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Personally, I'm not sure how much the average person can learn from the Donald Trumps or George Soroses of the world.
We might envy their lifestyles or their bank accounts, but very, very few of us will ever approximate their wealth.
Most of us, though, have a shot at being millionaires. In 2004, the number of households worth $1 million, not counting their primary residence, grew 21% to 7.5 million, according to Chicago-based research firm Spectrem Group.
Studying the habits of this relatively large and growing group of affluent folks can teach us a lot. These people don't just have money; they treat it differently than people farther down the economic ladder.
The rich are indeed different
At least, so say various surveys of the affluent. Among the most notable differences:They give away more. Charitable giving dropped sharply among the wealthy after the 2000-2001 bear market, according to Spectrem Group. Still, households with $500,000 or more in investible assets gave away 6% of their incomes in 2004, and those with net worth of $5 million, excluding primary residences, contributed 6.1% of their incomes. That compares to an average of about 2% for all American households and 4% for households with incomes under $25,000, according to American Demographics.
"Our clients appreciate the success that they've had and they want to pay it forward in some way," said financial planner Ross Levin of Edina, Minnesota. "We have one client, a developer and his wife, who give away 50% of their income."
They are much more likely to own businesses. Overall, about 12% of American families own all or part of a privately held business, according to the Federal Reserve, compared to 41% of those whose net worth puts them in the top 10% of households. Business assets comprise 21% of the total net worth of households who have $500,000 or more in investible assets, Spectrem said.
Closely held and family owned businesses are a major source of wealth for many of financial planner Victoria Collins' clients, but these holdings present major challenges. It's risky having so much of one's net worth tied up in a single investment that could be tough to sell. That's why Collins and other planners encourage their business-owning clients to diversify their other investments.
"Any time you have a super-concentrated position -- whether it's an individual stock or a business -- you have to be concerned," said Collins, who's based in Irvine, Calif.
They borrow strategically. The wealthy are only slightly less likely to owe money than average folks, according to the Fed, but how they borrow is quite different. The richest 10% of Americans are half as likely to have credit card debts (22.4% vs. 44.4% overall), although the median balances for those who carry balances are about the same for both groups (around $2,000). The wealthier folks are also much less likely to have installment debt, such as auto loans (25.6%, compared to 45.2% overall).
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