Middle-Class Millionaires: Your Questions Answered

A couple of weeks ago, I wrote about a new book called The Middle-Class Millionaire. That post generated a good bit of discussion and, not long after publishing it, I was contacted by Lewis Schiff, who is one of the authors of the book.

Lewis graciously offered to field questions from readers, and a good number of took him up on his offer. What follows is a series of burning questions (and answers!) about Middle-Class Millionaires (MCMs)…

Q: What proportion of middle-class millionaires inherited their wealth (or at least a large chunk of it) as opposed to truly making it on their own?

LS: In our survey, 100% of respondents were self-made. They could not have received more than $50, 000 from their families, including the cost of higher education, in order to be eligible for our survey.

Q: Of all the people that have the same characteristics of MCMs, what percentage have actually achieved the status?

LS: You don’t need to have equal amounts of all four characteristics to achieve the success that Middle-Class Millionaires have achieved. You may be a very hard-worker, willing to go the extra mile, but not a great networker, and still achieve the success of the Middle-Class Millionaire. In fact, it’s extremely rare that we find anyone who’s really good at all four Millionaire Intelligence (“MI”) characteristics.

There is one MI characteristic, however, that is particularly important: Enlightened Self-Interest. People who don’t place their goal of financial independence above other professional goals will likely not achieve it. You can be a hard working (MI Characteristic #1), networking (MI Characteristic #2), persevering (MI Characteristic #3) high school chemistry teacher. But if you don’t find a way to put your goal of wealth accumulation above those other very admirable accomplishments, you are not likely to achieve that goal.

What’s a high school chemistry teacher to do? How about starting a tutoring service? Or writing a book about how to ace the chemistry exam? There are plenty of ways people can do the things that will bring them wealth, but they need to prioritize it.

Q: How many of these people are millionaires based on net investable assets such as stocks, bonds, and cash vs. having a large proportion due to “paper” assets such bloated home equity or stock options or depreciating assets such as cars, etc.?

LS: My friend, all assets are paper. Unless you’re sitting on gold, there’s nothing that has value unless you actually exchange it for cash. Middle-Class Millionaires tend to have about half of their net worth in investment assets as opposed to assets they live in (or with) but, truly all assets are only worth what people say they are worth.

For example, if Warren Buffett, recently crowned America’s wealthiest person, with $62 billion, mostly in Berkshire Hathaway stock, were to sell all of his stock, do you think he’d receive $62 billion? No, he’d flood the market with his stock and it would drop in value. His $62 million is “paper, ” unrecognized wealth. It’s only really tangible once he’s exchanged it for cash.

Likewise, you may be sitting on a home worth $1, 000, 000 and yet if you were to sell it right now, due to the depressed housing market, you may not get $1, 000, 000. You may get $900, 000. On the other hand if you were to wait until someone met your price, it might take 6 months or 2 years longer, but you could get your full $1, 000, 000.

The point is, a tremendous amount of wealth in our world is simply what we call it. Middle-Class Millionaires generally fall into the band between $1 million and $10 million. That may be because they have, among other assets, a dry cleaning business worth $2 million or it may be because they have a comic book collection worth $3 million or perhaps they own $4 million in Microsoft stock. Or perhaps they own a house that’s worth about $5 million, but not in this market. However one finds themselves in this auspicious category, it’s clear that they generally share characteristics that the rest of the middle-class simply doesn’t have.

Q: Do you think that any particular geographic region has skewed the numbers above ‘reality’ for most of us?

LS: It is true that wealth in America is found in greater amounts on the east and west coast but, in our book, we write about a map that’s available to anyone that shows how you can find out where Middle-Class Millionaires live across the entire country: it identifies 33 states and more than 300 neighborhoods where you’ll find the Middle-Class Millionaire. It makes for interesting reading!

Q: What percent of MCMs are small business owners?

LS: Eighty percent of Middle-Class Millionaires are “owners, ” “partners” or “in professional practice” such as lawyers or doctors who are part of a partnership. The rest receive compensation as employees in a corporation.

Q: What percentage of MCMs own rental/investment property? How many properties do they own? And did the ownership of these properties play a large part in their MCM status?

LS: Unfortunately, we didn’t ask them about their ownership of investment properties.

Q: What percent of MCMs are two-income households?

LS: While we didn’t ask them about this question in particular, we know from our own research over time that they generally have the same profile as the rest of the middle-class when it comes to dual-income households as well as other family demographics, such as marriage, age, etc.

Q: What percent of the MCMs have children?

LS: In our survey of Middle-Class Millionaires, 98.5% of them had children. That compared with 95% of our middle-class survey — a statistical tie. Interestingly, the middle-class tended to have more children than the Middle-Class Millionaire. Twenty-eight percent of Middle-Class Millionaires have one child as compared to 14.8% of the middle-class. On the other hand, 37.5% of the middle-class had three or more children as compared to 29.4% of the middle-class.

Q: Given that the average MCM works 70 hours/week, do they suffer adverse consequences such as higher rates of divorce than the rest of the population?

LS: Nine percent of our Middle-Class Millionaires were divorced as compared to 13.6% of our middle-class sample — a statistical tie.

Q: Is it possible to become an MCM as an employee in a job with “ordinary” (i.e., five-figure, not six-figure) pay?

LS: It certainly is possible to become a millionaire with an ordinary job — I wrote another book called “The Armchair Millionaire” in which I showed how you could “build an extraordinary portfolio on an ordinary income.” Middle-Class Millionaires are, however, more of a demographic profile.

You can become a Middle-Class Millionaire a lot of ways — perhaps you have a five-figure job but you invest in stock on the side. Or, your spouse starts a business while you hold down your job so you can maintain steady income. In other words, there’s more to being a Middle-Class Millionaire than just having a million dollars.

Middle-Class Millionaire are ambitious, they are driven, they have made financial independence a keystone to their lives. If that describes you, and you keep making smart decisions to financial independence, you’re likely to succeed. But, as they say about the lottery, “you have to be in it to win it.” Reaching a goal as difficult as financial independence doesn’t come easily. It’s something you have to work hard for.

Q: How much does the average MCM earn in a year?

LS: That’s a difficult question to answer because Middle-Class Millionaires are often owners of businesses. As such, their financial profile is very different than that of a regular employee. Business owners or partners are able to manipulate when and how they recognize income. Perhaps in one particularly good year, they will postpone their bonus into the following year. Or, perhaps they will have a company car, which could be recognized as income except it rarely is.

In general, business owners and corporate executives have a lot of ways of receiving value that doesn’t show up as income in the sense that most people use that word.

That being said, they usually have incomes that put them in the top decile of Americans, in excess of $120, 000, broadly speaking. On the other hand, plenty of people with six-figure incomes are not Middle-Class Millionaires. In a recent survey, 20% of people earning six-figures reported living “paycheck-to-paycheck.”

Q: Would you say that the MCMs have more in common with the traditional middle class or the traditional wealthy class?

LS: Without a doubt, the Middle-Class Millionaire has more in common with the middle-class than with the “traditional wealthy class.” Overwhelmingly, they share the same goals — to see their families thrive and succeed — that most middle-class people value. By contrast, when we survey the wealthy class, they seem to be mostly interested in themselves, putting their own “hobbies and personal interests” above all else.

However, when it comes to wealth-making skills, the Middle-Class more resembles the wealthy class. It’s as if they are the one population which lives with a foot in each world, taking the best of the middle-class and the best of the wealthy class and putting it into one.

Q: What do they really mean when they say “doing whatever it takes to win”? In legal terms, will they break the law?

LS: In a number of ways, the Middle-Class Millionaire sets herself apart from the rest of the middle-class by her willingness to push the limits in order to achieve financial independence. This includes: being “Machiavellian, ” taking advantage of other people’s weaknesses, using the legal system to come out on top and “bending the rules.”

To many, these sound like approaches that go against their own personal values. Unfortunately, it happens to be true. All of our iconic heroes of wealth, from John D. Rockefeller to Bill Gates, are historically known as fierce competitors. As one billionaire client recently shared, “do you think anyone gets to be a billionaire by playing fair?”

About Lewis Schiff: Schiff is a senior managing principal for Advanced Planning Group where he leads a team of private wealth experts who specialize in the needs of high-net-worth clients globally. Schiff has developed education and communication programs for many of the leading financial companies serving high-net-worth clients and is a contributor to Investment Advisor magazine and TheStreet.com and maintains a weblog about the affluent for InvestmentAdvisor.com. Schiff was also a longtime contributor to CNNMoney.com and CNNfn. In 2001, he co-authored “The Armchair Millionaire, ” and in 2008 he co-authored “The Middle-Class Millionaire.”

10 Responses to “Middle-Class Millionaires: Your Questions Answered”

  1. Anonymous

    Q: What percent of MCMs are small business owners?

    LS: Eighty percent of Middle-Class Millionaires are “owners,” “partners” or “in professional practice” such as lawyers or doctors who are part of a partnership. The rest receive compensation as employees in a corporation.

    No comments… this says it all in a two sentences. Didn’t I say they are lawyers? Pathetic, so… pathetic. I bet they do 50 hour per week “pro bono” too, this whole thing is ridiculous.

  2. Anonymous

    Nice interview, but it rings a bit like LS doesn’t want to admit that most Americans aren’t going to be middle-class millionaires. I get the feeling they want to “cross” between a study of this “trend” and the hype any new book that hints at a way to become rich gets.

    For example, the question about how much MCM make a year. He’s absolutely right that there are a lot of ways to defer recognition of compensation. But it isn’t that hard to just come out and say the average/rough-shot cash flow of these people. And notice who he is talking about: business owners and corporate executives. Not many average folks have the opportunity to participate in those deferred compensation schemes (nor getting the compensation that makes those attractive). 120K is dang low and I’m sure he knows it.

    The whole lecture about all assets being “paper”. Give me a break. Asset classes have different properties, particularly risk factors. The obvious point of the question was to determine what amount of the assets were actually available to support a cash flow if one needed to be generated.

  3. Anonymous

    If you can only get $900k for a house, then it’s only worth $900k! That’s why the line “instant equity” is a joke.

    So if a house sells for $1M one day, and interest rates spike the next day, and the house is auctioned the day after that for $900,000, the house lost $100K of value in two days?

  4. Anonymous

    middle class millionaires are one of the largest growing micro-trends in America. SO the guy next door even if they don\’t look like it. May be a millionaire.

  5. Anonymous

    Great interview; I’ve always been interested in seeing examples of wealth acquisition. Seeing it from a middle class perspective is interesting rather than profiling someone like Donald Trump

  6. Anonymous

    Fascinating interview, thanks! I have to pick on this one thing though:

    “Likewise, you may be sitting on a home worth $1,000,000 and yet if you were to sell it right now, due to the depressed housing market, you may not get $1,000,000. You may get $900,000.”

    If you can only get $900k for a house, then it’s only worth $900k! That’s why the line “instant equity” is a joke.

  7. Anonymous

    Excellent interview! I wish they had asked about rental properties, though. It seems likely that real estate is the path to wealth for most of the middle class these days. Just 2 or 3 rental properties in the more expensive markets would be more than enough to tip you over the 7 figure mark.

  8. Anonymous

    Great interview, you asked some really creative questions. I wish they would have gotten statistics about investment real estate. I was listening to a radio show the other morning and they said something like 90% of all millionaires are real estate investors. It would have been nice to get another number based on research, not the desire to sell real estate.

  9. Anonymous

    I agree that numerical wealth is subjective – mine happens to be in cash so it is undisputable. But, that is only because I sold assets ahead of an expected market downturn and am now scouting buying opportunities. In 6 months – 2 years, it will be subjective again.

    Particulalry business assets, which are typicaly undervalued pre-sale.

    I agree that the # 1 requirement for wealth is “Enlightened Self-Interest” … if you don’t have an all-cosuming goal you will never survive the inevitable ups and downs that the journey will bring.

    BTW: for me “the goal” wasn’t directly about money … it was about my life.

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