Another top 10 most often asked question: Why is it that my adult children are hyperconsumers?
My simple and straightforward answer: Typically it is because their parents taught them to be spenders! Hyperspending parents tend to raise hyperspending children. These parents violated Rule 1 for raising productive adults [from The Millionaire Next Door]:
Rule 1: Never Tell Children that Their Parents are Wealthy.
The immediate responses are: “we never told our kids that we are rich” and “we in fact are not rich.” But if they read Stop Acting Rich, they will find a profile of the “glittering rich.” These are people whose incomes and net worths are so high that most of them do not have a household budget. They don’t plan.
No matter what they spend their money on, though, it’s just a fraction of their overall net worth. In other words, even the glittering rich spend below their means.
Interestingly more than two thirds of households in this country with incomes in the $80,000 to under $200,000 range who are not millionaires do not have a detailed budget and do not account for what they spend each year on food, clothing, shelter, etc. In other words, they are acting like they are in the glittering rich category but they are not.
One of my recent Tweets was: Wealth is attracted to people who respect money. Those who do not budget or account for annual consumption categories demonstrate a lack of respect for money. Children who are raised in such households have a tendency to turn out like their parents and become Income Statement Affluent. About 4 in 5 millionaire next door types report that “my parents were very frugal.”
I have interviewed many millionaire next door types who never had a total realized household income in excess of $100,000, but they could tell you to the dollar amount how much they allocated to every consumption category. And they also constructed a budget for each year based on anticipated income, dollars spent on consumption categories, and the proportion of their income set aside for investing, retirement, college funds, etc. Imagine the impact upon children who are socialized in an environment where money is respected. They watch their mother and/or father religiously accounting and planning their financial lifestyle. It will be obvious to these children that their parents are not part of the glittering rich.