Becoming a Millionaire: How it has changed | Thoughts after reading "Everyday Millionaires"

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Chris Hogan / Dave Ramsey’s Everyday Millionaires was billed as a follow-up to Thomas Stanley / William Danko’s the Millionaire Next Door. The premise of both books is very similar: the authors interviewed a bunch of millionaires and asked them details about how they got there.

Despite interviewing ten times more people, Everyday Millionaires‘ data is much more sparsely presented than what the Millionaire Next Door shared, a complaint that I expound on in my full book review. We won’t be talking about that here; rather we’ll be comparing that data that is there, most specifically to answer the question:

Based on these two books’ data, how has the way that people become millionaires changed over the past twenty years?

Millionaire Households and Inflation

In 1996, the Millionaire Next Door reported that the number of millionaire households in the US was 3.5 million. In 2017, the Spectrem group reported that there were 10.8 million millionaire households in the US. This is the number that Everyday references in its book.

So, there were 7,300,000 more millionaire households added over that time period, or about 350,000 per year. Part of the reason for this explosion in millionaires is the obvious one that isn’t fun to talk about: inflation.

$1,000,000 in 1996 dollars is worth about $622,000 today, driven by the steadily increasing inflation rate of around 2% annually. Because of this, the bar for becoming a millionaire is being lowered every year. A person with a net worth of $1 million today would have really only been a “six-hundred-thousand-aire” then. “Being a millionaire” doesn’t mean the same thing that it once did. In twenty more years, if inflation continues at this rate, a millionaire may simply be considered moderately wealthy, an inevitable occurrence for the financially literate rather than a difficult goal.

Still, for the time being “being a millionaire” is a label that carries with it an “aura” of a measurement of wealth, so let’s stick with it and move on!

Retirement Plans and Investments

In Everyday Millionaires, Hogan reports:

“79% of millionaires reached millionaire status through their employer-sponsored retirement plan, such as the company 401k.”

Now, without understanding the context of the data that this statement is based on, it’s not clear what the survey question to the subjects was. “Were you involved in your employer-sponsored retirement plan?” would be a particularly poor one, that I hope was not the basis for this claim. Hogan clarifies himself when he reiterates:

“The company-sponsored retirement plan is the number one way these millionaires built their wealth.”

That’s quite a statement, and an interesting quote to compare to the preface of the Millionaire Next Door, written by author Thomas Stanley in 2010:

“Not at any time during the past thirty years have I found that the typical millionaire had more than 30 percent of his wealth invested in publicly traded stocks. More often it is in the low-to-mid-20-percent range.”

Indeed, the Millionaire Next Door only spends a few pages discussing stock market investments, whereas Everyday Millionaires constantly refers to investments in a Roth IRA or 401k as the primary way to reach millionaire status. Everyday posits that the primary strategy to accumulate wealth is to routinely and consistently invest over a long period of time, and wait for compounded interest to do its thing. Stanley / Danko only briefly highlight this in the twenty-year-old Next Door, where investing seems more like the cherry on top of the business-owning millionaire’s sundae: only 20% of their assets are in stocks or mutual funds.

Speaking of…

Owning A Business

What about starting or owning a business?

Everyday Millionaires survey data from 2018 reports that 18% of their 10,000 interviewed millionaires own a business. On the other hand, Millionaire Next Door‘s survey data from 1996 reported that about two-thirds of working millionaires were self-employed, and three-fourths of those self-employed would consider themselves entrepreneurs (while one-fifth of millionaires were retired).

So, if the ratios had held true from the Millionaire Next Door study done in 1996, about 40% of today’s millionaires would have reported themselves as business owners. Instead, only 18% of today’s millionaires did so. (For the table below, I’m assuming that being self-employed equals “owning a business.” I’m also being conservative and carving out non-entrepreneurial self-employed individuals. ((100%-20%) * 2/3 * 3/4) = 40%.

Here’s how the numbers look after making this adjustment:

Wow! What happened? The business-owning millionaires barely grew over the past 21 years, whereas the non-business owning millionaires exploded. I understand that we aren’t talking about perfect peer-reviewed statistical analysis here, but that’s still a huge change.

Unfortunately, Everyday Millionaires doesn’t comment on this shift in business-owning millionaires. Assuming that these stats are an apples to apples comparison, or are at least close to it, my questions are:

Is it because non-business owners are becoming more educated about investments and financial literacy, and more likely to invest in their 401k and Roth IRAs?
Is it because technology has made it much easier to invest, so more people are doing it?
Is it because mutual funds and index funds have made it less intimidating to invest, so more people are doing it?
Is it because the sample size of the Everyday Millionaires study picked people who are more likely to follow the Dave Ramsey method of wealth building (get rid of debt + invest in the market)? On Dave’s radio show (with 13 million weekly listeners), he mentioned that “about half” of the respondents to the Everyday Millionaires survey had heard of him. On this show, he doesn’t often talk about how to get a business off the ground, but he does often talk about investing in the market.

Or (and I suspect that this is the answer), is it the simple fact that there are a lot more non-business owners in the US and consistent investment in a steadily rising stock market coupled with inflation is making it easier for everyone to reach millionaire status? (The rising tide of inflation raises all ships, and there are a lot more non-business owning ships). Perhaps a lot of these new non-business-owning millionaires are barely toeing over the millionaire line, whereas the business-owning millionaires are becoming much richer millionaires.

In any case, if things continue as they have, in twenty years there are going to be a lot more millionaires if we go by the strict definition of the word ($1 million net worth).