I was speaking to roughly 500 high school students in Singapore last week. The students represented about 50 different nationalities. Many were American. At one point, I asked them to call out brand names that they thought most millionaires are attracted to. They hollered out names like Rolex, Gucci, Porsche, Ferrari, Prada, and Louis Vuitton.
Yes, some wealthy people prefer high-status brands. But according to the late wealth researcher, Thomas J. Stanley, most wealthy Americans don’t. Instead, they have modest consumption tastes. Most millionaires, for example, don’t drive fancy cars. Most don’t live in fancy homes. Most don’t collect wines, antiques or belong to swanky clubs. Thomas Stanley said some wealthy people like high-end cars. But millionaires aren’t driving most of the high-end cars we see on the streets. Instead, it’s people with high salaries and low wealth that are most attracted to these cars.
High income, after all, doesn’t mean someone is wealthy. As Dr. Stanley always said, a person’s financial net worth and their salary aren’t always correlated.
These aren’t just curious facts. If we want to build wealth or financial independence, it might be wise to emulate some of the habits of the rich. Instead, many people buy what they can’t afford. They borrow money to do so. As a result, they hamper their ability to become financially independent.
This tendency isn’t limited to America. I read an article in Singapore’s Straits Times newspaper during the global recession in 2009. Ferrari owners were returning their cars to dealerships in droves. If the Ferrari drivers were rich, they could have kept those cars, even if they lost their jobs. But if they owed money on those cars, of if they leased them, the reality would be different. Most of those Ferrari owners probably weren’t rich.
Thomas J. Stanley and William D. Danko published The Millionaire Next Doorin 1996. Thomas Stanley continued to research the habits of wealthy people. He published The Millionaire Mind in 2001 and Stop Acting Rich in 2011. I gobbled them up. Dr. Stanley’s work was one of the biggest inspirations for my own financial independence. Over the past 18 months, I’ve given more than 130 talks in 17 different countries. I talk about investing in low-cost index funds, but I also speak prolifically about Thomas Stanley’s research.
That’s why I was crushed to learn of his death in 2015. He was killed in a car crash, at the hands of a drunk driver. He had been working on a new book with his daughter, Sarah Stanley Fallaw.
I hoped she would have the strength to finish the work she had started with her father. That’s why I was thrilled to see The Next Millionaire Next Door at an airport bookstore when I left Singapore last week.
Twenty-two years have passed since Stanley and Danko’s original classic. But the habits of the rich have remained much the same. Most millionaires, for example, still don’t drive high-end automobiles. In 1996, Fords were the most popular vehicles for the rich. In 2016, Toyotas took top spot.
Top Makes of Motor Vehicles Among Millionaires In 2016
|Source: The Next Millionaire Next Door|
Sarah Stanley Fallaw says seventy-five percent of millionaires paid less than $1000 for their most expensive suit. Fifty percent of millionaires paid less than $300 for their most expensive watch. Three-quarters of American millionaires paid less than $300 for their most expensive pair of shoes. She also found that
65 percent of American millionaires live in homes that are currently worth less than a million dollars.
Today, about 9 percent of U.S. households have a net worth that exceeds a million dollars. That’s up from 3.5 percent in 1996. Most millionaires (93 percent) have a college degree. But most millionaires didn’t go to an expensive private college.
“Going to a name-brand college is a status symbol like wearing designer clothes or owning a luxury vehicle,” says Dr. Stanley Fallaw. “You can advertise your entrance and matriculation on social media, and friends and neighbors will tell you that it’s so great that your daughter is going to a school with an NCAA Division 1 football team. But if that college comes with 5 to 10 to 20 or more years of debt afterwards, the short-lived rush of telling others you’re going to a school you cannot afford is financially dangerous.”
The Next Millionaire Next Door is sobering and inspiring. It should also be required reading for every high school student. Like her father’s previous work, it provides a solid philosophy (some might call it a roadmap) for anyone who wants to become financially independent.
Sarah Stanley Fallaw, your father would be proud.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas