People often ask me if the consumption lifestyle of their children or grandchildren will change radically if they receive a sizeable inheritance. If a child is raised in a family environment which reflects the habits of the millionaire next door, he or she typically adopts the same lifestyle. Statistically a frugal 21-year-old will continue to be frugal throughout his lifetime. Two case examples will illustrate my point.
Recently, Ted returned a completed questionnaire which was part of my national survey. He wrote the following: “Please note . . . my responses may be atypical because of a recent inheritance much larger than anticipated. ” Ted, in his mid-30s, was a member of the Balance Sheet Affluent crowd before he received nearly $10M from his grandparents estate. How did this fellow react after he suddenly became a decamillionaire? Typical of disciplined people, he did not go consumption crazy. The only change in Ted’s lifestyle was that he traded in his 8-year-old Honda for a $35,000 Toyota Highlander. No new house, no beach house, not even a small Mercedes!
In the second case, Ron, a Connecticut mechanical engineer, describes the pride and admiration he has for his daughter’s achievements and frugal nature. She graduated with honors from an Ivy League college with a degree in environmental engineering. At age 25, she received an inheritance from her grandmother of $3M after taxes. Ron, the executor of the estate, deposited the $3M check to his daughter’s brokerage account; she was working in California at the time. He checked the account a month later and found that there was still $3M in the account; no checks had been written. Later he asked his daughter what she planned to do with the money. She responded that she hadn’t given it any thought. . . what am I suppose to do with this $3M? Her frugal lifestyle and intense commitment to her vocation place the disposition of the economic windfall very low on her priority list.
Remember what Mr. Allan, from The Millionaire Next Door, said:
Money [no matter how much] should never change one’s values.