The Millionaire Next Door: The Surprising Secrets of America's Wealthy (ISBN 0-671-01520-6) is a 1996 book by Thomas J. Stanley and William D. Danko.
They found that millionaires are disproportionately clustered in middle-class and blue-collar neighborhoods and not in more affluent or white-collar communities.
Stanley and Danko's book explains that high-income white-collar professionals are more likely to devote their income to luxury goods or status items, thus neglecting savings and investments.
Under Accumulator of Wealth (UAW) is a name coined by the authors and used to represent individuals who have a low net worth relative to their income.
The authors offer a rule of thumb (more appropriate for those who are older and thus have been earning longer): “Multiply your age times your realized pre-tax annual household income from all sources except inheritances.
This finding is backed up by surveys indicating how little these millionaire households spent on such things as cars, watches, clothing, and other luxury products or services.
Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that "They live below their means").
Buying status objects such as branded consumer goods is a never-ending cycle of depreciating assets.
The authors make the observation that UAWs tend to have children who require an influx of their parents' money in order to afford the lifestyle that they expect for themselves.
The most prominent idea shared by UAWs and American society in general is "spending tomorrow's cash today".
[1] These claims and ideas usually branch off an initial belief that a lack of wealth can simply be solved by an increase in income.
[2] The "Better Than" theory is one of the main reasons many UAWs don't hold true to their promise to invest after a rise in income.
According to a study conducted by Yale and stated in The Millionaire Next Door, individuals measure the level of their success through comparison to nearest neighbors and closest relatives.
This theory suggests that those UAWs who grow up in a poor family and land a high-income career have a tendency to feel the need to be "better off" than their parents.
To a UAW, "better off" implies a larger house, a respectable degree, a foreign luxury car, a boat, and a club membership.
Teddy Friend is a typical UAW that grew up in a poor family but was still exposed to a rich lifestyle at school.
An example given in The Millionaire Next Door explains how small purchases of cigarettes over a long period of time can represent a large sum of money.
[1][clarification needed] Had the Friends invested and reinvested that money over a 46-year period, the portfolio would have exceeded $2 million.
According to the authors, a common UAW drives a current model car, purchased new, and may have financed it on credit.
In the end, while the car was purchased "near dealer cost," the UAW's time and money could have been more efficiently spent creating wealth rather than collecting possessions notorious for depreciating in value.
The authors contrast the story with a PAW who decided that the pride of owning a brand new car wasn't worth the $20,000 price difference.
Cold callers, usually brokers who in fact know very little about the stock market, target high income earning families and persuade them into purchasing investments with them.
A vulnerability to cold callers can subject individuals to lose trust in the stock market and eventually become a UAW.
During this enormous growth period, Mr. Willis bought zero shares of the company he worked for, although he had firsthand knowledge of its success.
Doctors are expected to live in an upscale neighborhood with multiple cars, a boat, and other luxury items.
[1] With doctors having a high propensity to be a UAW as evidence, there is an indirect relationship between the level of income an individual earns and the net wealth that one accumulates.
If the Friends had invested the money they had been consuming, they would have been considered PAWs; however, the standard of living that their son, Mr.
[1] Economic Outpatient Care (EOC) is a term used to express when an affluent parent provides money to an adult child.
Thirty percent of American families live in homes valued at $300,000, yet only earn an annual income of $60,000.
He suggested that the authors should lower the net worth of the observed millionaires to compensate for the effect of the unobserved losers, and to consider the fate of accumulators following prolonged periods of recession such as in 1982 or 1935.