Are there still ‘millionaires next door’?
When Thomas Stanley and William Danko published their best-selling book in 1996, they made much of the statistic that â€ś80 percent of Americaâ€™s millionaires are first-generation rich.â€ť The majority, they pointed out, were entrepreneurs, many working in blue-collar professions.
Anyone could make it big, the two authors all but proclaimed; all you need is frugality and a few tax breaks. Donâ€™t live in a pricey home. Put a cork in the Cabernet, and pop a Coors instead. But most important, open your own business. When it came to the secret sauce for scoring a million bucks, â€śa very big factor is self-employment,â€ť Stanley said.
The ensuing years have not been kind to the working-class millionaire.
A little-noticed marketing report released last month by U.S. Trust contained the disturbing statistic that while almost a third of Baby Boomers worth more than $3 million claimed to have grown up in lower-middle-class homes, the number fell precipitously for younger cohorts, with 18 percent of Gen Xers and a mere 6 percent of such Millennials saying they came from working-class stock.
And when business owners were studied separately, two-thirds of the Baby Boomer group described their family of origin as lower or middle-class. Generation Y? A mere 12 percent.
In a nation that prides itself on its class fluidity and entrepreneurial spirit, this is just the latest sign that our engines of social mobility are, to borrow a clichĂ© from the blue-collar automotive repair profession, stalling out.
How could this happen? Well, when Mitt Romney proclaimed twentysomethings should â€śborrow money from your parentsâ€ť in order to get ahead, he gave the game away.
In the modern American economy, it takes money to make money — an obvious conclusion of anyone reading a 2012Â Pew Charitable TrustsÂ study, which found that less than 5 percent of people born into families whose household incomes ranked in the bottom 20 percent of the population earned top incomes as adults. “The rags-to-riches story is more often found in Hollywood than in reality,â€ť the report dryly noted.
Kickstarter canâ€™t compare to the bank, or at least The First Household Bank of Mom and Dad, when it comes to funding fledgling self-started efforts. Most beginning stage entrepreneurial endeavors need personal savings or money from friends and family to survive, since â€śprofessional investors and banks are not likely to invest in businesses until they see a strong path to profitability,â€ť as a 2012 study on entrepreneurship in the United States by the Global Entrepreneurship Monitor at Babson College put it.
It should therefore come as no surprise to discover that any number of our most recent rags-to-riches success stories should instead be considered riches-to-even-more-riches sagas, with parents coming in to save or start the day. Chipotleâ€™s Steve Ells, for example, was able to open and expand his gourmet burrito stand near the University of Denverâ€™s campus into a fast causal empire thanks, in part, to an $85,000 combined loan and investment from dad.
And itâ€™s not just money. The upper-middle classes can pass on a more elite sort of aid. Think about social capital, the doors high-powered acquaintances can open up for children of friends. Tumblr founder David Karp was no bored high school dropout. He was, instead, a connected one, whose mom was able to get him an internship at an online animation company because, as the New York Times reported, the founderâ€™s â€śwife was friendly with Karpâ€™s mother.â€ť
Studies of Silicon Valley back up the anecdotal evidence Karpâ€™s ascent supplies. When data outfit CB Insights studied venture funding, they found the majority of recipients were based in California, New York and Massachusetts. This should come as no surprise. The venture capital industry itself is no triumph of classless meritocracy, with the National Venture Capital Association determining in 2011 that more than half of those working in the field they surveyed had attended one of ten prestigious higher education institutions. Tied for first place? Harvard and Stanford Universities.
And if you are wondering who is attending such elite schools, all you need to know is that a calculation done by the Harvard Crimson in 2011 concluded that 45 percent of all undergraduate students then in attendance came from families where the annual household income was in excess of $200,000. So much for social theorist George Gilderâ€™s 1990 assertion that â€śmost of the progress in the world and Silicon Valleyâ€ť comes from the â€śgenius and sweat of the outsider.â€ť
Finally, if a lack of parental investment wonâ€™t stop a would-be millionaire next door, itâ€™s likely our nationâ€™s ongoing student loan crisis will. The amount of debt per student with loans is $28,000 for graduates of the class of 2013 (Fidelity Investments claims $35,000 if you count credit card bills and loans from parents). Faced with a tab like this, at least some members of Generation Y have understandably concluded they canâ€™t afford to take on much in the way of financial risk. A survey earlier this year by a group called Young Invincibles found 23 percent of those with private student loans claiming they would like to start their own entrepreneurial endeavor, but that the amount they need to pay back to less-than-flexible lenders is stopping them.
To be fair, itâ€™s likely The Millionaire Next Door always underestimated the impact of parental support. Even though Stanley and Danko wrote that their millionaires did not offer their adult children homegrown financial aid, the better to encourage financial independence, they admitted that they did often pay for such extras as private schooling, something that many of us would consider both a valuable educational and networking assist. Sure, they might have neglected to mention their exact net worth to their sons and daughters, but there was little doubt the kids were getting a boost thanks to the parental kitty.
All too often, it seems, the most middle-class thing about many wealthy Americans is their insistence that they are still a part of it.
But at least once upon a time, our millionaires could at least plausibly claim to have once been part of the great middle. For the younger generations, thatâ€™s increasingly no longer the case.
The Millionaire Next Door 1996-2013. RIP.
PHOTO: Stacks of one hundred U.S. dollar banknotes, August 11, 2011. REUTERS/Jo Yong-Hak