Book Review: The Millionare Next Door.

I wanted to like this book, I really did. The problem is the book is about 10% solid and crucial insight, 20% questionable and situational advice, 40% really weird classism, and the rest blather about what income brackets drive what kinds of cars.

The central thesis of the book is that in America, most of the millionaires aren’t trust-fund children who inherited their wealth from their wealthy dynastic family, but instead professionals and small business owners who maximized their income, minimized their expenses, and invested the difference. And this is true, and a valuable insight. These days, we hear a lot of people claiming that it is flatly impossible to work your way up the socioeconomic class ladder more than one of the half-rungs in a single generation. This is flatly untrue. It’s very uncommon and very difficult to make a large jump in your socioeconomic status in your lifetime, but quite a lot of people do it.

The book also has a rather weird metric for your expected accumulation of wealth by your age. It’s weird because it assumes that your wealth accumulation should scale linearly with your age. However, the entire point of the book is that wealth, properly managed, grows exponentially.

Then there’s the car thing. The book goes out of its way (really, really far out of its way, in fact) to let us know that many millionaires drive Detroit iron and no-nonsense Ford pickup trucks, and none of those fancy Italian imports or sports cars. The book even goes so far as to say that millionaires had a higher-than-average pounds-of-automobile-per-dollar-spent ratio. This strikes me as super-questionable. Now, I bet that if you have a high proportion of small business owners and tradesmen, you’ll get a lot of these cars, but I really don’t see a lot of them on the streets of San Francisco being driven by the startup millionaires there.

One point which does get raised in this chapter is the cost of living expectations for certain professions and classes. Many doctors and lawyers reported that they felt the need to drive an expensive car (or rather, to have it parked at their place of work) to conspicuously signal that they were prosperous, so as not to scare off clients or customers. This is interesting, but I feel like it’s missing the point. This would be a great segue into a full study of professionals by reported income and the car they drove, and some detailed digging into the outlier ends of the study to see if there was any causation between car and income. But we don’t get that, sadly. Heck, we don’t even get a single professional saying “Well, I looked at my average income in this two-year period when I had this car visible, this other two-year period, corrected for differing economic factors X, Y, and Z, and saw a significant difference in income.”

Then there’s the section on gifts of money to adult children, which the book calls financial outpatient care. It’s a bad thing, apparently; the majority of the reported millionaires received no significant inheritance or cash gifts from their family. The book lists several examples where these gifts can end up trapping a household into greater debt loads, either directly via a down payment on a house that the family would not have been able to afford otherwise and which sucks up income they could have otherwise invested. There’s also the fact that regular gifts of cash can limit the incentive of a household to work hard, strive, and struggle to achieve full economic self-sufficiency. Of course, lots of people do work hard, strive, and struggle to achieve full economic self-sufficiency, and fail for want of a single specific cash infusion at the right time. As with the cars, there’s a lesson here, about spending money on things that will help your children make more money, and not on things that will cost them more money, but it gets mangled in the attempt to exalt the millionaires who Did It All On Their Own 100%.

Finally, Millionaire Next Door used voluntary-report surveys to get data, which is always questionable, and there were very few attempts to control for confounders mentioned. Even if we trust that they reported accurately on the population of millionaires they found, we still have no data on the millionaires they didn’t find, and we similarly have no data on how many people shared the habits of the millionaires, but were not millionaires themselves.

I feel like this book is less wrong than maybe 70% of what I usually hear and read about household management and socioeconomic mobility, but still falls well short of Sturgeon’s Threshold thereby.


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