Book Review, The Millionaire Next Door

Book Review, The Millionaire Next Door


Title: “Millionaire Next Door”

Authors: Thomas J. Stanley and William D. Danko

Publisher: Pocket Books, a division of Simon & Schuster, New York, NY

Copyright date: 1996, this edition 2000

Find it at your local library: WorldCat

Authors’ keys to building wealth: FRUGALITY. Track your spending, live below your means, follow a budget, create short- mid- and long-term goals, plan for your financial future. (it ain’t sexy but it’s tried and true)

Best for those who:

– want guidance on what habits and core beliefs build wealth

– have a good income but still live paycheck to paycheck

– buy status symbols but are not wealthy (the book shows this kind of behavior is often self-defeating)

– want to know how to raise their children so they will be financially independent adults

Overall: 4.5 out of 5. Excellent read, despite a different economic ecosystem than we have today. Would have been 5/5 if there was an updated edition as the data is from the ’90s. That said, the core values of the work are timeless. (Edit: a new version has JUST come out which I am looking forward to getting my hands on!)

Review: This book by academics is written for a popular audience to understand what they’ve discovered in their research and how to apply it to our own lives. It is an enjoyable read as the authors illustrate hard data with anecdotes and comparison stories, easing the reader through charts and numbers. Where the book really shines is its ability to define and detail actual wealth versus symbols of wealth. I found myself heartily agreeing with their descriptions of hard work, frugality, and planning as the glaringly unsexy building blocks of financial security.

My main hesitancy in recommending the book is the applicability of the data which has not been updated since its original publication in 1996. (edit: new edition just came out in 2019, will review soon) The people researched here were young and investing when economic inequality was very low so the average person made much more than today (post-war through the early ’70s). As wages started to stagnate, in the ’70s they had plenty of money in investments which far outgrew income during the next two decades. Put another way, they were young when young people made a lot more money and they invested this large amount of money when investments were cheap. The system is very different today but the lessons are still universal, even if you don’t end up wealthy.(1)

The premise of this book is that most wealthy people do not use their money to purchase status symbols; looking at their cars, houses, clothes, you would not know how much wealth they have accumulated, hence, they are the millionaires in your average, middle-class neighborhood. What they value is financial independence and they actively work towards that goal. Ironically, those with high incomes but little wealth are often the result of spending all their income on expensive goods to give the affectation of wealth, leaving no money leftover to actually earn their way to financial independence. By conflating symbols of wealth with actual wealth, they are committing self-sabotage. This lifestyle puts them in an earn-and-spend cycle, making them financially dependent on their jobs so they can pay off their luxury cars and fancy vacations. I would like to know how many people who: believe that net-worth and self-worth are closely associated and view item acquisition as a competitive sport, have changed their consumerist habits after reading this book. (see

A few findings I found surprising:

• Stanley and Danko found that the more education = less wealth. (p. 91) The main reason is simply that they miss out on a decade of earning that could be compounded for a longer period of the earner’s lifetime. They are quick to point out that this should not stop people from going to school, rather, don’t do it if your main reason is to become wealthy. You will be disappointed. Another reason is that the professional value of lawyers, doctors, etc., is often based on “display factors” such as luxury cars, exclusive neighborhoods, and expensive clothing – even though there is no intrinsic correlation. (p. 93) Few would pick a lawyer with a five year old Honda and inexpensive suit over one with a new Mercedes and bespoke three-piece. Thus, they make a lot of money, but cannot build wealth. With student loan debt well over a hundred thousand for many professionals, the cost of homeownership and children, plus the social pressure to spend their income on luxury goods, it’s a wonder they are able to build any wealth before the age of sixty.

• There is an inverse relationship between time spent worrying about money and time spent actively working towards wealth accumulation – basically, the more you worry about money issues, the less likely you are to take the steps to change them. (p. 88) They state that the way to “kick the UAW [under accumulator of wealth] habit” is to 1. want to change 2. find professional help. (p. 67) Depending on your situation, this may mean someone like a wealth manager, CPA, or money coach (…ahem, what has two thumbs and is a professional money coach? This gal!)

• Only one in five children of affluent parents will have wealth in the seven figures. (p. 200) They fall prey to living above their means when they are not taught good financial habits (like thrift and budgeting). Well-meaning, wealthy parents unknowingly create their children’s economic dependence. Sometimes it is because the parents want to give their children everything they never had but fail to pass on good financial habits, leading the adult children to be accustomed to the “best” in life without the capacity to earn it themselves. Other times, they help their grown child to buy a house thinking that, like education, a home is a good investment. But it is in a neighborhood the child couldn’t otherwise afford. In an effort to keep up with their neighbors, they feel societal pressure to have equally as luxurious vehicles, furniture, landscaping, etc. They spend all their own income on these goods and services leaving no extra money to build real wealth. The authors provide ten rules to raise economically independent children, page 255 – 263.

• The third generation often becomes mired in debt as they have the consumption habits of their parents without the financial grounding or support of their grandparents. (p. 200) Hence the classic American saying “from shirtsleeves to shirtsleeves in three generations.”

Despite its universal lessons of budgeting and saving, one can’t but wonder what would be different if it updated its data. There was a 2010 reissue, but the data is still from the ’80s and ’90s. In perspective, on page 80 they cite a study concerning taxation’s effect on wealth from 1986. That is the same year as Hands Across America, the Chernobyl meltdown, and Peter Gabriel’s landmark video “Sledgehammer” – which, at the time was groundbreaking but were it put out today, probably would be thought of as quaint at best. To illustrate the difference in the world we live in, I’ve put “Sledgehammer” and Kendrik Lamar’s video “Humble” – Vulture’s best video of 2017, the last full year at the time of this writing – below. 1986 was a long time ago and the rules have changed.

Perhaps the data is still relevant, perhaps it is not. What I do know is that although the world has changed a lot since then, human behavior is fairly constant, so the values remain relevant. I am interested to know how new data would compare and will be hoping for a new edition.


Ms. Moody

1. See FRED’s “Real Median Income in the United States” which shows the household median income from 1953 rose by 69% in thirty years whereas in the thirty years from 1983-2003 it only rose by 23%. I’ve put together this graph to show how, starting from 1953, the earliest year from which data is available, family income and GDP per capita rose together until 1980 when wages began to stagnate despite the considerable growth of GDP per capita.

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