I found this book rather interesting, first of all, it defines a millionaire as some one who’s net worth is at least one million dollars. Interestingly there are a lot of people who earn over one million in a year, but are not considered millionaires, as their net worth is much less than a million dollars. The biggest thing that surprised me, as well as the authors of the book was that most people who have a net worth over a million do not show it off. They do not drive luxury cars, they do not always live in the upscale neighborhoods and they live well below their means. They drive regular cars that are usually at least a few years old, they do not drive Mercedes or Range Rovers or any other luxury brand, most of the time they drive plain old nondescript domestic sedans. Rather than upscale neighborhoods the usually reside in middle class areas. I always see the expensive cars in the more expensive parts of town, Mercedes, BMW, Range Rover , and so on. According to the book , most people (not everyone, some people can afford these cars outright) who drive them and live in the upscale part of town earn a lot of money, but they do not save most of it, they do not accumulate wealth. They spend their money to keep up their lifestyle of keeping up with the Joneses and driving expensive cars. Most of them finance or lease their cars and do not use their money to build their net worth.
This school of thought had never occurred to me, I always assumed the people who drove Range Rovers had a high net worth. I always thought that those kind of people had lots of money in the bank or invested and had a high net worth. But it turns out that a large percent of them earn a high income, but they live nearly pay check to pay check. They use their high income to support their high consumption lifestyle.
Keeping up with the Joneses is just a high consumption lifestyle. Spend it as soon as you get it, buy a status symbol and show it of. A lot of actual millionaires do not have the need to impress people they do not know. They are just fine with driving a Honda or a Chevy, and do not need to pay for the Mercedes status symbol on the hood of their car. They are frugal, they earn they money and the keep most of it. Its not like they live a hermit existence either, they do spend money, but they buy items that are quality and have a function, not just something to impress the people next to you at the stoplight. Why impress people you do not know ? Personally I have never had the need to impress random people. According to the book, most of the luxury vehicles you see out there are either leased or financed, The book presented a case study on a doctor who had 3 leased Mercedes ! Why ? I think just because he could, and not surprisingly that particular doctor had a very low net worth, he spent nearly all of his income and did not save or invest very much of it. The doctors explanation was that he needed to look the part in order to get clients, and I understand that, but leasing 3 ? why not one ?
Another thing that blew my mind was what the authors call Economic Outpatient Care or EOC for short. This is where parents who are affluent provide their adult children with money on a regular basis. It could be yearly gifts, or help with the down payment of a house. Many of the parents want to provide their adult children with the means to live in upscale neighborhoods, drive nice cars and keep up the status symbol. The problem is that the adult children are not making enough money on their own to live their lifestyle, and they become dependent upon Mom/Dad for their income. They are not able to afford their lifestyle with out subsidies from their parents ! 1 in 5 houses in upscale neighborhoods receive some sort of subsidy from their parents ! The chances are good that they live a high consumption lifestyle and do not save much of their money. I just do not understand why adults who are in the 30’s, 40’s and beyond would want help from their parents ! The book describes it as weakening the weak , the children become dependent upon their affluent parents for their lifestyle and can’t afford it on their own. The case studies showed the children who were able to make money on their own were rarely helped by their parents, but the ones who were under performing were helped out the most. The parents had the best of intentions, helping their children live a lifestyle, but what ended up was the opposite of what the parents had intended, the children became dependent on their subsidies.
I really enjoyed this book and would recommend it to anyone looking into money management and personal finance. It has changed the way I view the money and finance. It was an eye opener for me, and every time I am out driving I can spot a fake rich person driving a status symbol.
If you are interested in reading it for yourself, here is a link