Think back 30 years ago, do you think the socioeconomics of the world has stayed the same? No. It’s harder than ever to become a “real” millionaire today through frugality if you are part of the middle class.
I didn’t think this was the case before but everything this month has been some sort of awkward realization paired together with the crazy philosophizing following that realization.
I can still use being young as an excuse, right? That’s one of the perks of having an online blog journal. You can reflect upon personal growth indefinitely.
For most millennials, recent events have made me realize that I need to re-evaluate some of the facts besides riding on my optimism.
Would frugal millennials today actually become ‘The Millionaire Next Door’? Here are ALL the reasons why it’s becoming more elusive to become a millionaire for most millennials out there.
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Table of Contents
The Impact of ‘The Millionaire Next Door’
When I was first trying to educate myself about money, I picked up the Millionaire Next Door by Thomas J. Stanley. It came universally recommended as one of the pillars of personal finance. It was eye-opening to read a book that was so contextually different from the usual fiction I read. Why did the school board make us read Steinbeck in 9th grade when I could have absorbed 30 times more useful, practical knowledge from Stanley?
The Millionaire Next Door examines the lives of unlikely, unseemingly millionaires. It went into the habit, career, and family relationships these millionaires had. The pillars of argument were based on Stanley’s data sample and the importance of how frugality intermingled and aided their financial lives.
Overall, the message is solid. That’s why it’s a classic.
But there are parts of the book where I thought the information was extremely outdated.
The millionaires wore inexpensive suits and drive American-made cars?
Some parts of it sounded like something you could get away with saying in the 80s. There’s discussion of why doctors ended up marrying second-grade teachers and things that aren’t really related to personal finance.
Nevertheless, I’ve always held that book and its content close to my heart. The Millionaire Next Door sold that this practice of wealth is more common than you would think. For those people who exercised restraint, practiced frugality and invested their money was on a sure path to success.
The Millionaire Next Door is a noble human notion. For those who have wealth but reject the power and temptation that comes with money is an admirable trait all too underappreciated. Purposeful frugality and stealth wealth remind me a lot of a superhero in the comic books. Something along the lines of like Clark Kent. They have a lot of power but they manage to hide it all the while being good.
It’s one of the most admirable things I find in a person. Some girls really like Justin Timberlake, but I’m really into the guy next door works who worked a quiet life, went to jury duty, paid his taxes, was good to his children and done so all within an appropriate budget. Hey, now that’s sexy! *cough, my hubby, cough*
Why ‘The Millionaire Next Door’ is a Myth:
If the principles are sound then there’s an exponential chance one would be able to become a millionaire with the cooperation of time. If you work hard and be a good citizen, you can have it all. They call that the American Dream. yeah?
But does it really work that way today?
I was born in 1991, which wasn’t that long ago. I can’t vouch for the history or trends of “the millionaire next door” types. Parts of me remains optimistic about building wealth but that might be contributed by limited experience. A growing part of me resents my former optimism, here is why:
1) Survivorship Bias
Stanley addressed survivorship bias briefly in his book. He gathered a very bias sample of people who were already millionaires so the data set was extremely susceptible to survivorship bias.
Take, for example, in 2015, a janitor by the name of Ronald Read made headlines after his death when it was uncovered that he had accumulated 8 million dollars in stocks. No one saw that one coming! Mr. Read lived a low profile life, worked a low profile job as a janitor and never exhibited any signs of wealth to his community or family.1
The fact that Read made headlines shows he was an extreme outlier and downright lucky to have made the stock bets he did at the time that he did so.
In addition, Read’s family house cost him $16,000 in the 60s. Adjusted to 2017, that house would be equivalent to a little over $131,000. That essentially rules out home ownership in both coasts of United States. You would need to remain in American heartlands, find a stable job there for 65 years, and purchase a family house that would cost around $130K – a rarity these days.2
2) Low Millennial Salaries
Read’s investment strategy could be duped by millennials who can save and invest $300 a month for 65 years and let it ride the market without touching it.
Sound too good to be true?
Because it is.
Adjusting $300 in Read’s era of free love (the 1960s) to present dollars you would need to save and invest, for the same buying power in 2017, $2,463.59 a month.3
Gobsmacked.
Getting smacked in the Great Recession paired along with student loan debt has made the millennial median salary very, very low. What possibility is there for average wage millennial worker whose national annual salary is under $34,000 to chuck away almost $2,500 a month for 65 years?4
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3) Stunted Wage Growth
In the current arena, things are still not looking up for millennials. Millennials, if even fully employed, are usually holding positions in entry level jobs that pay lower wages.5 Unfortunately wage growth in the lower pay sectors have not seen any increase the likes of the white collar workers.
For most U.S. workers, real wages — that is, after inflation is taken into account — have been flat or even falling for decades, regardless of whether the economy has been adding or subtracting jobs.6
The chart above indicates that average millennial (25-35) wage stay stagnant over time compare to the 1% earning millennials.7
Lower wages is only the tip of the iceberg – what about the looming possibility of automation and increasing competition for human work? I’m not against automation but guys, the first round of this generation is going to hurt a lot of people until things are sorted out.
4) Increase in Jobs Instability
The big hallmark of ‘The Millionaire Next Door’ is consistency and patience. Job instability goes against that hallmark because timings and downturns are critical to dealing with building wealth. Job instability has always been higher for lower-wage earners.8.
Millennials love job hopping, I did a bunch myself as well in seek of self-discovery. After my student loans were paid back, a stable paycheck was no longer my main concern at the time. That was one of the nice perks of living with mommy. For minimum wage workers, there are limited choices moving up. I didn’t have trouble being hired, my issue was the pay and promotion/career development of what are essentially jobs/gigs, not careers.
One of the marking characteristics of entry-level jobs for millennials is knowing how easy you are to replace.
After opening my eyes and feeling a bit disillusioned, I’ve dropped down from my previous status where I vouched that it was doable for any millennial. It’s doable for some with jobs in the field of computer science, biomedical and finance etc.
What gains have been made, have gone to the upper-income brackets. Since 2000, usual weekly wages have fallen 3.7% (in real terms) among workers in the lowest tenth of the earnings distribution, and 3% among the lowest quarter. But among people near the top of the distribution, real wages have risen 9.7%.9
For even Ronald Read, it would be unlikely that he could afford more than rent and necessities today – much less support his 2 stepchildren, buy a house and leave a legacy of $8 million dollars.
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5) Millennials Are Starting Out Behind
It shouldn’t be a surprise that millennials are entering the workforce with a negative net worth than all the generations before them. I recall leaving university with my student debt load and hearing the rumblings of a student loan bubble. It made me anxious and a little angry. Millennials require more degrees and more years of experience for the same job that their dads got right out of college. I don’t think my education warranted that price tag. I could have learned more than 70% of my education on the web and all I needed for that was Wifi and a virtual teacher. I wouldn’t need dorms or swimming pools.
$1 in your 20s is much more valuable than $1 in your 50s.
If you know the power of compounding then you know that starting out negative has massive ramifications. If I had not come out with -$20,000 in student loans and invested that $20,000 until I was old and gray, imagine much more money I could have?
6) Forecast of Lower GDP Growth and Market Returns
In 2016, our economy grew by 1.6% using the gross domestic product (GDP) as a measure. This is significantly lower than the historical average back from the post-war period where GDP growth was hovering around 3%. Some primary reasons for the explosion of growth back then were due to production in stimulus and war-related efforts as well as women beginning to join the workforce. Jack Bogle, the founder of Vanguard, made headlines after reflecting his conclusion for the gloomier outlook of returns expected for the next coming decades.10
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Counter Points:
1) “The number of millionaires has increased dramatically during the last decade.”
Oh but that darn hidden snake called inflation! A 1920s millionaire today wouldn’t have just $1 million dollars – they would need to have $10 million dollars!
I love my husband and his stupid face going “oh, so it’s like we have $100,000 instead.”
Yeah, got that, thanks honey
That’s what so tricky about stat and human research. Where is there a data that tracks the “millionaire next door” type? There’s no benchmark for that. “The millionaire next door” doesn’t have a comprehensive definition, especially in a country that can’t even seem to agree on the definition of middle class!
2) “What about the 6 figure inheritance for millennials?”
Rumored…6 figure inheritance!11 Higher life expectancy and higher health care cost could easily run over any inheritance that could prove to be a lifesaver.
Widening wealth gap everyone!12 It works great if parents were well to do but most lower wage-earning millennials are stuck
3) “Do millennials even care about being a millionaire?”
Such lies, who doesn’t want to be a millionaire?! Money sense matures as you grow. A lot of millennials may not place emphasis right now but will once the natural path of life (family, children, health, career) procures and stability begins to play a bigger role in life.
~
No one could fathom the future, not even with all the data and research from the past. Try to save and be smart about your future, that’s better than surefire financial drowning.
⭐ Related Reads:
- 4 Profound Things I Wish I Knew Before Growing Up
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- http://www.latimes.com/business/hiltzik/la-fi-mh-the-death-of-the-millionaire-next-door-dream-20150310-column.html?barc=0
- https://www.usatoday.com/story/money/personalfinance/2017/01/12/lack-young-homebuyers-fuels-generational-wealth-gap/93205696/
- https://www.dollartimes.com/calculators/inflation.htm
- https://www.aol.com/article/finance/2017/03/08/the-average-salary-of-a-millennial/21876456/
- https://www.elitedaily.com/news/millennials-typical-salary-will-make-feel-way-less-alone-broke/1809744
- http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/
- http://www.businessinsider.com/top-1-percent-income-for-millennials-every-age-2017-8
- https://www.nytimes.com/2014/07/27/opinion/sunday/the-new-instability.html
- http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/
- http://marketrealist.com/2017/02/jack-bogle-believes-us-real-gdp-hardly-grow-2/
- https://www.financialsamurai.com/no-wonder-why-millennials-dont-give-a-damn-about-money/
- https://www.forbes.com/sites/annajohansson/2017/09/28/why-are-millennial-salaries-disproportionately-low/#75046ee123f8
I’m still going to save, save, save. Harder than ever, if I can, knowing that the deck is stacked against us. We can still do it. I remain cautiously optimistic.
Haha absolutely Kristine! We hit 1 million this month in net worth, we’re the lucky ones. Cautiously optimistic > never trying x100.
As the 20s is now a reality and time to refocus, I pulled out my 1996 copy of The M/N/D and really noticed the white ethnocentric bias. (Disclosure: I’m Asian and my household made millionaire status, as did my parents and we were never mentioned, nor were African Americans.) What’s been revealed since are structural impediments to minorities gaining access to wealth. I made millionaire status INSPITE of the institutional structures that would only let me go so far. However, there are still basic strategies, live below your means, cook at home, bring leftovers for lunch, save, save, and save. 401(k)s with employer match was a Godsend, as well. O always contributed, never noticed it. Ran into debts in my 20s and 30s but also opened an Etrade account and started dabbling in the market and lucky enough to get into Apple when it was under $20/sharr. And then I ignored it. No matter your situation, spend less than you earn. It’s the only way.
This is an interesting take on a classic book. Like you, when I first read The Millionaire Next Door, I found it eye-opening. I’d always pictured millionaires living in ten-bedroom mansions, flying first class, and driving luxury cars. I understand that the numbers may not shake out the way they used to but the main theme I took from the book was frugality. Frugality’s obviously still necessary to achieve any kind of savings, so I still find the book’s lessons valuable. Having said that, your post has definitely made me think about some of the other examples in the book, and their relevance today.
Me too! I thought they would be in limos or drive Jags. Frugality is important but to a point it may not be enough if income is simply just lower (or if you have dependents/families to support). Frugality mixed with a higher income is invaluable because wealth is compounding.
Good Morning Lily! Did you know that there is a cyclical thing that happens every year with our emotions? It’s true, summer brings about a rambunctiousness while fall and winter bring about reflection and the desire cuddle up. This could be why you feel like November was a so-so month. Ugh, I feel the same way, especially if its a rainy November. The worst!
Anyway, to the point of your article, I think the following is a Chinese proverb “The best time to plant a tree was 20 years ago. The second best time is now.” The point herein is that you always feel behind but now is as good a time as any to get going. There are many, and valid reasons, why we millennials are set back. But one of the things I am realizing as I get older is that its more like we are waking up to how hard life is, rather than how much harder we have it. To me statistics don’t tell the whole story. They make great headlines, they make you click, but they don’t tell you how your parents or grandparents felt at the time. I don’t think that life was ever particularly easy. Every generation experiences their unique challenges. The best we can do is put our respective noses down and grind.
Now I don’t mean just work your job and do nothing else. I think that your life is like a giant puzzle that you get to put together. The neat thing about it is that you get to make up new pieces.
Good points! We live in Seattle and get rain in October and November. I think I enjoy it though (emo Lily?). I was listening to Manson the bus and it was very calming in a melancholy way.
Hi Lily! I read The Millionaire Next Door years ago and I think survivorship bias is the biggest flaw in the book. Yes, many millionaires are professionals or small business owners who are frugal and devote their money towards investments rather than buying flashy cars and gadgets, but that doesn’t mean there is strict correlation between those qualities and their ability to build wealth.
I do think there is some correlation and common sense would say that investing $100 instead of blowing it on dinner would give you a better chance at building wealth. But as you say many young people start in the hole or are hit with financial catastrophies that are out of their control. Living below your means is one of the keys to wealth but if you barely make enough to survive what’s the point?
That just makes building new income streams all the more important. Millennials do have the advantage in this regard because it has never been easier or cheaper to start a small business. Pretty much anyone can start a blog for $100 or less and even if you don’t earn a full time living as a blogger you can certainly earn a good side income and then invest those profits for your future.
“Living below your means is one of the keys to wealth but if you barely make enough to survive what’s the point?”
Yup that was one of the main points of my post. You need to make enough to save enough in the first place. Frugality isn’t enough cutting expenses bottom up, so the only thing to do is increase income and I’ll start a series for that as well.
I definitely think in some ways the cards are stacked against millennials becoming millionaires – like you said, we have slow wage growth, a potentially bleak economic outlook, and graduate college in the red.
But I think that we also have tremendous opportunity that never existed before a la the internet. It’s so much easier (and simultaneously more difficult, paradoxically) to market yourself, spread your influence, build something. I think if people want it, there are ways to pursue side hustles that previous generations would never have dreamed of. Play video games for a living? Pffft! And yet, there are many who do.
I don’t think it’s so much a “myth” as it is we need to rethink the path to getting there. What worked for our grandparents and our parents is all great and grand, but it’s not a proven recipe in this day and age.
Much agreed Dave! The best thing is time and the gig economy going for us. I think that’s the 2 giant lifesavers floating in our pool. I have a friend who has been trying to find success in video games…urughh, this thinking is doing more harm to millennials than good.
Great summary and analysis, Lily! I don’t really consider myself to be a millennial since I was born in 1987 (I associate millennials with those who were born in the 1990s). But I can see how inflation and other factors in life can make it much harder for millennials to become millionaires nowadays.
But hope and dreams don’t cost a penny, so I think we can all get some dreams and turn them into action. No action equals no outcome 😀
According to Wikipedia the Millennial generation starts in “the early 1980’s” you’re solidly in Ms. FAF. I was born in 83. Technically I think I’m a millennial too. I did I have a very different upbringing than those born in the late 80’s and early 90’s.
That’s good to know. Now I feel young 😀 Thanks, Jason! ^.^
Did you watch Pokemon? If you know Pokemon, you c ount. PERIOD!!!
Dreams don’t cost a penny!! I love that! I think you are a millennial too dear. You’re not as old as you think oh my goodness xD
Um I think I like the optimistic view better. I think the millionaire target is very nice target and a nice round number to shoot for but it is pretty abstract as money doesn’t measure quality of life.
So what if a millionaire from the 1920’s is more like a deca-millionaire today. Their quality of life comparatively sucked. Even people that are poor by American standards have cell phones, cars, multiple TVs, air conditioning and food to eat.
I know all we ever hear about are the problems facing us but I believe their is no better country and no better time to be alive than right now. Just my $0.02
Ahh great point Grant!! America is a wealthier country overall and definitely miles more advance from the 1920s. I don’t think Asian Americans were allowed to own physical property back then, I’d be screwed!
I think it’s definitely difficult for most people to become wealthy (“millionaires”) in the current economic environment. At the same time, I think giving folks hope and pushing them to try any amount of prioritizing investments instead of none will improve their fortunes in the long run. So the myth continues…
Nicely said, that was basically my conclusion as ehhh as it sounds.
I guess to me the meaning of The Millionaire Next Door was to point out people who look rich and say they probably aren’t. Keeping up with the Jones is a fruitless effort and lifestyle inflation will keep you back.
There is no doubt that Millenials have been dealt a bad hand. but the important thing is to fight for our spot at the table and change the game. Even more important is not to pass the screwed over batton to the next group.
Ohh there’s a number of those who think the boomers made the wealth inequality worst. I have no idea if that’s true or not true, haven’t researched it, but I have heard it a lot.
I’m not sure what to make of this one. On one hand, I generally believe that almost anybody in the US can become a millionaire if they make good financial decisions. I’ve been lucky though and can’t relate at all to having debt and an income below $35K. I think each individual is unique. So to your point, saying that everybody can become the millionaire next door is a lie. Still, we have fantastic opportunities that most others do not. Your point about getting an “online” education is a good one. If you are young and not making enough to meet your savings goals. Learn new skills (that pay). Use your time after work to use those new skills and maybe the income issue will turn around for you.
Yes, agreed! A practical needed skill set is needed to get ahead when income is the issue; no matter how frugal.
Very comprehensive article! I agree with other commenters that yes, there are disadvantages for millennials, but we also live in an information age where we have so much more access than previous generations. I think there’s a failure on millennials to adapt to the times. You can’t use your parents as an example of what to expect because they lived under different conditions. At the end of the day, it’s going to be the people who can adapt who will succeed.
Can I use the word comprehensive on you?! x) and yes totally agree! Don’t jail yourself in, dig out and adapt. Might not be a millionaire, but in good standing. There’s no “sink or swim.” It’s just swim.
People will always find a reason something can’t be done. I have been told I am cheap for bringing lunch to work, stupid for paying my house off early, and need to buy a new car, etc. I am almost 50 and it doesn’t matter if you are 20 or 60, I see people living the same way of spending spending. They say they don’t have time to look at opening up a 401K, don’t have any money till payday. It is all excuses. As others have already replied, “failure to adapt” affects all ages. If a janitor can save money, a millenial can save money, they just choose not too and give up.
The point of the post was for median to lower wages and those stuck there. Frugality can only do so far going from the bottom up. Saving lunch at work saves $5 a day, a higher paying job can add $50 more a day – which is more effective. We’re millionaires and we’re 26 & 29. It’s easy to gain wealth because wealth is compounding – especially for us. But for most of my middle-class friends, it’s not so easy, I’ve seen the numbers. Post tax numbers.
SPOT ON! There needs to be more articles like this in the personal finance sector. Too many are woefully disconnected. When I read Financial Samurai, he makes it sound like everything’s fine for Millennials (often citing countless anecdotes and the “generational wealth transfer”). That might be true in San Francisco, but here in Akron, I don’t personally know a single person who’s going to receive inheritance. At all. I’m pretty sure he even deleted one of my comments where I asked him to talk about Credit Suisse’s new report.
When I talk to my friends and peers, I see NO optimism for the future. Because they’re smart. There’s no reason to be optimistic. I student-teach at an inner-city school and I see 8th grade kids with 3rd grade reading skills. It sounds defeatist, and — trust me — I try my best (and even donate to the school), but these kids are not going to make it in the new world economy. By the time they get to me, they’re already too far behind. By the time they get to kindergarten, they’re already too far behind. For years they’ve been missing meals. WHERE’S THE OPTIMISM? They’re not going to have the necessary skills to learn C++ and JavaScript. They’re lucky if they get a job at McDonalds.
Millennials don’t have pension plans. We don’t have long-term job security. We don’t have low interest rates.
We have all-time high college tuition. We have all-time low wages. We have the Great Recession. We have a wider skills gap than any other generation by a HUGE margin.
If we don’t do something soon, there will be revolution. I know that sounds dramatic, but it’s a common theme in virtually every society. People can only put up with massive inequality for so long. More Millennials voted for Bernie Sanders than Donald Trump and Hillary Clinton COMBINED.
I talk about it more in my most recent article (my PF blog focuses on cryptocurrency, and I see crypto as a possible equalizer).
One last thing, on college tuition: So many people forget about opportunity cost. The average public college tuition costs about $80k for four years (it will take you five, but let’s go with four), and the average college degree is worth $1.3 million in lifetime earnings. Well, you have to factor in that it COST YOU $80k and 40 YEARS OF WORK! That same $80k, invested with a ROI of 8% over 40 years, is now worth… drumroll, please!
$1.7 million. Sitting in your 401k. With no work whatsoever, you made an extra $400k.
P.S. Someone please tell me that Millennials are lazy. When you make broad, sweeping generalizations about the character of a group of people, that’s called PREJUDICE, and history shows that’s a good solution to social issues, right? But, please, tell me the economy’s fine and we’re just lazy.
Yes, I’ve gotten VERY polarizing feedbacks from this post. I love Fin Samurai though, his blog is for higher income earners more specifically of course so it fits his audience (which is me).
I’ve been on both sides. I grew up in the inner city, those kids you’re talking about? One of them was probably me. I was in ESL as an immigrant.
I’m just as disconnected. I posted an article that stated “how any millennial can be a millionaire” before!!! Because I thought it was easy to do. You need $25K saved and invested a year to be a millionaire at 7-8% market returns for decadesssss. I thought $25k is easy, we can save that much in just one month. Then my bratty self WOKE up.
“Too many are woefully disconnected” very very much so. I swear no one actually read this post in its entirety and skipped the conclusion – or even know this blog – who I am and how I grow.
It’s funny how everyone listens to the millionaires when they talk about what it’s like to be a part of the working class, isn’t it? It’s like you don’t have a voice if you don’t have money. If you were to write about these exact same problems, not as a millionaire but as an average college graduate working multiple part-time jobs to pay off your student loan debt (like your friend), I doubt anywhere near as many people would listen. And the situation’s worse than that, because most Millennials can’t afford college. Even now, people are responding to your stats with nothing more than, “Eh, she should just work harder.” It’s not that easy.
You’re fighting the good fight, in my opinion.
You’re life. So many things have changed since that book came out. Even with the update, it is outdated. You should write a new book. The Millenial Millionaire Next Door or something like that. 🙂
It seems a lot tougher now because there are so many college grads. Seems much easier back then. Life was just simpler and more stable.
You’re making me blush Joe ?to even entertain I could write an American classic…someone been reading my dream journal. ???
I really liked that book too. I remember that the millionaires owned Toyota camrys and not Mercedes. I am a millennial too but born in the 80s so an older millennial. Although I think it can be very difficult it can be done and achievable just perhaps not now- might take a decade or two but it can be done.
Thanks GYM! Every time my husband reads your name, he quotes Homer. Gym? What’s a gym? I could hit him rofl.
This is the first post I’ve read where I’m glad I’m not 30 years younger. Otherwise I might be looking for the nearest bridge to jump off!
The good news is that there are paths to wealth now that never existed for us older folks. You can start an online business on a shoestring now, but years ago most people with an idea needed a business loan for a brick and mortar store.
The student loan debt, IMO, is the biggest problem. College loans have become like mortgages. It’s not only about finding the college program or the home you really need — it’s about how large a student loan or mortgage you qualify for. Blame the federal government. Colleges know they can raise the cost and the government will provide the money for loans. Who’s paying for this? Students.
Have you been near Mr. Groovy lately? The truth is rubbing off ?? it IS the biggest issue. Who is the money going to? It’s being sucked somewhere and it’s not for the professors. My doctoral professors were paid $40k a year.
Good analysis using a whole lot of data. You’re right, things have changed a lot since the book was written. Some of the specifics no longer make sense, just like the notion of living off of low-risk bond interest in Your Money or Your Life no longer holds true in today’s low-interest environment. I was born in 1980, so I’ve got a few years more experience, but I’m not coming from the old “everybody gets a pension” sort of mindset.
I started in the newspaper industry in 2002 making $27,500 in my entry-level job. Even for someone who was lucky enough to leave school with no student loan debt, that didn’t leave a ton of room for excess. Over the years, I’ve changed jobs, changed careers, changed states. I make around 3X my starting salary after 15 years in the workforce. One of the interesting differences in the book’s profiles of yesteryear vs. today’s reality is that staying with the same company today actually hurts you. Few companies throw big salary increases at their workers. You’re far better off to move around every two to four years, and if you’re good you’ll get real increases along the way. Loyalty is frankly a good way to screw yourself over. That’s why you should switch auto insurance and cable providers every few years – they do better by the new people than the ones who have been there.
If millennials follow the general principles of spending less than they earn, investing what they can and increasing that amount as they start to earn more, while taking advantage of any employer match or other perks, they’ll get to the equivalent of “millionaire” by 65. But a lot of millennials will end up in the same boat as the boomers who hit 55 and realize they can’t retire in 10 years because they haven’t saved anything. That’s microeconomics more than macroeconomics. The fear of investing that many millennials are reporting will be a significant hindrance to their success, though.
I’ll make a prediction that won’t bring much comfort to millennials, but I think we’re quickly hitting the tipping point where the current higher education system is going to collapse and give way to a cheaper, online-based system that will ease the future student loan burden. That won’t help the people struggling with loans today, of course, but it will change things for their kids.
Ugh so much this! I could pick like 5 things from that and testify – we are at a tipping point education wise. The whole 529 plans…I’m just wondering if that’s even going to be a thing when time comes. $27K is really impressive for entry in news. Staying with the same employer does hurt, I’ve seen it first hand. There’s no loyalty so you need to reserve time to job hop. Inflation is such a huge snake. You can boast 8% return but things pace with inflation so at best you’re at 6%. 2% may not sound like a lot but it’s a huge difference over 40 years.
Love this analysis! So interesting!
Something I have been interested in exploring is how Millennials marrying later (which is an assumption I am making) also impacts finances. Being in a dual income house is what has enabled me, as a Millennial, to fair better than average. My friends who had to cover all the expenses alone seem to be having a tougher time of it, for obvious reasons. I should look into the statistics.
I’ve heard of that too. It’s a lifestyle thing (although I have no research either, hey I married at 23-4!)
I am currently reading this book. So far I have found it to be a great read. To me, everything still holds true, the numbers are just larger than they were before. People had debt before, now it is just larger. People had $1,000,000 before, not it is greater. Real wages not going up means that your job has the same value as it did before. Isn’t that a good thing? The wage gap is increasing, but that just makes the average person more jealous, not worse off.
What you learn from this book is paying attention to your money is the best way to go and the sure path to financial independence.
The book is an American classic, no doubt. Patience and financial awareness is mandatory, can’t argue that.
As a millennial myself, I can relate to the challenges that we face these days but I’m still quite optimistic. If your argument were that the AVERAGE millennial won’t ever become a millionaire then I’d wholeheartedly agree with you. Then again, the same could be said for just about any generation. Building wealth takes patience, time and a plan. I don’t think the deck is stacked so heavily against us that folks who are committed to achieving that millionaire status can’t do so. much doom and gloom. In fact, i think becoming a millionaire is still well within reach. Back when I was in high school, I calculated that I could do it saving 12% a year on a $50k a year salary. and that’s without ever receiving a raise or finding a way to increase my income. I’ll spare you the math and wrap things up by saying that it’s not all doom and gloom for us millennials! The future is bright for those who have a plan and stick to it 🙂
Love your comment, Cato!! I straight up agree. The wage gap is making things worst but the will holds true for those who pursue it. I mean hubby and I did it so I can’t say all millennials ?
Well said Cato! Millennials fail because they are being told they will fail, so they don’t try in the first place. Then there are the Millennials who think for themselves, like you. Every generation has something against them. My grandparents came here with nothing (having given their live savings to a shipping company for transport to America). They stood in bread lines and my grandfather shoved snow in the schoolyard (to the heartbreak of my young father) for $0.25 a week. My father grew up during the time of the great depression and never made very much of a salary, but he still found a way to house and comfortably feed us. Boomers, Gen-Xers, and Millennials have it better than anyone. Don’t let those who seek to control you by keeping you down tell you any different.
Spending time wondering why things won’t work out is counter productive. There is MASSIVE opportunity today. Even with normal jobs you can get ahead. Make as much as possible, and spend less than you make. Invest NOW. Keep investing. Avoid debt except mortgages on good properties. You’ll be amazed where it will take you. Comparing to others from different times is just stupid. They may have had advantages but likely also hardships you know nothing about. Get your mind on YOUR money.
Good standard advice Greg. But I have time to waste – someone needed to say this in personal finance that tends to live in the “ivory tower.” My husband and I already hit double comma club at 26 and 29 so this post doesn’t apply to me but those without voices.
Agreed. Thanks to the Internet and worldwide connectivity, anyone with ambition can hang a shingle and find a way to make money.
I think it can be done and amplified by those who purse with a passion. Nothing is given to anyone in this world but those with hard work and determination can and will find a way to build the life of their dreams. Great read!
Strong point DM!
I finished reading that book a few months ago and like you said it was eye-opening in terms of the millionaires being smart with their money by driving the inexpensive cars and living in middle class neighborhoods. It was going against the grain of a stereotypical high earner.
As a young Gen-Xer, I think millennials are put in a tough spot. A lot of them went to college when tuition was really high(and keeps climbing today) which resulted in some having huge student loans. Add to any potential debt they incurred(credit card, car loan, medical, etc..) and their net worth is in the red when they are starting out in the workplace.
I believe if a lot of them apply themselves more and adapt to all the unlimited opportunities that are available especially on the web then I think they can reach a healthy financial status. It going to take some time but I think it’s attainable.
I know exactly those you’re talking about, for my friend it’s going to take 5 years to dig out of $80k debt. It’s a lot of time…but after that, wealth builds quickly, so I think there’s a good chance.
Lol I linked to your book review silly.
Interesting post L.
Unfortunately it is a time of great uncertainty for many in their early twenties and below.
I agree with what everyone has said, but have 2 thoughts regarding inheritance and STEM degrees.
1. Inheritance is a funny one. Although it looks to be a huge wealth transfer I have seen many squander the opportunities that their parent worked hard to give them. It is seen in my own family where my generational lineage has a larger propensity to spend rather than build. (Excluding me and my brother.)
2. In the UK, there is a stagnation in opportunities that STEM degrees afford. For example I’m Pharmacy, big institutions are reducing costs and lowering wages due to Dpt. Of Health and NHS cuts. Same with Medicine, there has been a substantial decrease in applications, and increasing churn. (Due to poor pay:work ratio) The brightest and aware ones go to study finance, as money becomes all important.
At the moment, at 23 I own my modest house (mortgage free) and have a six figure portfolio. I definitely had some help from my parents, (~20k, saved from baby savings and part time work from 16) but good financial moves allowed me to build upon what was given. It is definitely easier to gain an advantage, but even now, I feel that it is still all too easy to slip back down the ladder.
It’s similar in the states too for pharmacy. The companies seem to be racing for the bottom in terms of hires and pay to work ratio. I wish I had studied in finance as well. That’s my biggest regret about growing up poor, I didn’t know finance was a field until I was midway through college, in my daze bubble. At your age, you are totally golden. I don’t think you will slip back down the ladder! I feel that way too sometimes. Whenever I look at our net worth and I think “I could wake up tomorrow and it would be halved.”
Such a great post Lily! 1 million today is going to be way less by the time we turn 65 compared to when the Millionaire Next Door was written. I’ve been thinking about inflation so much and am frankly just shocked by how much the value of our money changes over long periods of time. I feel so many articles written “for millennials” today always point to this 1 million number which is false advertising. Even TODAY, a million dollars isn’t the same as it was 20 years ago when the book was written…
YES exactly! I HATE it when people ignore inflation. That sucker is at 2-3%, I mean really? People lose their minds over a quarter % for mortgage interest but doesn’t consider inflation? Pffffft. I work with post tax, post inflation numbers. Anything else is a LIE.
Very sobering, Lily. One thing we can do for future Americans is reduce the cost of getting a worthwhile credential. The current gold-standard credential–the BA–is a joke. We’re asking young people to go into oodles of debt so they can take 40 classes rather than just the 12-15 classes they really need. Thank you college-industrial complex! You’re really a big help. Will devising a credential that doesn’t cost nearly as much as the vaunted BA, and is respected by employers, solve most of our problems? Hell no. But it’s a start. Thank you for making me think today, Lily. That wasn’t one of my goals when I work up, but I’ll muddle through.
Ayy, just like what Mrs. Groovy said above. I don’t picture higher education working out for the next 30 years. The structure needs to fall if it doesn’t evolve to something else entirely in the meantime. There’s hope yet Mr. G!
Groovy: I agree. Thanks to the higher education/predatory loan industry, a BA or BS today is the equivalent of a high school diploma when I was young. The answer? Go into even more debt by pursuing a Masters Degree, which is the equivalent of a BA or BS when I was young. What we need is for Corporate America and government education certification to step-up and revive the practice of apprenticeship.
In a twist of true irony, the author of “The Millionaire Next Door” was killed by a drunk driver at age 71 and thus did not have much retirement time!!
Interesting, I have never read that book but maybe I should try and borrow it from the library. Warren Buffet’s habits come to mind when thinking of frugality – he lives a very frugal life, despite being richer than most people could ever dream of. Inflation is like the silent killer of your wealth, something that we are definitely aware of and trying to combat on a daily basis. In terms of saving, there is only so much you can save by cutting costs and increasing income is really the best way to create more wealth. Sadly, as you stated, the slow growth of income and rising cost of education and other expenses is really a huge issue.
No one makes a million dollars at once They make a million dollars a few dollars at a time. Even big banks make their billions a few cents at a time, on interest on many millions of loans.
Find me a person willing to work 100-hour weeks, and I will show you a millionaire in due time.
In the USA, anyone can be a millionaire of they have the ambition, fortitude and willingness to sacrifice in the short-term.
In 1961, I was born in the poorest family of a poor neighborhood in Brooklyn. Shootings and stabbings at my high school were commonplace, unlike today where the media acts like it’s something new. Coming from a poor white family, who owned a home via the GI Bill, I did not qualify for financial aid unless my father sold his house. As a result, I worked nights and weekends to put myself through college. Bottm line: As a child, I had it far worse than most millennials today, so please don’t cry me a river.
I won’t go through all the details, except to say that the ramifications of my first divorce, when I was 40, left me with nothing. I was 51 years old when child support finally ended – leaving me with a net worth of $0, no 401K, and no pension. The same was true when I got my second divorce at 55, we got divorced because I was sick of being poor with no hope of a decent retirement and my second wife wouldn’t get on board with doing what was necessary to build wealth. In the four years since (I am 59 now), I have built a net worth over 1/2 Million dollars; and I’m on track to hit $1M in the next three years.
It was only recently that I came across the book, The Millionaire Next Door, and Stanley’s latest book, Stop Acting Rich, to find that I was following Stanley’s advice all along without even knowing it. As I state in my upcoming book, which I will not shamelessly plug here, there are many ways to grow wealth – even if living paycheck to paycheck. If I can do after starting out with nothing at 55 years old, then anyone can do it. What it takes is action. The action of doing and hard choices like moving to areas with a lower cost of living, leaving a spouse because he/she won’t get with the program, finding ways to cut expenses and use the savings as capital, taking the time to cleverly invest that capital, garnering multiple streams of income, and converting from desire based purchasing to needs based purchasing (the beauty of non-ownership, as I say in my book) – even so, I want for nothing. Best of all, by not wasting my money on material possessions and not pouring it into the black hole of home ownership; if I lose my job tomorrow, then I have nothing to lose and enough cash to support myself for the next ten years. If I keep working, then I’m looking at one heck of a comfortable retirement. I can unequivocally state that Stanley’s advice is timeless and just as relevant today as when he wrote it.
$300 a month for 65 years IS $8m ($7.9). I’m not sure how you got $2500. I used this calc: https://www.hughcalc.org/compound_js.html
His calcs are awesome. And free!
Just because you have hurdles doesn’t mean you can’t win. I personally like to run under them. But then I’m short. Lol.
After researching wealth building in my 20’s, and getting no cooperation from my husband on any system of money sense in our thirties, I remained married, but developed a system of separating our money. I am now 57, retired with a good pension (teacher) and over a million in savings. My husband will retire in 4 more years. At this point he only needs to have enough in retirement for his own spending because I am financially independent of him and have plenty to support our household. He did finally get on board about 4 years ago to some extent. It does make me wonder what we could have accomplished together.
There are no impediments to anyone investing regardless of any demographic status.