A physician recently contacted me about his experiences with economic outpatient care. He had read The Millionaire Next Door and realized that his parents and grandparents fit the pro forma of the income statement affluent and balance sheet affluent, respectively. His mother and father were corporate middle managers . “They spent everything.” Nice home, nice cars, nice vacations. . . . They spent so much that they had little left to fund the tuition bills for expensive private schools, colleges and medical school educations.
In fact neither he nor his brother (also a physician) would have been able to attend medical school without the economic support of their “blue collar . . .business owner” grandmother. She paid for “everything.” She lived in the same house for over 40 years; it was half the size of his parents’ house. She never owned a foreign luxury car or any other luxury car.
In a way grandparents who are of the millionaire next door business owner type are keeping private schools, elite colleges and professional schools in business. More than 50% of these grandparents pay some or all of the tuition for their grandchildren. In nearly 6 out of 10 cases (57%), millionaire grandmothers who are business owners report that paying for their grandchildren’s education very important/important benefit of being rich. Meanwhile, their children who are often well educated hyperconsumers are having their upper middle class lifestyles subsidized.
I was reminded of this after reading an article in The Wall Street Journal, “Buying your way into college”. According to the article, some elite colleges are contemplating easing entrance requirements for those students whose parents have high incomes. This move assumes that people with high incomes can afford high tuition bills. Therefore their children will not need “financial aid” from the college.
But what is wrong with this picture? Some millionaire next door type parents have a realized income of less than 3% of their total net worth. Even though they are wealthy, their relatively low realized income may jeopardize their children’s admittance to one or more of the elite schools mentioned. However, these schools may be unknowingly giving preferential treatment to the children of the income statement affluent (high income/low net worth).