BLOG

America: Where Millionaires are Self Made

By Thomas J. Stanley on May 6th, 2014 in Current Events

Recently a fellow asked me about my impressions of French economist Thomas Piketty’s new book, Capital in the Twenty-first Century.  I have not read the book, but I’ve read comments about it including a recent interview with the author.  He postulates the existence and forecasts the growth of inequality in terms of the concentration of wealth and income.

In the introduction to the interview, there was an interesting statement: “hard work will matter less, inherited wealth more.”  Really?  Added up the entire annual realized income of those households in the $10M and over category the total would be over $300 billion. What percent of this amount is derived from trusts and estates? The answer is 1.3%.  This percentage even doubled or tripled would hardly qualify America as a country where inherited wealth “mattered more.”

It appears from the interview that both Mr. Piketty and the interviewer are using income and wealth as synonymous terms.  They are not.  In my thirty-plus years of surveying and studying millionaires, I have consistently found that 80 to 86% are self-made.  That also applies to decamillionaires.  In 1982 according to Forbes about 38% of America’s wealthiest people were self-made.  In 2012, the percentage jumped to 70%.

In a recent blog, I cite what many consider to be the most exhaustive study of socioeconomic mobility in America.  Professors Chetty of Harvard and Saez of Cal-Berkeley studied about 50 million federal income tax returns of parents and their adult children.  Part of this study as mentioned in The Wall Street Journal stated that:

The odds of a child moving up the economic ladder have remained the same for about the past three decades . . . that contradicts the narrative in Washington that economic mobility has declined in recent years.

Economic opportunities abound in this country.  Yet most Americans are not wealthy. It is easy to blame the so-called inequities in our economy.  But it is more about the fact that Americans spend all or most of their income on things that have little or no lasting value! They lack the discipline required to accumulate wealth. Most households are on a treadmill of working and consuming.  The typical American household has a median annual realized income within the $50,000 to under $75,000 bracket.  Only 6.3% of these people have any realized capital gains income.  Thus an update is in order.  Remember what I wrote in The Millionaire Next Door: big hat, no cattle. And now the update: no capital, no capital gains.

 

 

19 responses to “America: Where Millionaires are Self Made”

  1. Thad says:

    Piketty – “A: Instead of having a flat tax on real estate property, you would have a progressive tax on individual net worth. You would reduce the property tax for the people who are trying to start accumulating wealth.”

    What a great incentive for people to work hard…

  2. Sam says:

    And by promoting these false inequalities, people get an excuse for their own failure to succeed. ” Well the system isn’t fair, the deck was stacked against me, I didn’t have a rich daddy….” etc, etc. Great post, thanks for rebutting this nonsense.

  3. mysticaltyger says:

    I agree with most of what you’re saying here. Unfortunately, I think you’re preaching to the already converted. Kind of frustrating the people who need to hear the message most will not listen to it.

  4. Kristin says:

    It’s very strange that you would approvingly cite Saez when Saez and Chetty’s thrust was that, while mobility has not decreased substantially, it was very bad compared to the rest of the OECD to begin with…

  5. Terry Pratt says:

    Yes, economic opportunities abound in this country; I have seen as much from the bottom of the economy.

    But in order to become wealthy, one needs to have either the right skills, capital, or access to capital.

    All the frugality in the world will not transform a burger flipper into a millionaire.

  6. Scott says:

    Yes, a burger flipper can become wealthy. He works his way up the ladder to manage the burger joint. He saves assiduously for 40 years. I have a good friend who is a multimillionaire on a high school PE Teacher’s salary. He made no more than the guy who manages the local Burger King. (Rod Harman, featured in Money Magazine)

    • Jacquelope says:

      A school teacher’s salary is what again? Times how many years? The math on what you’re saying doesn’t add up. Rod Harman would have had to live like a homeless bum just to not have his rent or mortgage eat his income out of his hands. Or live in the most roach infested trailer park in the country. Or live at home. If you’re living on just a teacher’s salary, paying for any kind of housing anywhere in America, you will never get rich. The laws of math dictate that. Rod Harman was doing something else, maybe he found a lucky stock that went Big Bang or something, to boost his money, and then started flipping houses. But he didn’t do that just on a teacher’s salary, nosiree. Now if he was a professor in college, the math might support his rise to multimillionaire status, but not, as you said, if he made no more than the guy who manages the local Burger King. Not happening. Ever. He got money from somewhere else.

  7. […] nel 2012 questa percentuale era salita al 70%. Questo vuol dire che la ricchezza è più probabile crearsela da soli che ereditarla. Questo è il terzo mito da […]

  8. […] Yes, you read that correctly: Surveys show that most millionaires didn’t actually inherit much of their wealth. In a 2013 survey of American millionaires by BMO Private Bank, two thirds (67%) said they were self-made, meaning they hadn’t inherited their wealth. “Millionaire Next Door” author Thomas J. Stanley wrote that, in his years of research, he found that about 80%-86% of America’s millionaires were self-made. […]

    • Troy says:

      inheritance is not the only way to pass down money. Leaving your children a house, buying their car, giving a substantial loan. These are all advantages, and I would bet money that 90% of millionaires do not come from nothing, they just don’t start with millions

  9. […] Yes, you read that correctly: Surveys show that most millionaires didn’t actually inherit much of their wealth. In a 2013 survey of American millionaires by BMO Private Bank, two thirds (67%) said they were self-made, meaning they hadn’t inherited their wealth. “Millionaire Next Door” author Thomas J. Stanley wrote that, in his years of research, he found that about 80%-86% of America’s millionaires were self-made. […]

  10. […] Yes, you read that correctly: Surveys show that most millionaires didn’t actually inherit much of their wealth. In a 2013 survey of American millionaires by BMO Private Bank, two thirds (67%) said they were self-made, meaning they hadn’t inherited their wealth. “Millionaire Next Door” author Thomas J. Stanley wrote that, in his years of research, he found that about 80%-86% of America’s millionaires were self-made. […]

  11. ATEM Andrew says:

    Who is actually a self made millionaire? Is somebody like Trump considered sefl-made? I think the real issue is defining what self-made. Once you are born in a rich or middle class family, you have some unparalleled advantages, that is a fact.

  12. TOM WILSON says:

    Yes, I believe that around 85% of people with a net worth of over $1 million are self-made. Myself, I started with a $10,000 down payment on a Iowa corn and soybean farm in 1989 and have continued on by buying an additional 7 more farms in Iowa. They have now increased in value to over $10 million dollars. Remember, I started with only $10,000 dollars of my own money in 1989, so yes, it is very, very, possible to achieve a $10 million dollar net worth with only starting out with next to nothing in terms of cash.

  13. Barry Wheeler says:

    Numbers don’t lie, people do. Everyone bends, twists, and tweaks there “definitions” to accommodate their agenda. No matter how you debate the why, the fact is income inequality continues to grow in the USA. Those with wealth will always try to justify what they have as being the deserved result of sacrifice and hard work. Fact is there is no justification for the obscene wealth inequality in this country and the world. Even from an economic stand point of added value, no one has EVER done ANYTHING for the economy that would justify them having thousands of times more worth than what other families make in generations. Wake up 1%, you will have a real hard time when you get to the pearly gates explaining how you deserved exponentially more of the worlds resources than the millions of hard working class people that actually make the world go around.

    • Shane Abbott says:

      Barry, I don’t expect to change your mind on this, but maybe seeking some common ground on definitions would be helpful. Let’s ask ourselves on a case by case basis: Lottery winners and Trust fund inheritors (Not self-made), professional athletes, Business developers, salesmen, Real Estate Investors, entertainers, Technology innovators (self-made). Perhaps this would also be helpful: If you take all the money away from a millionaire, and then come back in five years, and they have returned to millionaire status that person was a self-made millionaire. 80% of millionaires fit into that category.

      • Randall Postiglione says:

        Shane, I’m so tired of hearing that “what if” conservative rationalization. A little more than my gut tells me that a more accurate estimate would be 20% fitting into that returning millionaire status. And remember, those 20% remember how they got there and therefore can trace the same contacts, strategies, stock investments and benefactors. This is a banal conservative argument that lulls them to sleep each night as they rest on the handgun they have under there pillow…

  14. Michael J. Miller says:

    Excellent argument IN FAVOR of the high Estate Tax. IF the children of the ‘self-made’ millionaires don’t need it, (as they,too, can make it without inheriting it), then it would be INJURIOUS to those children to burden them with that onerous wealth.
    I think Warren Buffett adheres to this theory!

  15. JA Germann says:

    Roughly 25% of US adults have 4 year or more college degrees. Were they born more intelligent? Do the rags to riches stories have more to do with good timing and luck than anything else? As a kid I moved from a poor neighbor to a middle class and up neighbor hood. Attitudes were night and day different. That helped me aim higher, but not as high as my ex wife wanted??‍♂️

Leave a Reply

Your email address will not be published. Required fields are marked *