The Millionaire Next Door

by Thomas J. Stanley, William D. Danko

Troy Shu
Troy Shu
Updated at: April 12, 2024
The Millionaire Next Door
The Millionaire Next Door

Discover the secrets to building true wealth in "The Millionaire Next Door" book summary. Learn how to prioritize financial independence over status and build sustainable generational wealth.

What are the big ideas?

True Wealth vs. Perceived Wealth

Wealth should be measured by net worth rather than income or visible consumption. Many who appear wealthy due to their lifestyle actually hold minimal real wealth.

Self-made Success

Most millionaires are the first generation in their family to build such wealth, debunking the myth that wealth primarily comes from inheritance.

Frugality as a Wealth Strategy

Living well below their means is a common trait among millionaires, contrasting with the popular image of lavish spending.

Strategic Niches Lead to Wealth

Identifying and serving niche markets, particularly within the affluent community, presents significant business opportunities.

Generational Wealth Dynamics

Wealth is often lost by the second or third generation due to changes in consumption and lifestyle, underscoring the importance of financial education within families.

Investment in Self vs. Status

Millionaires prioritize financial independence and smart investment over displaying high social status, which often leads to more sustainable wealth accumulation.

Want to read ebooks, websites, and other text 3X faster?

From a SwiftRead user:
Feels like I just discovered the equivalent of fire but for reading text. WOW, WOW, WOW. A must have for me, forever.

True Wealth vs. Perceived Wealth

True wealth is not defined by material possessions or outward appearances. Many people who display a high-consumption lifestyle actually have little to no investments, appreciable assets, or income-producing assets. In contrast, those who are truly wealthy derive more pleasure from owning substantial appreciable assets than from flaunting their wealth.

The true measure of wealth is net worth - the current value of one's assets minus liabilities. Only 3.5% of American households have a net worth of $1 million or more, which is the threshold for being considered wealthy. However, the majority of millionaires have a net worth between $1-10 million, a level that can be attained in a single generation through discipline and hard work.

Income and age are strong determinants of expected net worth. Those who are significantly above the expected level for their income and age can be considered wealthy, even if their net worth is less than $1 million. The key is living below one's means and consistently saving and investing, rather than maximizing consumption.

Appearances can be deceiving. Many who appear wealthy through their high-consumption lifestyles actually have little real wealth. In contrast, the truly wealthy often live modest lifestyles and avoid flashy displays of status. The true measure of wealth is not how one looks, but how one's net worth compares to reasonable expectations based on income and age.

Here are key examples from the context that support the insight that true wealth should be measured by net worth rather than income or visible consumption:

  • The trust officer who spends a lot on expensive suits, watches, and luxury cars is not actually wealthy, despite appearing so. The context states "Looks can be deceiving" and that this trust officer "spends significantly more for his suits than the typical American millionaire" and drives a "current-model imported luxury car" while "Most millionaires are not driving this year's model."

  • The Texan businessman who rebuilds diesel engines is described as having a "very successful business" but drives an old car, wears jeans, and lives in a modest house. He is referred to as having "a lot of cattle" despite not "owning big hats" - meaning he has substantial wealth despite not displaying an outward appearance of affluence.

  • Dr. Ashton, a 56-year-old doctor with a $560,000 annual income, is only worth $1.1 million, which is considered not wealthy given his high income. The context states that based on his age and income, he "should be worth more than $3 million" but his "high-consumption lifestyle" means he could only sustain himself for 2-3 years without working.

  • In contrast, the Bobbins family, a 41-year-old fireman and secretary with a $55,000 combined income, have accumulated a net worth of $460,000, which is considered wealthy relative to their income and age group, as they have a "low-consumption lifestyle" and could sustain themselves for 10 years without working.

The key point is that true wealth is about net worth and assets, not just high income or outward displays of affluence. Many high-income individuals actually have low net worth due to high consumption, while more modest earners can accumulate substantial wealth through frugal lifestyles and disciplined saving and investing.

Self-made Success

The vast majority of millionaires in America are self-made, debunking the common myth that wealth primarily comes from inheritance. These individuals have built their fortunes through their own hard work, discipline, and entrepreneurial spirit - they are the first generation in their families to achieve such high levels of wealth.

This is a powerful insight that challenges the perception of the "typical" millionaire. Rather than inheriting their riches, most millionaires have earned their wealth through starting and growing their own successful businesses. They are self-employed business owners or professionals who have chosen the right occupation and made the necessary sacrifices to accumulate substantial assets over time.

The data shows that being self-employed makes one far more likely to become a millionaire compared to those who work for others. While only about 18% of American households are headed by a self-employed individual, these entrepreneurs make up over two-thirds of the millionaire population. Their ability to build wealth from the ground up, rather than relying on family inheritance, is a testament to their drive, discipline, and business acumen.

Here are examples from the context that support the key insight that most millionaires are self-made and the first generation in their family to build such wealth:

  • "About two-thirds of us who are working are self-employed." This indicates that the majority of millionaires are business owners, not inheriting wealth.

  • "More than two-thirds of American millionaires received no economic gifts from their parents. And this includes most of those whose parents were affluent." This directly contradicts the myth that millionaires primarily inherit their wealth.

  • The Texan business owner who "owned a very successful business that rebuilt large diesel engines" is described as looking like a "truck driver" rather than a stereotypical millionaire, further demonstrating that millionaires do not necessarily fit the high-consumption image.

  • The passage states that "the character of the business owner is more important in predicting his level of wealth than the classification of his business." This suggests that millionaires succeed through their own hard work and discipline, not just the type of business they own.

  • The author emphasizes that "building wealth takes discipline, sacrifice, and hard work" and that becoming financially independent requires "reorient[ing] your lifestyle" - implying that millionaires achieve their wealth through their own efforts, not inheritance.

Frugality as a Wealth Strategy

Frugality is a wealth-building strategy used by many millionaires. Rather than spending lavishly, they live well below their means. This allows them to save and invest a significant portion of their income.

Budgeting and accounting for household expenses is a common practice among the wealthy. They carefully track spending on food, clothing, shelter, and other categories. This discipline and control over consumption is crucial for accumulating wealth over time.

In contrast, many high-income earners who are not wealthy lack this budgeting mindset. They may focus solely on minimizing taxes through mortgage deductions, without closely managing other spending. This lack of financial discipline can prevent wealth-building, even with a high income.

The millionaire mindset emphasizes financial independence over outward displays of status. Driving older cars, wearing affordable clothing, and living in modest homes are common among the wealthy. They understand that true wealth comes from savings and investments, not expensive possessions.

Here are specific examples from the context that support the key insight that frugality is a common wealth-building strategy among millionaires:

  • The trust officer who spends significantly more on suits and a $5,000 watch than the typical millionaire, who "never spent even one-tenth of $5,000 for a watch." This illustrates how millionaires avoid flashy displays of wealth.

  • The 35-year-old Texan businessman who "owned a very successful business" but "drove a ten-year-old car and wore jeans and a buckskin shirt" and lived in a "modest house in a lower-middle-class area." This shows how millionaires can appear unassuming.

  • The concept of "Big Hat No Cattle" which refers to people who try to appear wealthy through expensive status symbols, unlike true millionaires who focus on building wealth rather than displaying it.

  • The finding that only a "minority of millionaires ever lease their motor vehicles," in contrast to the trust officer who leases a luxury car. This demonstrates millionaires' preference for practical, non-flashy transportation.

  • The statistic that "the majority of millionaires never spent even one-tenth of $5,000 for a watch," again highlighting their frugal approach to consumption.

The key point is that millionaires intentionally avoid conspicuous consumption and live well below their means as a wealth-building strategy, contrary to the popular perception of millionaires as big spenders.

Strategic Niches Lead to Wealth

Targeting strategic niche markets can be a powerful path to wealth. Affluent consumers often seek specialized products and services tailored to their unique needs and preferences. By identifying and effectively serving these niche markets, business owners can capitalize on lucrative opportunities.

For example, the context highlights how "dull-normal" industries like wallboard manufacturing, building materials, and auto parts can generate substantial wealth for their owners. These mundane, unglamorous businesses may not attract intense competition, and their offerings often maintain steady demand. By focusing on these types of niche markets, savvy entrepreneurs can build thriving, profitable enterprises.

The key is to leverage your expertise and knowledge to identify underserved segments within the affluent community. Whether it's a specialized service, a unique product, or a particular industry, honing in on these strategic niches can unlock pathways to wealth that may be overlooked by the masses. The key is to think creatively, understand your target market deeply, and provide exceptional value.

Here are examples from the context that support the key insight that strategic niches lead to wealth:

  • The context mentions that the affluent often leverage their specialized knowledge and expertise to make successful investments. For example:

    • An auctioneer who specializes in commercial real estate uses their expertise in that niche to make smart real estate investments.
    • A former corporate strategic planner leveraged their industry knowledge to invest early in the growing baseball card market.
    • A department store manager used their expertise from reading industry trade journals to invest in growth stocks in the retail sector.
  • The context contrasts these examples with high-income professionals who failed to leverage their specialized knowledge to make strategic investments, such as:

    • A sales professional who had Walmart as a client for years but never invested in Walmart stock.
    • A high-tech marketing manager who never invested in Microsoft or other tech companies, despite their industry knowledge.
    • A printing business owner who did a lot of work for a leading beverage company but never invested in that company.
  • These examples illustrate how identifying and serving niche markets, particularly within the affluent community, can present significant business and investment opportunities that lead to wealth accumulation. Leveraging specialized expertise and knowledge is key to capitalizing on these strategic niches.

Generational Wealth Dynamics

Wealth can quickly dissipate across generations. Many affluent families struggle to maintain their financial standing over time. The primary reason is a shift in consumption habits and lifestyle choices between generations.

The children and grandchildren of the wealthy often do not possess the same discipline and frugality as the wealth creators. They may prioritize conspicuous consumption and status symbols over prudent financial management. As a result, the family's accumulated wealth is squandered rather than grown.

To combat this trend, financial education within the family is critical. Passing down the values and behaviors that led to wealth creation in the first place can help ensure the longevity of the family's prosperity. Instilling the importance of saving, investing, and delayed gratification in younger generations is key.

Ultimately, maintaining generational wealth requires a concerted effort. Families must consciously work to cultivate the right mindset and habits across multiple generations. Only then can they break the cycle of wealth dissipation and sustain their financial standing over time.

Here are examples from the context that support the key insight about generational wealth dynamics:

  • Henry and Josh are brothers, but have very different financial outcomes. Henry is a high school math teacher, while Josh is a successful attorney. This illustrates how wealth can diverge between siblings even when they come from the same affluent family background.

  • Berl and Susan, the parents of Henry and Josh, were millionaires who accumulated their wealth through a successful contracting business. However, they chose to give substantial annual cash gifts to all of their children, including Henry and Josh.

  • The context notes that "Berl and Susan felt that such gifts would help reduce the size of their estate and thus reduce the inheritance tax their children would have to pay someday." This suggests they were focused on distributing their wealth during their lifetimes rather than preserving it for future generations.

  • The passage states that "Berl and Susan were always democratic about distributing their wealth to their children. Each adult child received the same size cash gift each year." This equal distribution, rather than tailoring gifts to each child's needs or abilities, may have contributed to divergent financial outcomes for Henry and Josh.

  • The context contrasts Berl and Susan's approach of providing "economic outpatient care" to their children, versus the discipline and self-reliance that allowed them to become successful millionaires in the first place. This highlights how a shift in values and habits can undermine the preservation of wealth across generations.

Investment in Self vs. Status

Millionaires focus on financial independence over displaying high social status. This mindset leads to more sustainable wealth accumulation.

Rather than spending lavishly on expensive status symbols like luxury cars and designer clothes, millionaires prioritize saving and investing their money. They understand that true wealth comes from growing your assets over time, not from outward displays of affluence.

This disciplined approach allows millionaires to steadily build their net worth, even if they don't look the part of a stereotypical wealthy person. They are more concerned with growing their wealth than showcasing it. This long-term focus is a key reason why so many millionaires are self-made - they put in the hard work and sacrifice to achieve financial independence.

Here are examples from the context that support the key insight that millionaires prioritize financial independence and smart investment over displaying high social status:

  • The trust officer who thought the millionaires "don't look like millionaires" and spends significantly more on suits and a luxury watch than the typical millionaire. The context states "looks can be deceiving" and that the trust officer's view is shared by most non-wealthy people who think millionaires "own expensive clothes, watches, and other status artifacts."

  • The Texan businessman who rebuilt diesel engines, drove an old car, and wore jeans and a buckskin shirt, but was actually very financially successful. As he said, "I don't own big hats, but I have a lot of cattle" - meaning he prioritized building wealth over outward displays of status.

  • The examples of high-income professionals like Mr. Willis and Mr. Petersen, who had knowledge of great investment opportunities but did not leverage that knowledge, instead spending on luxury cars and homes. The context contrasts this with millionaires like Mrs. Rule, who astutely invest their time and money based on their expertise.

  • The finding that over 80% of millionaires are "first-generation rich" - they built their wealth themselves rather than inheriting it, showing they prioritized accumulating wealth over status symbols.

The key point is that millionaires tend to be frugal and focus on smart investments and financial independence, rather than spending on expensive status symbols. This mindset allows them to more effectively build sustainable wealth compared to those who prioritize outward displays of wealth.


Let's take a look at some key quotes from "The Millionaire Next Door" that resonated with readers.

Whatever your income, always live below your means.

The quote suggests that one should consistently spend less money than they earn, regardless of their income level. By doing this, individuals can save and invest the difference, leading to financial stability and growth over time. This approach prioritizes long-term wealth creation over immediate consumption and status symbols.

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.

This quote means that the speaker values achievements and skills over material possessions. They take pride in their profession and encourage others to strive for excellence in their respective fields. Instead of chasing money directly, they believe that becoming the best in one's field will naturally lead to financial success.

Good health, longevity, happiness, a loving family, self-reliance, fine friends … if you [have] five, you’re a rich man….

The quote emphasizes that true wealth is not solely about monetary wealth, but also encompasses factors like good health, long life, happiness, strong relationships, and self-reliance. Being rich means having a fulfilling and satisfying life, surrounded by loved ones and being self-sufficient.

Comprehension Questions

0 / 25

How well do you understand the key insights in "The Millionaire Next Door"? Find out by answering the questions below. Try to answer the question yourself before revealing the answer! Mark the questions as done once you've answered them.

1. What is the true measure of wealth and how does it differ from perceived wealth?
2. What percentage of American households have a net worth of $1 million or more, and what does this indicate about wealth distribution?
3. How can living below one's means contribute to accumulating wealth?
4. Why might someone with a luxurious lifestyle not actually be wealthy?
5. What percentage of American households are headed by self-employed individuals?
6. How do the majority of millionaires in America accrue their wealth?
7. What traits are significant in predicting a millionaire's level of wealth?
8. What does the financial independence of a millionaire typically require in terms of lifestyle changes?
9. What is a common financial behavior among millionaires that helps in building their wealth?
10. Why is budgeting and tracking household expenses important for accumulating wealth?
11. How does the typical lifestyle of a wealthy individual contrast with their public perception?
12. What financial mistake do high-income earners make that prevents them from building wealth?
13. What does the concept of 'Big Hat No Cattle' illustrate about financial behavior?
14. Why can targeting niche markets be advantageous for achieving wealth?
15. How can entrepreneurs capitalize on niche markets within unglamorous industries?
16. What is essential for business owners to identify lucrative niche markets?
17. What role does specialized knowledge play in capitalizing on niche markets?
18. What are common causes for the rapid dissipation of wealth across generations?
19. Why is financial education crucial in maintaining wealth across multiple generations?
20. What mindset and habits are necessary to sustain wealth over multiple generations?
21. What do millionaires prioritize over displaying high social status in their financial strategies?
22. How is the wealth accumulation behavior of millionaires different from non-wealthy people's perceptions?
23. What are the long-term effects of millionaires focusing on smart investments over expensive status symbols?
24. How does the spending habit on status symbols differ between typical millionaires and non-wealthy individuals who aspire to look wealthy?
25. What mindset shift is typically observed among individuals who transition from being non-wealthy to becoming millionaires?

Action Questions

0 / 12

"Knowledge without application is useless," Bruce Lee said. Answer the questions below to practice applying the key insights from "The Millionaire Next Door". Mark the questions as done once you've answered them.

1. How can you assess your current financial habits to better align with building true wealth through appreciable and income-producing assets?
2. What steps can you take to shift from a high-consumption lifestyle to a more savings-focused lifestyle in order to grow your net worth?
3. How can you leverage your unique skills and interests to create a strategic business or enterprise that becomes a primary source of wealth?
4. How can you start applying a frugal approach to your monthly budget to better manage your finances and build wealth?
5. How can you apply your unique skills or knowledge to target a profitable niche market in your industry?
6. What specialized knowledge do you possess that could lead to an innovative business idea or investment opportunity?
7. How might you integrate financial education into your family's routine to reinforce the importance of prudent financial management in younger generations?
8. What strategies could you adopt to foster a culture of discipline and frugality among your family members, helping them resist the allure of conspicuous consumption?
10. How could you re-evaluate your current spending habits to prioritize long-term financial growth over immediate gratification through status symbols?
11. What steps can you take to increase your financial literacy to make better investment decisions?
12. How can you shift your focus from acquiring expensive possessions to achieving genuine financial independence?

Chapter Notes


Here are the key takeaways from the chapter:

  • Wealth is not the same as income: Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Wealth is what you accumulate, not what you spend.

  • Becoming wealthy is not about luck, inheritance, or intelligence: Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and self-discipline.

  • Most Americans are not wealthy: Nearly half of the wealth in America is owned by only 3.5% of households. Many high-income households have small levels of accumulated wealth and live paycheck-to-paycheck.

  • Millionaires are financially independent: They could maintain their current lifestyle for years without earning a monthly paycheck. Over 80% are first-generation wealthy, not descendants of the wealthy.

  • Seven factors of the wealthy: The wealthy typically (1) live well below their means, (2) allocate their resources efficiently, (3) prioritize financial independence over social status, (4) did not receive significant economic support from their parents, (5) have economically self-sufficient adult children, (6) are proficient at targeting market opportunities, and (7) chose the right occupation.

  • Comprehensive research: The authors conducted extensive surveys, interviews, and analysis over 20 years to understand who the wealthy are and how they became that way. This is the most comprehensive research on the topic.

  • Becoming wealthy requires discipline, sacrifice, and hard work: If you are willing to make the necessary lifestyle changes, you can begin building wealth and achieving financial independence.

1:   Meet the Millionaire Next Door

Here are the key takeaways from the chapter:

  • Millionaires do not fit the stereotypical image: Millionaires do not dress, eat, or act like the stereotypical wealthy person. They tend to live well below their means and avoid conspicuous consumption.

  • Most millionaires are first-generation wealthy: Around 80% of millionaires are first-generation affluent and did not inherit their wealth. They have built their wealth through their own efforts.

  • Millionaires have "dull-normal" businesses: Many millionaires own businesses in industries that may be considered unexciting, such as welding, pest control, or mobile home parks.

  • Millionaires live well below their means: Millionaires tend to be frugal, wearing inexpensive suits, driving American-made cars, and avoiding leasing vehicles. Their wives are often meticulous budgeters.

  • Millionaires are well-educated: While only about 20% of millionaires did not graduate college, many hold advanced degrees such as master's, law, medical, or PhD.

  • Millionaires are diligent investors: On average, millionaires invest nearly 20% of their household income each year, with most investing at least 15%.

  • Millionaires come from diverse backgrounds: While the English ancestry group has the highest representation among millionaires, other groups like Russians, Scots, and Hungarians have even higher concentrations of millionaires.

  • Wealth can be built in one generation: Contrary to the belief that wealth requires inheritance, many millionaires have built their fortunes from modest backgrounds through hard work, frugality, and entrepreneurship.

  • Wealth can be lost in subsequent generations: The fortunes built by first-generation millionaires are often dissipated by the second or third generation, as their descendants adopt a higher-consumption lifestyle.

  • Wealth is better measured by net worth than income or possessions: The authors define "wealthy" based on net worth, not material possessions or income, as many people with high incomes and expensive items may have low net worth.

2:   Frugal Frugal Frugal

Here are the key takeaways from the chapter:

  • Frugality is the cornerstone of wealth-building: The affluent, including millionaires, tend to be frugal in their spending habits, contrary to the popular perception of the wealthy living lavish lifestyles. Millionaires often spend modest amounts on clothing, accessories, and other consumer goods.

  • Millionaires play both great offense and great defense: Millionaires typically have high incomes (great offense) and also practice disciplined budgeting, planning, and frugal spending (great defense), which allows them to accumulate wealth over time.

  • Auctioneers are disproportionately wealthy: Auctioneers are more likely to be millionaires compared to the general population, due to their frugal spending habits and ability to leverage their expertise to make investments.

  • Under Accumulators of Wealth (UAWs) have a consumption-oriented mindset: UAWs, often high-income earners, tend to spend their income on conspicuous consumption rather than saving and investing, leading to low net worth relative to their income.

  • Minimizing realized (taxable) income is key to wealth accumulation: Millionaires and the super-affluent often minimize their realized income, which is subject to taxation, and instead focus on growing their unrealized (non-taxable) wealth through investments and other strategies.

  • Living in high-status neighborhoods can hinder wealth accumulation: Residing in expensive, high-status neighborhoods often requires a larger portion of one's income to be allocated towards housing costs, leaving less available for saving and investing.

  • The government's interest in taxing wealth: The chapter suggests that the government is interested in finding ways to tax wealth, rather than just income, as a means of increasing tax revenue from the affluent population.

3:   Time, Energy, and Money

Here are the key takeaways from the chapter:

  • Efficiency is Key to Wealth Accumulation: Prodigious accumulators of wealth (PAWs) allocate their time, energy, and money in ways that are conducive to building wealth, while under accumulators of wealth (UAWs) do not.

  • PAWs Spend More Time Planning Investments: PAWs spend nearly twice as much time per month planning their financial investments compared to UAWs. This strong positive correlation between investment planning and wealth accumulation is a key factor in why PAWs are able to accumulate more wealth.

  • Doctors Tend to Be UAWs: Physicians, on average, have a significantly low propensity to accumulate substantial wealth compared to other high-income occupations. This is due to factors like the correlation between wealth and education, as well as doctors' tendency to allocate more time to serving patients rather than planning their own finances.

  • Budgeting and Controlling Consumption are Critical: PAWs like Dr. North operate on a well-thought-out annual budget and are able to invest a significant portion of their income, while UAWs like Dr. South have no budget control and spend most or all of their income.

  • PAWs and UAWs Have Different Orientations Towards Spending: PAWs like the Norths live well below their means, while UAWs like the Souths spend at a level consistent with households earning much higher incomes.

  • UAWs Worry More Than PAWs: UAWs tend to have significantly more fears and concerns, such as not being wealthy enough to retire comfortably or never accumulating significant wealth, compared to PAWs.

  • Time Allocation is a Key Differentiator: PAWs allocate more of their time to planning and managing their investments, while UAWs spend more time worrying about their economic well-being and less time taking proactive steps to improve their financial situation.

  • Hiring Quality Financial Advisors is Important: PAWs are more likely to carefully evaluate and hire financial advisors, while UAWs are more susceptible to cold calls from brokers and investment "experts".

4:   You Aren’t What You Drive

Here are the key takeaways from the chapter:

  • Financial Independence vs. Social Status: The chapter discusses how some people, like Mr. W.W. Allan, believe that financial independence is more important than displaying high social status through expensive possessions.

  • Millionaire Car Buying Habits: Millionaires tend to be more frugal car buyers compared to the general population. Many millionaires prefer to buy used cars or new cars at a significant discount rather than expensive luxury vehicles.

  • Four Types of Millionaire Car Buyers: The chapter identifies four distinct types of millionaire car buyers based on their preferences for new vs. used vehicles and their loyalty to specific car dealers.

  • Networking and Reciprocity: Some millionaire car buyers, especially the "new vehicle-prone dealer loyalists", leverage their business relationships and reciprocal arrangements with car dealers to get favorable pricing and service.

  • Frugality and Wealth Accumulation: Millionaires who are "used vehicle-prone shoppers" tend to be the most frugal in their spending habits across various categories. This frugality allows them to accumulate wealth more effectively than their high-income, high-consumption neighbors.

  • Perception vs. Reality: Many high-income individuals who appear wealthy through their consumption of status symbols are actually "under accumulators of wealth" (UAWs) with relatively low net worth compared to their income level. In contrast, the frugal millionaires are often mistaken for being less wealthy than they truly are.

5:   Economic Outpatient Care

Here are the key takeaways from the chapter:

  • Economic Outpatient Care (EOC): EOC refers to the substantial economic gifts and "acts of kindness" that some affluent parents give their adult children and grandchildren. This can include funding tuition, mortgages, medical expenses, and providing other financial support.

  • Negative Effects of EOC: Adult children who receive significant EOC tend to have lower wealth and income levels compared to those who do not receive such gifts. EOC can reduce the initiative and productivity of recipients, leading them to become dependent on continued gifts rather than becoming self-sufficient.

  • Frugality vs. Consumption: Individuals who receive EOC are more likely to be heavy consumers and live above their means, while those who do not receive such gifts tend to be more frugal and live below their means, allowing them to accumulate wealth more effectively.

  • Weakening the Weak: Some affluent parents inadvertently "weaken the weak" by over-subsidizing their less productive children, rather than encouraging independence and self-reliance.

  • Importance of Courage and Risk-Taking: Successful entrepreneurs and business owners often display considerable courage in taking financial risks, which is less likely to develop in an environment of heavy subsidization and lack of adversity.

  • Exceptions: Teachers and Professors: Teachers and professors who receive EOC tend to be more likely to save and invest the gifts, rather than using them primarily for consumption, compared to recipients in other occupations.

  • The Case of Laura: The chapter presents the story of Laura, a woman who demonstrated great courage and resilience in becoming a highly successful real estate executive after her husband abandoned the family, rather than relying on her affluent parents for support.

6:   Affirmative Action, Family Style

Here are the key takeaways from the chapter:

  • Affluent parents often provide more financial support to their less economically successful children. Affluent parents tend to provide more economic outpatient care (EOC) and inheritance to their nonworking adult daughters and temporarily unemployed adult sons, while their more economically successful offspring receive less EOC and inheritance.

  • There are two distinct types of housewife-daughters of the affluent: Type A and Type B. Type A housewives tend to be well-educated, take on leadership roles in caring for their elderly parents, and are likely to be executrixes or co-executors of their parents' estates. In contrast, Type B housewives are viewed as needing economic and emotional support, tend to be less well-educated, and often receive cash gifts and inheritance from their parents to help maintain a middle-class lifestyle.

  • Affluent parents often have a form of "economic affirmative action" for their daughters. Affluent parents tend to provide more financial support to their daughters, even those with careers, due to the perception that women face more income-generating challenges than men.

  • The traditional affluent family structure can discourage daughters from pursuing careers. Affluent parents often encourage their daughters not to work and instead focus on being homemakers, which can perpetuate the income inequality between men and women.

  • Affluent parents should be cautious when choosing executors for their estates. Involving outside professionals, such as attorneys, as co-executors can help prevent conflicts and animosity among heirs, especially when the estate plan is complex or involves verbal promises and monetary commitments.

  • Affluent parents should teach their children discipline, frugality, and the value of achievements over symbols of success. Successful affluent parents often raise their children to be well-disciplined, frugal, and focused on achievements rather than conspicuous consumption.

  • Affluent parents should minimize discussions and comparisons of how their wealth will be distributed among their children. Making explicit promises or comparisons about inheritance and gifts can lead to conflicts and resentment among siblings.

7:   Find Your Niche

Here are the key takeaways from the chapter:

  • Targeting the Affluent Market: The chapter emphasizes the significant business opportunities that exist in targeting the affluent, their children, and their widows/widowers. The affluent, especially the self-made affluent, are not as price-sensitive when it comes to purchasing investment advice, accounting services, legal services, medical/dental care, educational products, and products/services for their children and grandchildren.

  • Growth in Wealth and Millionaire Households: The chapter presents data showing that the total net worth of American households is expected to grow significantly by 2005, with millionaire households accounting for a majority of this wealth. It is estimated that the millionaire household population will reach 5.6 million by 2005, controlling $16.3 trillion or 59% of the personal wealth in America.

  • Intergenerational Wealth Transfer: The chapter discusses the substantial wealth that will be transferred to the children and grandchildren of the affluent, either through estates or direct gifts. It is estimated that during 1996-2005, $2.1 trillion will be distributed through estates, with $560.2 billion going to widows and $400 billion to children. Additionally, affluent parents/grandparents are expected to give over $1 trillion in gifts to their adult children and grandchildren.

  • Opportunities for Professionals Serving the Affluent: The chapter identifies several professions and businesses that are likely to benefit from serving the affluent, including:

    • Estate attorneys
    • Tax attorneys
    • Immigration attorneys
    • Medical/dental specialists
    • Asset liquidators, facilitators, and appraisers
    • Educational institutions and professionals
    • Accountants and other professional service providers
    • Housing specialists and related service providers
    • Fundraising counselors
    • Travel agents and consultants
  • Geographic Distribution of Opportunities: The chapter provides estimates of the number of millionaire households by state in 2005, with California having the largest millionaire population and Connecticut having the highest concentration per 100,000 households.

8:   Jobs: Millionaires versus Heirs

Here are the key takeaways from the chapter:

  • Self-employed business owners are more likely to become millionaires: The chapter states that self-employed business owners, including professionals like doctors and lawyers, are four times more likely to become millionaires compared to those who work for others.

  • Profitability of industries can change over time: The chapter provides the example of the dry cleaning industry, which went from being highly profitable in the 1980s to much less profitable in the 1990s. It also gives examples of other industries like coal mining and men's clothing that experienced significant changes in profitability over the years.

  • Self-employed professionals are less risky than other business owners: The chapter argues that self-employed professionals like doctors and lawyers have more portable skills and are less susceptible to external factors that can impact the profitability of a business. This makes them a preferred path for the children of affluent business owners.

  • "Dull-normal" businesses can be more profitable than exciting industries: The chapter cites a Forbes article that suggests "dull companies with steady earnings growth" can make the best long-term investments. It provides a list of "dull-normal" businesses that are often owned by millionaires.

  • Business owners perceive less risk in self-employment: The chapter discusses how business owners have a set of beliefs that help them perceive self-employment as less risky, such as being in control of their own destiny and having unlimited income potential.

  • Conflict between PAWs and UAWs: The case study of Mr. W. illustrates the conflict that can arise when a self-made millionaire (a PAW) interacts with status-conscious, upper-middle-class condominium owners (UAWs) who try to impose restrictive covenants that clash with the PAW's lifestyle and preferences.


What do you think of "The Millionaire Next Door"? Share your thoughts with the community below.