Meet the non-conspicuous saver and investor

22 May 2017 | Investment principles


The Millionaire Next Door, a long-time personal finance bestseller that has found a place in the bookshelves of generation after generation of investors, has turned 21.

In 1994, late US academics Thomas Stanley and William Danko first published their telling blueprint for the quiet accumulation of wealth in an understated, non-showy fashion. This is the opposite of the get-rich-quick approach.

Based on comprehensive surveys over some years plus face-to-face interviews of hundreds of wealthy individuals, Stanley and Danko wrote that “prodigious accumulators of wealth” (PAWs) are typically modest in their spending habits; they don't tend to look like rich.

By contrast, conspicuous spenders are prominent among a group that Stanley and Danko tagged as “under accumulators of wealth” (UAWs). In other words, they only looked rich.

Under-accumulators of wealth had a low net worth given their incomes. And they tended to spend more time looking for a new car than considering a new investment.

The size of person's house or make of car is not an accurate reflection of wealth – far from it. That's the bottom-line that should serve as a reminder to anyone who is tempted to try to keep up with high-spending neighbours.

Of course, the label “millionaire” used to be described as someone who was truly wealthy. (The research was based on households with a net worth of $US1 million.) But much has changed over the past 21 years including how far a million dollars will stretch.

Just think that Sydney and Melbourne' median house prices in 1996 were about $210,000 and $130,000 respectively. Now Sydney's median house price is over $1.1 million and Melbourne's is over $800,000.

Certainly, millionaires aren't what they used to be in dollar terms. The central point in Stanley and Danko's work is that they were researching what makes a highly-successful wealth accumulator as against the not-so-successful. The actual dollars involved are incidental to their case.

Careful budgeting and spending habits – trying to spend well under what you earn – are critical foundations for creating and keeping wealth. This is even more important when investment returns are subdued and Australian wages growth remains at a record low.

Are you a non-conspicuous saver and investor or a conspicuous spender? It's hard to be both.


Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
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Robin Bowerman, Principal, Market Strategy & Communications at Vanguard Australia, shares investment and personal finance insights gained from over two decades in the finance industry as writer, commentator and editor.

Robin Bowerman