Special Report

We Have Met the Wealthy, and They Are Us

And if not us, then the millionaires next door who work hard, live modestly, and invest in the American dream.

By 12.9.02

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At least for the most recent election cycle, the classic Democratic class-bait, "Tax break for the wealthiest one percent of Americans," didn't play very well. That doesn't mean we've heard the last of it. To the contrary. Our federal tax system has trended ever more steeply toward the "progressive," meaning that the bulk of taxes are paid by fewer and fewer people, mostly concentrated at the top end of the earning spectrum.

Who are these people? Who are "the wealthy," that group so often derided by the Democrats and liberals? If you try to get a Democrat or a liberal to define "the wealthy," you're in for a frustrating experience. Because as soon as you define wealth in America, a certain uncomfortable something becomes clear. The wealthy are not Bill Gates and Jack Welch and Leona Helmsley and Oprah Winfrey. You could round up those people in one good-sized train. No, the wealthy are us, ordinary Americans.

As Don Connelly, Putnam Mutual Funds' ace sales trainer, once said, the average millionaire "can tell you a whole lot more about dry cleaning fluid than you ever wanted to know."

If we get real about wealth, and about who the wealthy are, it's a whole lot tougher to demonize the wealthy as a class. The bulk of the information in this column comes from The Millionaire Next Door, by Thomas J. Stanley and William D. Danko (Longstreet Press, Inc., 1996). In the 1990s, I worked in the mutual fund industry. Every fund company targeted the "high net worth investor." The Millionaire Next Door was our bible.

First thing: There are a lot more millionaires -- defined as households with net worth of $1 million or more -- than you might expect. Out of about 100 million households, 3.5 million meet that definition. The average income of these households is $247,000 per year; $131,000 annual total realized taxable income. The heads of these millionaire households are self-employed (two-thirds) and generally in their fifties.

Second thing: While the most common route to wealth involves owning and developing your own business, regular wage earners can get rich, too, by following the example of the millionaires next door. The two most important factors in getting rich are (1) living cheap and (2) investing 15 percent or more of your net income. A cop and a nurse can do it. Starting with nothing, saving $1,000 a month, presuming an average yearly return of 8 percent and inflation at 2 percent, that policeman and nurse will be millionaires in 26 years. In reality, given raises and the ability to invest more as the years go by, they'll reach their goal a lot quicker.

What can you most emphatically not do if you want to get rich? Buy a lot of flashy stuff. Stanley and Danko conducted extensive surveys of the consumer habits of America's wealthy. The typical millionaire, they found, spent less than $399 for the most expensive suit he owned. Some 30 percent of those surveyed had J.C. Penney's credit cards and bought their suits from Penney's. Half have never spent more than $140 for a pair of shoes. (Sorry, Leona.) Half bought their watches for less than $235. Most millionaires buy used cars, and spend only a little more, on average, than the $21,000 average spent by all Americans on all cars.

There are lots and lots of ways to get rich. You can do like the Pakistani and Indian and Korean immigrants and buy a convenience store franchise, put the whole family to work, and plow the profits back into more businesses. Or, as a friend of mine said, explaining how "Muh daddy got rich" in her fetching Alabama accent, "He rints trucks." Or, like the members of a trade association for whom I used to write a magazine, you can rent musical instruments to school districts; more than half of my readers were first-generation millionaires. You can renovate and sell houses in the dozens of reviving old city neighborhoods where people want to live nowadays.

But however you choose to do it, this is America, and you can do it. As Lyn Nofziger pointed out about the Reagan administration, "We realized Americans didn't hate the rich; they wanted to be rich." And, as Americans, we all know, more or less instinctively, what doctrinaire Democrats seem to have forgotten. Anybody can break the code. We don't care who you are or what your last name is or what color your skin is. We won't ask you whether you went to the right schools or whether your family has a title or not. If you're happy to buy, we're happy to sell, and if you're happy to sell, we're happy to buy.

And anybody can make it work.

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About the Author

Lawrence Henry writes every week from North Andover, Massachusetts.