LET’S DEFINE BEING RICH as having a million dollars of net worth. To become a millionaire, according to Professors Richard McKenzie of the University of California-Irvine and Dwight Lee of the University of Georgia, is almost a cakewalk.
In their August/September Futurist article, “How Almost Anyone Can Become a Millionaire,” McKenzie and Lee write, “Most people in America got rich because they chose to do so, and they pursued a path to wealth that is wide open to most of the rest of us.” In other words, becoming rich is a matter of choice. Let’s look at it.
Suppose a 22-year-old college graduate, earning $30,000 a year, makes a one-time $2,000 investment in the stock market. With a 10 percent compounded rate (which is the stock market appreciation over the last 50 years), that $2,000 would become $194,000 at age 70. The person wouldn’t be rich; but neither would he have sacrificed much. Suppose our 22-year-old was more serious about becoming rich and invested $2,000 each year. At age 70, his wealth would exceed $2.1 million. Thus, the first step toward being a millionaire is to save consistently. In order to save consistently, you must avoid “irresistible” temptations; make do with less expensive cars and clothing, and cheaper entertainment.
Another factor in becoming rich is education. Graduate from high school and attend college or some other form of post-high school training. But you have to choose your education wisely. Teachers can expect to earn half as much over their careers as engineers, so teachers will find becoming rich tougher than engineers.
Among what McKenzie and Lee call auxiliary rules for becoming rich are: marry someone with an equal or higher education, and stay married. Marriage seems to provide a stable institutional setting that promotes greater earnings, which affords greater savings. Married people not only earn more than single people, they also economize on the costs of running their households, which allows for greater savings.
The operative term is marriage, not shacking up. The binding legal contract at the foundation of marriage reflects the couple’s personal commitment to each other that gives them added incentives to pool resources. Survey data shows that married couples build up more assets than two single people or couples simply living together.
Becoming a millionaire takes time and requires some risk-taking. If you start out non-rich, don’t expect to be rich before you’re 50. While you’re young, plan to take “reasonable” risks through investment vehicles like index mutual funds (which buy shares of all companies in the Standard and Poor’s stock index) or one or more of the 8,000 mutual funds.
McKenzie and Lee point out that the process of becoming rich normally takes decades, sacrifice, dedication and perseverance. Becoming rich is not for everybody. Some people quite rationally may not choose to make the sacrifices of current consumption and enjoyment. Nothing’s wrong with that. What the authors stress is that it’s one thing to make a conscious choice not to pursue great wealth, and another not to know the choice exists.
McKenzie and Lee demonstrate that greater wealth is possible for most Americans. That’s a vital point, particularly for black Americans whose political leaders preach that they can’t make it because of discrimination.
The fact that 4 percent, nearly 11 million Americans, are millionaires, most starting out with little or nothing, points to one aspect of America’s greatness: By knowing where a person ended up, it’s a risky proposition to speculate about where he began.