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America: Where Millionaires are Self Made

By Thomas J. Stanley on May 6th, 2014 in Current Events

Recently a fellow asked me about my impressions of French economist Thomas Piketty’s new book, Capital in the Twenty-first Century.  I have not read the book, but I’ve read comments about it including a recent interview with the author.  He postulates the existence and forecasts the growth of  inequality in terms of the concentration of wealth and income.

In the introduction to the interview, there was an interesting statement: “hard work will matter less, inherited wealth more.”  Really?  Added up the entire annual realized income of those households in the $10M and over category the total would be over $300 billion. What percent of this amount is derived from trusts and estates? The answer is 1.3%.  This percentage even doubled or tripled would hardly qualify America as a country where inherited wealth “mattered more.”

It appears from the interview that both Mr. Piketty and the interviewer are using income and wealth as synonymous terms.  They are not.  In my thirty plus years of surveying and studying millionaires, I have consistently found that 80 to 86% are self made.  That also applies to decamillionaires.  In 1982 according to Forbes about 38% of America’s wealthiest people were self made.  In 2012, the percentage jumped to 70%.   

In a recent blog, I cite what many consider to be the most exhaustive study of socioeconomic mobility in America.  Professors Chetty of Harvard and Saez of Cal-Berkeley studied about 50 million federal income tax returns of parents and their adult children.  Part of this study as mentioned in The Wall Street Journal stated that:

The odds of a child moving up the economic ladder have remained the same for about the past three decades . . . that contradicts the narrative in Washington that economic mobility has declined in recent years.

Economic opportunities abound in this country.  Yet most Americans are not wealthy.   It is easy to blame the so-called inequities in our economy.  But it is more about the fact that Americans spend all or most of their income on things that have little or no lasting value! They lack the discipline required to accumulate wealth. Most households are on a treadmill of working and consuming.  The typical American household has a median annual realized income within the $50,000 to under $75,000 bracket.  Only 6.3% of these people have any realized capital gains income.  Thus an update is in order.  Remember what I wrote in The Millionaire Next Door: big hat, no cattle. And now the update: no capital, no capital gains.

6 responses to “America: Where Millionaires are Self Made”

  1. Thad says:

    Piketty – “A: Instead of having a flat tax on real estate property, you would have a progressive tax on individual net worth. You would reduce the property tax for the people who are trying to start accumulating wealth.”

    What a great incentive for people to work hard…

  2. Sam says:

    And by promoting these false inequalities, people get an excuse for their own failure to succeed. ” Well the system isn’t fair, the deck was stacked against me, I didn’t have a rich daddy….” etc, etc. Great post, thanks for rebutting this nonsense.

  3. mysticaltyger says:

    I agree with most of what you’re saying here. Unfortunately, I think you’re preaching to the already converted. Kind of frustrating the people who need to hear the message most will not listen to it.

  4. Kristin says:

    It’s very strange that you would approvingly cite Saez when Saez and Chetty’s thrust was that, while mobility has not decreased substantially, it was very bad compared to the rest of the OECD to begin with…

  5. Terry Pratt says:

    Yes, economic opportunities abound in this country; I have seen as much from the bottom of the economy.

    But in order to become wealthy, one needs to have either the right skills, capital, or access to capital.

    All the frugality in the world will not transform a burger flipper into a millionaire.

  6. Scott says:

    Yes, a burger flipper can become wealthy. He works his way up the ladder to manage the burger joint. He saves assiduously for 40 years. I have a good friend who is a multimillionaire on a high school PE Teacher’s salary. He made no more than the guy who manages the local Burger King. (Rod Harman, featured in Money Magazine)

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