5 Surprising Facts About Millionaires
Millionaires aren't exactly rare. One in 12 US households now has a net worth of $1 million or more not counting the value of their primary residence, according to the latest Spectrem Group survey.
Yet myths about millionaires still abound: they're all greedy, or trust-fund babies or like to flaunt their wealth. Many people think "that millionaires are a lot like Kim Kardashian," says Cathy McBreen, managing director of Spectrem, which has tracked and polled the nation's richest households for years. "But they tend to be conservative with their spending,” she says. “They're not out there buying mink coats and jewelry every day."
In fact, most millionaires spend more on charity than on bling. Spectrem has also found that most millionaires didn't inherit money, and that the percentage that did is actually shrinking as the number of millionaires grows. Here are five more surprising facts about millionaires.
Most Millionaires Don't Feel Rich
When Spectrem researchers asked people with a net worth between $1 million and $5 million to put themselves on a sliding scale ranging from 0 (poor) to 100 (wealthy), the average response was 63.91 — or just above the middle. In reality, those with at least $1 million are wealthier than about 92 percent of American households.
People with a net worth between $5 million and $25 million put themselves a bit higher on the scale, at 72.14. These folks are actually among the top 1 percent of households. "Most people don't think they're as wealthy as they actually are," McBreen says. "Of course, a million dollars doesn't buy you what it used to buy."
That tracks with an earlier survey by Fidelity Investments. In that poll of more than 1,000 households with at least $1 million in investable assets, 42 percent say they didn't feel wealthy. The average net worth of the group was $3.5 million, but those who don't feel wealthy said they'd need at least $7.5 million to be truly rich.
Hard Work and Education Are Keys to Success
When asked how their wealth was created, a whopping 94 percent of millionaires surveyed by Spectrem credited hard work. The number two factor? Education, cited by 87 percent. That ranked it ahead of smart investing (83 percent), frugality (78 percent) and risk-taking (60 percent).
Much farther down on the list: Being in the right place at the right time (40 percent), luck (36 percent), inheritance (31 percent) and family connections (8 percent).
The percentage of millionaires who inherited some of their wealth has dropped to 18 percent as the number of millionaire households hit a record high last year of 9.63 million, McBreen says. Before the recession, the percentage of wealthy inheritors was around 25 percent.
They Get Help From Experts
Millionaires typically don't see themselves as experts in investing. Only one in five considered themselves very knowledgeable. Another one in five admitted they weren't knowledgeable, while the majority — 60 percent — said they were fairly knowledgeable but still had a lot to learn.
"They're knowledgeable enough about investments to know they don't have the time to spend with [their portfolios] on a daily basis," McBreen says. "They don't have time to do the research, to keep track of what's going on."
So perhaps it's not surprising that only one in four millionaires Spectrem surveyed said they were self-directed investors with no assistance from advisors. The other three-quarters said they were either "advisor assisted" (26 percent), "advisor dependent" (14 percent) or "event driven" (32 percent), meaning they hired financial advisors to help them deal with specific events in their lives such as impending retirement or divorce.
They’re Hands-on With Their Money
Even though most hire help, the majority remain hands-on with their money, Spectrem found. And the more money they have, the more involved they want to be.
Only 40 percent of "mass affluent" investors said they liked to be involved in the day-to-day management of their finances. (Mass affluent investors are those with a net worth of $100,000 to $1 million not counting their homes, according to Spectrem.) But 51 percent of millionaire investors with a net worth between $1 and $5 million said they wanted daily involvement. That rose to 61 percent of the ultra high net worth crowd, those with a net worth between $5 and $25 million.
Similarly, only 35 percent of the mass affluent respondents said they enjoyed investing and wouldn't want to give it up. Meanwhile, 53 percent of millionaires and 62 percent of ultra high net worth respondents agreed that investing was a pleasure they wouldn't want to sacrifice.
The Wealthiest Households Enjoy Saving More Than Spending
Seven out of 10 of the wealthiest households — those with a net worth above $25 million — said that saving and investing their money gave them greater satisfaction than spending it.
Spectrem has yet to ask the question of its less wealthy millionaires. But its other surveys indicate that those with a net worth between $1 million and $5 million tend to prioritize experiences over stuff. The biggest categories for spending were vacations, charitable giving, patronizing the arts and attending sporting events. Nine out of 10 spent money improving their homes, but only 8 percent spent more than $25,000.
What about diamonds and yachts? Sorry. Only 4 percent spent more than $10,000 on jewelry, and 93 percent spent nothing on boats.
Liz Weston is an award-winning journalist and author of several money books, including the best-selling “Your Credit Score.” She writes about personal finance at her site AskLizWeston. You can like her on Facebook and follow her on Twitter.