Dependent Origination

The Millionaire Next Door

Posted on: May 16, 2013


I read the 1997 version instead of the 2010 version, since the latter was all out in the library. I wonder if the 2010 version would state something different, since the wealth gap has been widening over the last fifteen years or so, which isn’t helping the middle class or the small business owners, as touted here in the 1997 version.

A few facts that might be surprising from the book:

1. 80% of the millionaires in America are first-generation rich. More than 70% (?) of them never received inheritance from their parents or grandparents.

2. More than 50% (or some other number?) of the wealth accumulated by the said first-generation rich would be gone by the third generation. Sounds similar? fu bu guo san dai ah.

Other than that, the book isn’t saying much that an Asian person wouldn’t know about wealth accumulation 🙂 Basically, it is frugality and delayed gratification, which is instilled in most if not every Asian household, I think 🙂 The chapter describing how people go about buying a used car is fairly useful in terms of emulating other people’s negotiation skills. The last chapter on how the wealth-preserving families teaches their children is striking in the sense that some of the first-generation rich parents never realized frugality played such important role in their own wealth accumulation so they never taught their children that. Instead, they wanted their children to be like “the status people” they used to admire: nice cars, nice house, private schools etc. But the tricky thing is even if their children can be high income earners being doctors or lawyers, spending will easily trap them into the high-income-low-net-worth situation, where no one can easily get out of without modifying their consumption life styles. So watch out for that trap. In fact, without careful planning and discipline in executing what you plan, it would be a little hard to achieve even a reasonable goal of saving.

Most of the people interviewed in the book are small business owners and I think the book said all of them invested in stock market. Consider the lucky baby boomers’ time range, it is not hard to understand why they accumulate wealth even if their yearly income isn’t that high at all (a lot of them have been making less than $100k a year in fact). But they are consistent in investing. In fact, the author says in the book that you need to invest 15% of your salary every year. If not counting 401K contributions, I am far behind on that number! Even saving 15% of your salary isn’t that easy, for a single income household! With a second income, that should be a lot easier! Looking lovingly at the days when both of us had income 🙂

Another side effect of reading the book is I realize how many people must be living on money from their parents 🙂 Each year, the parents can give to each child $14000 without tax consequences. Imagine that over the 20 years from birth to college. I have always wondered why some of my younger colleagues could afford houses more expensive than I would feel comfortable with — that must be the reason 🙂 On another note, I went to Rosewood Hotel for a reception after reading the book. All the white, young couples there make me wonder if they can afford the nice hotel, nice clothes, nice strollers because of financial help from their parents 🙂 I am not feeling jealous, in fact I am very proud of the fact that everything I have I made it on my own, at the same time supporting my parents’ household for nearly twenty years. But I have been curious about how some people can live the life they are living, that is all 🙂


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