 Habits of Highly Effective People

If you like, you can read my other reviews of Self-Help Books

If you like, you can read my other reviews of Management & Leadership Books

Also, check out my Best Business Books List

The Millionaire Next Door Book Summary:


Twenty years ago we began studying how people become wealthy. Initially, we did it just as you might imagine, by surveying people in so-called upscale neighborhoods across the country. That small insight changed our lives.

In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then, we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.

Why are so many people interested in what we have to say?

Because we have discovered who the wealthy really are and who they are not. And, most important, we have determined how ordinary people can become wealthy.

How come I am not wealthy?

Many people ask this question of themselves all the time. Often they are hard-working, well-educated, high-income people. Why, then, are so few affluent?


Many live from paycheck to paycheck. These are the people who will benefit most from this book.

The millionaires we discuss in this book are financially independent. They could maintain their current lifestyle for years and years without earning even one month’s pay. The large majority of these millionaires are not the descendants of the Rockefellers or Vanderbilts.

More than 80 percent are ordinary people who have accumulated their wealth in one generation. They did it slowly, steadily, without signing a multimillion-dollar contract with the Yankees, without winning the lottery, without becoming the next Mick Jagger.

Windfalls make great headlines, but such occurrences are rare. In the course of an adult’s lifetime, the probability of becoming wealthy via such paths is lower than one in four thousand.


Who becomes wealthy? Usually the wealthy individual is a businessman who has lived in the same town for all of his adult life. This person owns a small factory, a chain of stores, or a service company. He has married once and remains married.

He lives next door to people with a fraction of his wealth. He is a compulsive saver and investor. And he has made his money on his own.

  1. They live well below their means.
  2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
  3. They believe that financial independence is more important than displaying high social status.
  4. Their parents did not provide economic outpatient care.
  5. Their adult children are economically self-sufficient.
  6. They are proficient in targeting market opportunities.
  7. They chose the right occupation.


Much of this research was developed from the most recent survey we conducted that, in turn, was developed from studies we had conducted over the previous twenty years.

These studies included personal and focus group interviews with more than five hundred millionaires and surveys of more than eleven thousand high-net worth and/or high-income respondents.

Meet The Millionaire Next Door


We do not define wealthy, affluent, or rich in terms of material possessions. 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.


One way we determine whether someone is wealthy or not is based on net worth—“cattle,” not “chattel.” Net worth is defined as the current value of one’s assets less liabilities (exclude the principle in trust accounts).


Another way of defining whether or not a person, household, or family is wealthy is based on one’s expected level of net worth. A person’s income and age are strong determinants of how much that person should be worth.

In other words, the higher one’s income, the higher one’s net worth is expected to be (assuming one is working and not retired). Similarly, the longer one is generating income, the more likely one will accumulate more and more wealth.

So higher-income people who are older should have accumulated more wealth than lower-income producers who are younger.


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.


PAWs are builders of wealth—that is, they are the best at building net worth compared to others in their income/age category. PAWs typically have a minimum of four times the wealth accumulated by UAWs.

Contrasting the characteristics of PAWs and UAWs is one of the most revealing parts of the research we have conducted over the past twenty years.


Most people who become millionaires have confidence in their own abilities. They do not spend time worrying about whether or not their parents were wealthy. They do not believe that one must be born wealthy.

Conversely, people of modest backgrounds who believe that only the wealthy produce millionaires are predetermined to remain non-affluent.

Frugal, Frugal, Frugal



It is unfortunate that some people judge others by their choice in foods, beverages, suits, watches, motor vehicles, and such. To them, superior people have excellent tastes in consumer goods.

But it is easier to purchase products that denote superiority than to be actually superior in economic achievement. Allocating time and money in the pursuit of looking superior often has a predictable outcome: inferior economic achievement.

What are three words that profile the affluent?


Webster’s defines frugal as “behavior characterized by or reflecting economy in the use of resources.” The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyperconsumption.

Being frugal is the cornerstone of wealth-building. Yet far too often the big spenders are promoted and sensationalized by the popular press.

Most never become millionaires until they are fifty years of age or older. Most are frugal. And few could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime.

But the lavish lifestyle sells TV time and newspapers. All too often young people are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.”


According to our most recent survey, the typical American millionaire reported that he (she) never spent more than $399 for a suit of clothing for himself or for anyone else.

Fifty percent or more of the millionaires surveyed paid $399 or less for the most expensive suit they ever purchased.

Only about one in ten paid $1,000 or more; only about one in one hundred paid $2,800 or more.


About half the millionaires surveyed reported that they had never spent $140 or more for a pair of shoes. One in four had never spent more than $100. Only about one in ten had spent over $300.

If not millionaires, then who is keeping the high-priced shoe manufacturers and dealers in business? Certainly some millionaires purchase expensive shoes. But for every millionaire in the “highest price paid” category of over $300, there are at least eight nonmillionaires.

Nonetheless, 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 hyper spending is the main reward for becoming affluent in America.


Why are so few people in America affluent? Even most households with six-figure annual incomes are not affluent.

These people have a different orientation than does Johnny Lucas. They believe in spending tomorrow’s cash today. They are debt-prone and are on earn-and-consume treadmills.

To many of them, those who do not display abundant material possessions are not successful. To them, nondisplay-oriented people like Johnny Lucas are their inferiors.

Johnny Lucas is not likely to be held in high regard by many of his neighbors. On a social status scale, he is below average. But on what criteria? In his neighbors’ eyes, Johnny has low occupational status. He is an owner of a small business.


Most people will never become wealthy in one generation if they are married to people who are wasteful. A couple cannot accumulate wealth if one of its members is a hyperconsumer.

This is especially true when one or both are trying to build a successful business. Few people can sustain profligate spending habits and simultaneously build wealth.


Most high-income earners are in the same situation, but not most millionaires. Millionaires play both quality offense and quality defense. And quite often their great defense helps them outscore/outaccumulate those who outearn/have superior offenses.

The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning. We have discovered that several occupational groups contain large numbers of budgeters and planners.


They became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.

Do you wish to become affluent and stay affluent? Can you answer “yes” candidly and honestly to four simple questions?


In fact, in our latest national survey of millionaires, we found that for every 100 millionaires who don’t budget, there are about 120 who do.

We anticipate your question about those millionaires who don’t budget. How did they become millionaires? How do they control spending?

They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of the nonbudgeters invest first and spend the balance of their income.

Many call this the “pay yourself first” strategy. These people invest a minimum of 15 percent of their annual realized income before they pay the sellers of their food, clothes, homes, credit, and the like.

What about those millionaires who don’t budget or create an environment of relative scarcity? Some inherited all or most of their wealth. Another minority, accounting for fewer than 20 percent of millionaires, typically earn such high incomes that to some extent they can eat their income and still have a seven-figure net worth.


Almost two-thirds of the millionaires surveyed (62.4 percent) answered “yes” to this question.


The source of this question came from a decamillionaire whom we interviewed a dozen years ago. He told us that he started a wholesale food business at the age of nineteen. He never finished formal high school but did eventually receive his high school equivalency diploma.

We asked him to account for the fact that although he was a high school dropout, he had accumulated over $10 million.

His response was as follows:

I have always been goal-oriented. I have a clearly defined set of daily goals, weekly goals, monthly goals, annual goals, and lifetime goals. I even have goals to go to the bathroom. I always tell our young executives that they must have goals.

Financially independent people are happier than those in their same income/age cohort who are not financially secure.

Financially independent people seem to be better able to visualize the future benefits of defining their goals.


For every 100 millionaires who answer “no,” there are 192 who answer “yes.” Again, many who answer “no” are either high-income types with relatively low levels of accumulated wealth, those who inherited all or most of their wealth, or wealthy seniors/retirees.


The typical millionaire in our surveys has a total annual realized income of less than 7 percent of his wealth. This means that less than 7 percent of his wealth is subject to some form of income tax.* In our latest study of millionaires, the percentage was found to be 6.7 percent.

Millionaires know that the more they spend, the more income they must realize. The more they realize, the more they must allocate for income taxes. So millionaires and those who will likely become affluent in the future adhere to an important rule:

To build wealth, minimize your realized (taxable) income and maximize your unrealized income (wealth/capital appreciation without a cash flow).

Income tax is the single largest annual expenditure for most households. It is tax on income, not on wealth and not on the appreciation of wealth if this appreciation is not realized; that is, if it does not generate a cash flow.


Your plan should be to sacrifice high consumption today for financial independence tomorrow.


Since about half of the millionaires in America today do not live in so-called high-status neighborhoods, we also surveyed affluent farmers, auctioneers, and other wealthy people who live in nonstatus neighborhoods.

Why do millionaires from high-status areas realize significantly more of their wealth (6.7 percent) than those top wealth holders selected from a national sample of all affluent decedents (3.66 percent)?

Because the millionaires from high-status neighborhoods have to realize more income to live in these areas. What are the implications of our findings? It’s easier to accumulate wealth if you don’t live in a high-status neighborhood.

But even those millionaires who do live in high-status areas realize only 6.7 percent of their wealth each year. Think of their non-affluent neighbors who, on average, must constantly realize more than 40 percent of their wealth just for the joy of living in a high-status gulch.

You will never become financially independent without purchasing investments that appreciate without income realization.

Living in less costly areas can enable you to spend less and to invest more of your income.

Time, Energy, And Money


Efficiency is one of the most important components of wealth accumulation. Simply: People who become wealthy allocate their time, energy, and money in ways consistent with enhancing their net worth.

Although both prodigious accumulators and under accumulators of wealth state similar goals about achieving wealth, these groups have completely different orientations when it comes to how much time they actually spend on wealth-building activities.

PAWs allocate nearly twice the number of hours per month to planning their financial investments as UAWs do.

There is a strong positive correlation between investment planning and wealth accumulation. UAWs spend less time than PAWs consulting with professional investment advisors; searching for quality accountants, attorneys, and investment counselors; and attending investment-planning seminars.

PAWs, on average, spend less time worrying about their economic well-being.

We have determined that under accumulators are much more concerned than prodigious accumulators with the prospects of:

  • not being wealthy enough to retire in comfort.
  • never accumulating significant wealth.


Planning and controlling consumption are key factors underlying wealth accumulation.

Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.


Most high-income households consist of traditional married couples with children.

We determined long ago that the habits of both husband and wife account for variations in accumulating wealth. Your spouse’s orientation toward thrift, consumption, and investing is a significant factor in understanding your household’s position on the wealth scale.


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.


What do you spend time worrying about? Are your concerns congruent with wealth accumulation? Or do you spend time thinking about issues that are impediments to becoming affluent? How do PAWs and UAWs differ in regard to their fears and concerns?

In simple terms, UAWs worry more than PAWs. PAWs and UAWs also worry about different issues. Overall, PAWs have significantly fewer concerns and fears than their counterparts.

Fears and concerns can be both a cause for becoming a UAW as well as a result. Will a person who constantly worries about earning more money to enhance his lifestyle become wealthy? Probably not.


Many high-income earners in America—both PAWs and UAWs—are greatly concerned about the actions of the federal government. These actions are external forces—those over which an individual has no control. Dr. South indicated that he feared four external forces that are government-related.

Interestingly, these issues are not of major concern to Dr. North. Let’s look at these four concerns:

  1. Paying increasingly high federal income taxes
    Both physicians think that the federal government is likely to require high-income producers to pay more in taxes.
  2. Increased government spending and the federal deficit
  3. A high rate of inflation
  4. Increased government regulation of business and industry


Many high-income-producing PAWs and UAWs share similarly stated goals concerning wealth accumulation.

For example, more than three-fourths of both groups indicated they had the following goals:

  • To become wealthy by the time they retire
  • To increase their wealth
  • To become wealthy through capital appreciation
  • To build their capital while conserving the value of their assets

But having a set of stated goals does not necessarily mean that one is committed to achieving them. Most of us want to be wealthy, but most of us do not spend the time, energy, and money required to enhance our chances of realizing this goal.


Most PAWs agree with the following statements, while most UAWs disagree:

  • I spend a lot of time planning my financial future.
  • Usually, I have sufficient time to handle my investments properly.
  • When it comes to the allocation of my time, I place the management of my own assets before my other activities.

Conversely, UAWs tend to agree with the following statements:

  • I can’t devote enough time to my investment decisions.
  • I’m just too busy to spend much time with my own financial affairs.

PAWS and UAWS also differ in the amount of time they actually allocate to planning their investments.

Planning is typically found to be a strong habit among people who have a demonstrated propensity to accumulate wealth. Planning and wealth accumulation are significant correlates even among investors with modest incomes.

Planning is only one of many key ingredients in building wealth. Most PAWs have a regimented planning schedule. Each week, each month, each year, they plan their investments. They also start planning at a much earlier age than do UAWs.


The work factor is an important part of understanding the differences between PAWs and UAWs. Note in our study of middle-income respondents the percentage (59.1 versus 24.7) of PAWs versus UAWs who are self-employed

In this study, self-employment correlated significantly with planning investments. Overall, the self-employed spend more time planning their investment strategies than those who work for others.

The self-employed, even those with middle incomes, typically integrate investment planning into their work lives. Most employees, in sharp contrast, have a set of job-related tasks that are independent of planning their investment strategies.

Why is this so?

Those who succeed among the ranks of the self-employed never take their economic position for granted. Most middle-aged people who are self-employed have seen good as well as bad economic times. They tend to offset the inevitable changes in their revenue by planning and investing.

They must build and manage their pension plans by themselves. They have to rely on themselves for their current and future financial situations. More often than not, only the well-disciplined self-employed survive economically over the long run.


Nearly all (95 percent) of the millionaires we surveyed own stocks; most have 20 percent or more of their wealth in publicly traded stocks. Yet you would be wrong to assume that these millionaires actively trade their stocks.

Most don’t follow the ups and downs of the market day by day. Most don’t call their stock brokers each morning to ask how the London market did. Most don’t trade stocks in response to daily headlines in the financial media.

In fact, 42 percent of the millionaires we interviewed for our latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview.

Often, active investors spend more time trading than studying and planning their investments. Conversely, millionaires spend more time studying far fewer offerings. Thus, they can focus their time and energy—the resources needed to master their understanding of a much smaller variety of offerings in the market.


Before a well-run business would ever hire a financial advisor or a supplier of investment intellect, it would insist on many vital pieces of hard copy, including the following:

  • Several references
  • An official college transcript
  • A credit check
  • A series of personal interviews
  • Completion of a detailed employment application
  • Documents attesting to the ability of the applicant to perform the duties and tasks required

Your ability to hire high-grade financial advisors is directly related to your propensity to accumulate wealth. This, in turn, relates to one of the fundamental reasons business owners outpace all other occupational categories in accumulating wealth.

Most high-income business owners have more experience in evaluating potential suppliers, employee applicants, and human resources in general than do individuals in other occupational groups. Being in business requires the constant evaluation of such resources.

Your Aren’t What You Drive


According to Mr. Allan,

If your goal is to become financially secure, you’ll likely attain it…. But if your motive is to make money to spend money on the good life,… you’re never gonna make it.

Many people who never achieve financial independence have a much different set of beliefs. When we ask them about their motives, they speak in terms of work and career. But ask them why they work so hard, why they selected the careers they did, and their answers are much different from Mr. Allan’s.

They are UAWs, and UAWs, especially high-income producers, work to spend, not to achieve or become financially independent. UAWs view life as a series of trade-ups from one level of luxury to the next.

So who enjoys working?

Who really gets satisfaction from their careers, PAWs or UAWs? In most of the cases we have examined, PAWs love working, while a large proportion of UAWs work because they need to support their conspicuous consumption habit.

Such people and their motives offend Mr. Allan. He stated numerous times:

Money should never change one’s values…. Making money is only a report card. It’s a way to tell how you’re doing.


Mr. Allan is extremely perceptive in his understanding of under accumulators of wealth. In essence, he feels that products change people. 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. Mr. Allan clearly understands the complementary nature of status products and a high-consumption lifestyle.

He will have none of these artifacts. They are a threat, as he sees it, to his rather simple yet highly efficient lifestyle:

Building wealth is not something that will change your lifestyle. Even at this stage of life, I don’t want to change the way I live.

Mr. Allan recognizes that many status artifacts can be a burden, if not an impediment, to becoming financially independent. Life has its own burdens. Why add excess baggage?


How do millionaires go about acquiring motor vehicles?* About 81 percent purchase their vehicles. The balance lease. Only 23.5 percent of millionaires own new cars.

Most have not purchased a car in the last two years. In fact, 25.2 percent have not purchased a motor vehicle in four or more years.


What types of motor vehicles do millionaires drive? U.S. car manufacturers may be pleased to note that their makes account for 57.7 percent of the vehicles millionaires are driving; Japanese makes account for 23.5 percent, while European manufacturers hold 18.8 percent.

What makes of cars are most popular with millionaires?

The following are listed in rank order according to their respective market shares:

  1. Ford
  2. Cadillac
  3. Lincoln
  4. A three-way tie: Jeep, Lexus, Mercedes
  5. Oldsmobile
  6. Chevrolet
  7. Toyota
  8. Buick
  9. A two-way tie: Nissan and Volvo
  10. A two-way tie: Chrysler, Jaguar


What thought and behavioral processes do millionaires go through before buying a car? We have done extensive research on the various types of vehicle buyers that exist among the ranks of millionaires.

It seems that rich people differ significantly even among themselves. Studying these various findings reveals valuable information about the attitudes and behaviors necessary to accumulate wealth.


One can learn a great deal about affluent people by analyzing their vehicle-buying habits. For instance, note that most millionaires are dealer shoppers as opposed to dealer loyalists. Not by a large margin (54.3 versus 45.7 percent), you may logically counter.


What factors explain variations in wealth accumulation? Income is a factor. People with higher incomes are expected to have higher levels of wealth.

But note again that members of this group of used-vehicle buyers have a significantly lower income than the average for the other groups of millionaires. About two-thirds have incomes in the high-five-or low-six-figure range.

Used vehicle-prone shoppers are unique even among their millionaire cohorts. Note that, on average, they have the highest score values on all seven measures of frugality

Behind their frugal behavior is a strong set of beliefs. First, they believe in the benefits of being financially independent. Second, they believe that being frugal is the key to achieving independence.

They inoculate themselves from heavy spending by constantly reminding themselves that many people who have high-status artifacts, such as expensive clothing, jewelry, cars, and pools, have little wealth.

They often tell the same thing to their children.


Being frugal is a major reason members of the used vehicle-prone group are wealthy. Being frugal provides them with a dollar base to invest. In fact, they invest a significantly larger portion of their annual income than do any of the other types of vehicle buyers.

This also applies to their contributions to pension/annuity programs. As you may have already predicted, the used vehicle-prone shopper group also contains the highest percentage of prodigious accumulators of wealth.

This group is significantly more likely to agree with this statement:

  • Our household operates on a fairly well-thought-out annual budget.
    To budget properly, one must keep records of disbursements. Here again, the used vehicle-prone shopper is more fastidious than any of the other types. More of them agree that:
  • I know how much our family spends each year for food, clothing, and shelter.Used vehicle-prone shoppers are also bargain-oriented when it comes to buying clothing. Their score of 145 was the highest overall (see Table 4-4). A significantly higher percentage agreed with this statement:
  • I never bought a suit that was not on sale (discounted).Used vehicle-prone shoppers are significantly more likely to be discount-store patrons than other types of vehicle buyers. This is evident from their positive response to the following statement:
  • I often buy my suits at factory outlets.

Economic Outpatient Care

(EOC). Economic outpatient care refers to the substantial economic gifts and “acts of kindness” some parents give their adult children and grandchildren. This chapter will explore the implications of economic outpatient care, and how it affects the lives of those who give it and those who receive it.


Many of today’s distributors of EOC demonstrated significant skill at accumulating wealth earlier in their lives. They are generally frugal with regard to their own consumption and lifestyle. But some are not nearly as frugal when it comes to providing their children and grandchildren with “acts of kindness.”

These parents feel compelled, even obligated, to provide economic support for their adult children and their families. What’s the result of this largesse?

Those parents who provide certain forms of EOC have significantly less wealth than those parents within the same age, income, and occupational cohorts whose adult children are economically independent.

And, in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.

Why most gift receivers in general have a lower propensity to accumulate wealth than do nonreceivers:

  1. GIVING PRECIPITATES MORE CONSUMPTION THAN SAVING AND INVESTING.For example, affluent parents often subsidize their children’s purchase of a home. The intent may be to help their children “get started on the right foot.”Gift receivers frequently are underachievers in generating income. All too often the income of the gift receiver does not increase at the same rate as his consumption.
  2. GIFT RECEIVERS IN GENERAL NEVER FULLY DISTINGUISH BETWEEN THEIR WEALTH AND THE WEALTH OF THEIR GIFT-GIVING PARENTS.Perhaps Tony Montage, a professional asset manager, said it best: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.
  3. GIFT RECEIVERS ARE SIGNIFICANTLY MORE DEPENDENT ON CREDIT THAN ARE NONRECEIVERS.Those who receive periodic gifts of cash or its equivalent are euphoric about their economic well-being. Euphoria of this type is related to their need to spend money. But much of this money is not in hand. It is tomorrow’s economic outpatient care.So how do gift receivers respond to this dilemma? They use credit vehicles to smooth out their problems with cash flow.
  4. RECEIVERS OF GIFTS INVEST MUCH LESS MONEY THAN DO NONRECEIVERS.When surveyed, gift receivers reported that they invested less than 65 percent of what nonreceivers invested each year. Even this is a very conservative estimate, since like most heavy credit users, gift receivers overestimate the amount of money they invest.For example, they often forget to take into account major credit purchases when computing actual consumption and investing habits.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.


So what are affluent parents to do with their wealth? How and when should they distribute it among their children? We will detail the distribution of wealth in the next chapter.

But at this point, here’s some food for thought: Most affluent people have at least two children.

Typically, the most economically productive one receives the smaller share of his or her parent’s wealth, while the least productive receives the lion’s share of both economic outpatient care and inheritance.

Consider for a moment that you are a typical affluent parent. You noted that your oldest son or daughter even at an early age was extremely independent, achievement-oriented, and well disciplined. Your instinct is to nurture these traits by not trying to control his or her decisions.

Instead, you spend more time helping your less resourceful child make decisions, or you actually make decisions for him. With what result? You strengthen the strong child and weaken the weak.


What happens when “weakened children” become adults? They typically lack initiative. More often than not, they are economic underachievers but have a high propensity to spend.

That’s why they need economic subsidies to maintain the standard of living they enjoyed in their parents’ home.

We will say it again:

The more dollars adult children receive, the fewer dollars they accumulate, while those who are given fewer dollars accumulate more.

This is a statistically proven relationship. Yet many parents still think that their wealth can automatically transform their children into economically productive adults. They are wrong. Discipline and initiative can’t be purchased like automobiles or clothing off a rack.

Webster’s defines courage as “mental or moral strength to resist opposition, danger, or hardship.” It implies firmness of mind and will in the face of danger or extreme difficulty. Courage can be developed. But it cannot be nurtured in an environment that eliminates all risks, all difficulty, all dangers.

Affirmative Action, Family Style


Most affluent parents who have adult children want to reduce the size of their estate before they pass away. Certainly this decision makes sense, given that the alternative is to leave their children with a significant estate tax liability.

The decision to share their wealth with their children is easy; the difficult decision is how to divide the capital.

Affluent parents who have younger children usually believe that the distribution of their wealth will never be a problem. They assume their assets will be distributed equally.


The affluent who have successful adult children have given us much valuable information on how they raised them. Here are some of their guidelines:

  1. Never tell children that their parents are wealthy.Why is it that many of the adult children of UAWs are more likely to earn high incomes than to accumulate wealth? We believe one of the major reasons is that as children they were constantly told their parents were wealthy.Adult UAWs tend to be the product of parents who lived in ways they thought appropriate for wealthy people to act.
  2. No matter how wealthy you are, teach your children discipline and frugality.
    As you may recall, in Chapter 3 we profiled Dr. North, a wealthy man whose adult children live frugal, well-disciplined lives. Dr. North detailed how he and his wife raised their children. Simply stated, they taught by example. Their children Were exposed to credible role models whose lives were characterized by their discipline and frugality.Dr. North said it best:Kids are very smart. They will not follow rules that their parents themselves do not follow. We [my wife and I] were well-disciplined parents…. We lived the rules… we taught by example…. They [the children] learned by example.There must be congruency between what parents tell their children to do and what we as parents do. Kids are very perceptive in pointing out inconsistencies.What were some of the rules Dr. North’s twelve-year-old daughter listed on the poster?

    1. Be tough… life is. In other words, there is no promise of a rose garden.
    2. Never say “poor me”… [or] feel sorry for yourself.
    3. Don’t walk on the back of your shoes…. Waste not, want not. In other words, don’t abuse your belongings. They will last longer.
    4. Close the front door…. Don’t waste your parents’ money letting the heat out.
    5. Always put things back where they belong.
    6. Flush.
    7. Say “yes” to those who need help before they ask.
  3. Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession.Once again, Dr. North said it best:I have set up trusts for my children… some estate tax advantages. But my plan will not distribute money to my children until they are forty years of age or older. Because in this way my money will have little effect on their way of life at that age. They will have already adopted their own lifestyle.Dr. North also told us that he never gives his children cash gifts, not even now that they are adults.
  4. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.Never make light of verbal promises: “Billy, you will get the house; Bob, the summer cottage; Barbara, the silver,” especially in a group setting, especially when consuming alcohol.You may too easily forget or confuse who gets what, but the kids are not likely to forget. They will hold you and their siblings responsible for being shorted. False promises often lead to discord and conflicts.
  5. Never give cash or other significant gifts to your adult children as part of a negotiation strategy.Give because of love, even obligation and kindness. Adult children often lose their respect and love for parents who submit to high-pressure negotiating tactics.Coercion of this type is often the product of the manner in which parents negotiate with their young children.
  6. Stay out of your adult children’s family matters.Please note, parents, that your vision of the ideal lifestyle may be diametrically opposed to that of your adult son or daughter, as well as that of your son-in-law or daughter-in-law.Adult children resent interference from their parents. Let them run their own lives; ask permission even to give advice. Ask permission also when contemplating giving significant gifts to your children.
  7. Don’t try to compete with your children.Never boast about how much money you have accumulated. This sends a confusing message. Often children can’t compete with their parents on this basis, and do not really want to.You don’t have to boast of your achievements. Your children are wise enough to appreciate what you have accomplished. Never start a conversation with “When I was your age, I already had…”To many successful, achievement-oriented children of the affluent, accumulating money is not the superordinate goal. Instead, they want to be well educated, to be respected by their peers, and to occupy a high-status position.For many of these sons and daughters, the variations in income and wealth among occupations are much less important than they are for their parents.
  8. Always remember that your children are individuals.They differ from each other in motivation and achievement. Try as you may via economic outpatient care, inequalities will exist.Will economic outpatient care reduce these differences?It’s unlikely. Subsidizing underachievers tends to enhance differences in wealth, not reduce them. This, in turn, can cause discord, since high-achieving brothers and sisters may resent such gift giving.
  9. Emphasize your children’s achievements, no matter how small, not their or your symbols of success.Teach your children to achieve, not just to consume. Earning to enhance spending should not be one’s ultimate goal. This is what Ken’s father always taught him.Majoring in finance and marketing, Ken received an MBA with distinction. His father was a physician and a full-fledged member of the PAW group.He often told Ken:I am not impressed with what people own. But I’m impressed with what they achieve. I’m proud to be a physician. Always strive to be the best in your field…. Don’t chase money. If you are the best in your field, money will find you.
  10. Tell your children that there are a lot of things more valuable than money.Good health, longevity, happiness, a loving family, self-reliance, fine friends… if you [have] five, you’re a rich man…. Reputation, respect, integrity, honesty, and a history of achievements!Money [is] icing on the cake of life…. You don’t ever have to cheat or steal… don’t have to break the law… [or] cheat on your taxes.It’s easier to make money honestly than [dishonestly] in this country. You will never exist in business if you rip people off! Life is the long run.You can’t hide from adversity. You can’t hide your children from life’s ups and downs. The ones who achieve do so by experiencing and conquering obstacles,… even from their childhood days.These are the ones who were never denied their right to face some struggle, some adversity. Others were, in reality, cheated.Those who attempted to shelter their children from every conceivable germ in our society… never really inoculated them from fear, worry, and the feeling of dependency. Not at all.

Find Your Niche


Why is it that you’re not wealthy?

Perhaps it’s because you are not pursuing opportunities that exist in the marketplace. There are significant business opportunities for those who target the affluent, the children of the affluent, and the widows and widowers of the affluent.

Very often those who supply the affluent become wealthy themselves. Conversely, many people, including business owners, self-employed professionals, sales professionals, and even some salaried workers, never produce high incomes. Perhaps it’s because their clients and customers have little or no money!

But, you may say, you have told us that the affluent are often frugal. Why target those who are not “big spenders”?

Why focus on people who are sensitive to the price variations in products and services?

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.

Since the majority of the affluent are self-employed business owners and managers, they are also purchasers of industrial products and services. They are consumers of everything from office space to computer software.

Also, 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 it comes to spending the substantial gifts of cash that their parents and grandparents give them.


There are many. Those who are specialists in solving the problems of the affluent and their heirs should be in great demand during the next twenty years.

    • Estate Attorneys—Too Many?
    • On Income and/or Wealth
    • For Sale: A Place in America
    • Dentists
    • Plastic surgeons
    • Dermatologists
    • Allergists
    • Psychologists
    • Psychiatrists
    • Chiropractors
    • Appraisers and auctioneers
    • Coin and stamp dealers
    • Pawn brokers
    • Real estate management professionals
    • Proprietors and teachers at private schools that provide tuition-based education at the preschool, kindergarten, elementary, and high school levels.
    • Proprietors and teachers in specialized areas such as music, drama, the arts, special education/learning disability programs, career counseling, and tutorials for SAT and other types of entrance/aptitude tests.
    • Accountants
    • Home building contractors
    • Mortgage lenders
    • Remodeling contractors
    • Renovation contractors
    • Residential real estate developers
    • Residential real estate agents
    • Retailers of paint, wall coverings, and decorating products
    • Marketers of alarm and security systems and security consultation services
    • Providers of interior design and decorating services
    • Professionals who conduct philanthropic research, develop targeting strategies, and counsel foundations and educational institutions
    • Marketers of family-oriented vacation resorts
    • Marketers of cruises, tours, worldwide vacations, and treks and safaris

Jobs: Millionaires Versus Heirs


Who are the affluent?

By now you probably can predict the answer. Most of the affluent in America are business owners, including self-employed professionals.

But these self-employed people are four times more likely to be millionaires than those who work for others.


Fewer than one in five millionaire business owners turns his business over to his children to own and operate.


Give credit to wealthy parents. They know the odds of succeeding in business. They understand that most businesses are highly susceptible to competition, counter consumer trends, high overhead, and other uncontrollable variables.

So what do these millionaires advise their children to do?

They encourage their children to become self-employed professionals, such as physicians, attorneys, engineers, architects, accountants, and dentists.

As stated earlier, millionaire couples with children are five times more likely to send their children to medical school than other parents in America and about four times more likely to send them to law school.

The affluent know the risks and the odds of succeeding or failing in business. They also seem to understand that only a small minority of self-employed professionals fail to make a profit in any given year, and that the profitability of most professional service firms is substantially higher than the average for small businesses in general.

Physicians, for example, can take their intellect anywhere in America. Their resources are quite portable.

The same is true for dentists, attorneys, accountants, engineers, architects, veterinarians, and chiropractors. These are the occupations held by a disproportionate number of the sons and daughters of affluent couples throughout America.


  • Advertising Specialty Distributors
  • Human Resources Consulting Services
  • Ambulance Service
  • Industrial Chemicals-Cleaning/Sanitation
  • Manufacturer
  • Apparel Manufacturer-Ready-to-Wear
  • Janitorial Services-Contractor
  • Auctioneer/Appraiser
  • Job Training/Vocational Tech School Owner
  • Cafeteria Owner
  • Long-Term Care Facilities
  • Citrus Fruits Farmer
  • Meat Processor
  • Coin and Stamp Dealership
  • Mobile-Home Park Owner
  • Consulting Geologist
  • Newsletter Publisher
  • Cotton Ginning
  • Office Temp Recruiting Service
  • Diesel Engine Rebuilder/Distributor
  • Pest Control Services
  • Donut Maker Machine Manufacturer
  • Physicist-Inventor
  • Engineering/Design
  • Public Relations/Lobbyist
  • Fund Raiser
  • Rice Farmer
  • Heat Transfer Equipment
  • Manufacturer
  • Sand Blasting Contractor

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Product details

  • Print Length: 273 pages
  • Publisher: RosettaBooks (November 30, 2010)
  • Publication Date: November 30, 2010
  • Sold by: Amazon Digital Services LLC
  • Language: English
  • ASIN: B00CLT31D6
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Reviewed Item
The Millionaire Next Door
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