When you were growing up, you likely spent some time talking with your friends about being a millionaire. Maybe the conversation was around what would do if you had a million dollars. The word “millionaire” for my generation conjures up images of Thurston Howell III, the wealthy tycoon from Gillian’s Island. Or Bill Gates. Or hundreds of other actors, athletes, or business leaders who made it big. The truth about the average millionaire is actually quite different. While the star football player and the A-list actress may be millionaires, the average millionaire in the United States looks shockingly ordinary. But don’t take my word for it. Instead, let’s take a peek at a 2019 study about millionaires and compare the statistics from that study to seven widely-held beliefs about millionaires.
Belief #1 – Wealthy people use debt in their favor to make more money.
Fact Check – Millionaires are less likely to carry debt compared to the general population. In a random sampling of 2,000 millionaires, only 6% carried credit card debt compared to 40% in the general population. Similarly, only 18% of millionaires have a car loan vs almost double that with 35% of the general population. The numbers were more dramatic with student loans (2% vs 22%) and loans from family and friends (1% vs 8%). The only debt percentages that were close between millionaires and the general population are business loans (2% for both groups), home equity loans (10% for millionaires and 9% for general population), and mortgages (30% vs 34%). The study suggests that millionaires engage in debt less often than the general population does. Almost two-thirds of millionaires have ever taken out a car loan compared to almost three-fourths of the general population (65% vs 73%). Millionaires avoid credit card and student loan debt with only 27% ever holding credit card debt (vs 66% of the general population) and 29% ever holding student loan debt (vs 47% of the general population). Those numbers seem to point out a general aversion to debt except for big purchases like a house and car.
For millionaires who go into debt, it appears they pay off their debt and stay out of debt. In the study, 70% of millionaires don’t have a mortgage, and 82% don’t have a car loan. The statistics point to a pattern of millionaires avoiding debt and paying off debt when it is incurred. Instead of using debt as a tool, debt is avoided, debunking the common belief that debt is a wealth-building tool.
Belief #2 – Most wealthy people come from wealthy families.
This belief hinges on our definition of “wealthy,” but let’s look at this in terms of income class. Millionaires in the study broke down their childhood economics this way:
| Income Class | % Millionaires Households in Childhood |
| Lower Class | 4% |
| Lower-Middle Class | 27% |
| Middle Class | 48% |
| Upper-Middle Class | 19% |
| Upper Class | 2% |
If we define Upper-Middle Class and Upper Class America as “wealthy” then only 21% of current millionaires came from wealthy families. What we actually see is a nice bell curve that skews slightly toward the lower income levels. The stats show that millionaires are more likely to have come from a family below middle class (31%) than to have come from a family above middle class (21%). The majority of American millionaires came from middle class households or below (79%, in fact). Almost 8 out of 10 millionaires were not born or raised with a silver spoon in their mouths. That debunks belief #2.
Belief #3 – To become rich, you have to take big risks with your money.
Investing in and employer-sponsored 401(k) or a Roth IRA is the most commonly used wealth-building vehicle and was used by 80% of the millionaires in the study. While the investments inside of those vehicles could have more or less risk, 401(k) and IRA investments as a form of investing are not super risky. The next most popular vehicles are Exchange Traded Funds (ETFs), single stocks, traditional IRAs, and saving accounts. Again, the specific investments within the 401(k) or IRA would be the greatest measure of risk, but in general, investing in the stock market will yield positive returns. Since 1926 the S&P 500 has returned an average of 12.01% per year. That might seem surprising, especially when you consider the Great Depression and a 37% drop in 2008 are included in that average. Prior to 2022, that S&P 500 lifetime return was 12.33%. While there is risk in the market, it is hard to call IRA and 401(k) investing as “risky” investments. If the unproven cryptocurrency is what folks have in mind, that is not how the millionaires in the study made their money. Old-fashion retirement plans and savings accounts led the way and serve to debunk the high-risk myth about millionaires.
Belief #4 – The majority of millionaires inherited their money.
With a reported 79% of millionaires receiving no inheritance, that statistic alone debunks the belief that most millionaires inherit their money, but let’s dig in a little deeper. Of the 21% who did receive some type of inheritance, the percentages skew a little to the lower end but are split fairly evenly between $1 and over $1 million. 5% received under $100K and 3% received $1 million or more. Another 3% received an inheritance of between $500K – $1M. We can fairly say that the 6% of people inheriting $500K+ had a quicker path to millionaire status, but 6% is a good distance away from a majority of millionaires inheriting their money to become millionaires. To dig one shovelful deeper, 47% of millionaires had neither parent graduate from a trade school or college. Statistically, that means that the lifetime income of those individuals is lower than households where one or both parents graduated from a trade school or college. That would mean there is less potential money to leave as an inheritance. This further supports the idea that by and large, millionaires don’t inherit their wealth.
Belief #5 – You need a six-figure salary to become a millionaire in today’s economy.
A full 33% of millionaires never had a six-figure salary in all their working lives. That alone shows us that it is possible to become a millionaire on a five-figure income. Another related widely-held belief is that you have to be a doctor, lawyer, or company executive to be a millionaire. While the large income that accompanies some professions might be able to create wealth faster, the most common millionaire professions are Engineer, Accountant, Teacher, Manager, and Attorney. There is a decided white collar feel to the list and, yes, lawyer comes in at number five, but it is behind teacher at number three. In 2019 the national average elementary or middle school teacher salary was $53,800 according to the US Census Bureau. With the median household income being $69,021, it should be encouraging to know that an teacher paid on par with the national average can still become a millionaire with good financial discipline.
Belief #6 – Most millionaires have a million-dollar home.
The image of a Versailles garden surrounding a lavish pool on a large secluded plot of land with a mansion is an attractive one, and it is a fantasy image often associated with millionaires. Let’s see what happens when we fact check that against our millionaire study. According to the US Census Bureau, the average new home in the US is 2,660 square feet. The millionaire study showed that the average millionaire house is slightly smaller than that at 2,600 square feet. In the study, 65% of millionaires live in a house 2,999 square feet or less. While a well-constructed house of that size could certainly fetch a million-dollar price tag in some high-rent neighborhoods, 79% of American millionaires live in a neighborhood with the average household income of less than $100K. With the average US household income coming in at $69,021, we see that the majority of millionaires (51%) live in neighborhoods of $75K or less household income. Statistically, these neighborhoods are very average and don’t jump out as a statistic setting millionaire houses apart from the general population. Most millionaires live in areas in stark contrast to more affluent neighborhoods nationally. For the more posh example, Los Altos, CA on the western edge of Silicon Valley has a median household income of over $250,000, and the median household income is $234,427 for Highland Park, Texas. These are not the neighborhoods of the average millionaire. That’s a lot of numbers to read through, but they all point to this truth: most American millionaires live in average-sized houses in average neighborhoods, not high-income gated communities. That debunks the millionaires living in million-dollar mansions myth.
Belief #7 – You have to be lucky to get rich.
This belief is just as hard to debunk as it is to support. Let’s look at a cross-section of statistics about millionaires to see if we uncover any patterns. Most millionaires made good grades in school with 51% being “A students” and 35% being “B students.” That seems to favor being studious over lucky, but let’s press on for a better picture of the average millionaire. In school, 40% were in sports, 17% in band, and 22% were not an any extracurricular activities showing that most folks were active in some form. Education appears to play a role because 36% of millionaires have a 4-year college degree and 38% have a graduate-level degree. First-generation college graduates accounted for 46% of all millionaires. That desire for education shows initiative to get a degree and hard work and determination to see it through, but those qualities may also describe the 13% of millionaires who don’t have a college degree. Saving money is a habit for millionaires as 71% of them save at least 11% of their income every month. That sounds more like financial discipline than luck. For shopping habits, 34% of millionaires have shopped in a thrift store in the last year, 93% use coupons some or all of the time, and 85% of millionaires use a written shopping list and stick to it sometimes or always. The grocery budget of an average millionaire is $412/month which is under the average family grocery budget of $582/month. Restaurants take in only about $200/month of spending from the median millionaire which is $51 less than the average US household spends on eating out each month. These shopping and spending stats paint a picture of a frugal planner. We can’t say conclusively that luck did or did not play a part, but there is a pattern of intentional living that should not be ignored. Seeking opportunity through education, spending less, and saving more are hallmarks of today’s millionaire.
Conclusion
Why take the time to examine characteristics and habits of today’s millionaires? I’m a data nerd, so there is that bit of fun for me, but I also had a simple point in digging into the topic. It is not because we should hold up millionaires as holding some sort of better-than-the-rest-of-us status as people. Quite the opposite. Using the arbitrary standard of a million-dollar net worth as a milestone and looking at the facts, not public perception, it becomes clear that the path to being a millionaire is not as distant as it might seem if you listen to the thoughts of the world around you. Some people might see it as unattainable. That lack of belief then becomes their reality – I can’t succeed with money, so what’s the point of saving, or watching my spending? Why go through the effort to budget if I don’t see a path for moving forward financially?
Succeeding financially – be it a millionaire, a multi-millionaire, or just creating some breathing room in your financial life – is something attainable by everyone. The path looks different for each person, but it is a well-proven path. It starts with understanding some financials principles, working to develop positive habits with money, and controlling the things you can control.
I sincerely believe that armed with solid principles and a desire to change, anyone can forge a better financial future for themselves and their family. Once established, solid consistent financial habits can make a difference to your family for generations to come. I have a passion for walking alongside people who have the desire to improve their financial world. I’m happy to take time to meet with you to understand your current situation and put together a game plan for how to help you move forward. The consultation and game plan are complimentary. If we talk and there is a way I can help, I’ll also show you how I can engage with you as your financial coach to guide and encourage you as you execute on your game plan. With or without my help, the path to a positive financial future is available to you. Who knows, you might be the next millionaire?
KJ Financial Coaching 