Financial Literacy - How to prosper
Thomas Stanley
To act like the rich, be frugal

The income statement affluent are those with high incomes and relatively low levels of net worth. They are not very productive in transforming their incomes into wealth. Many of the people in this category are highly compensated physicians, attorneys and executives. Many are driven to hyper-consume by their need to display high social status.

Farmers are found in high concentrations among the segment I refer to as balance sheet affluent. The balance sheet affluent are highly productive at transforming their income into wealth.

Among the most productive of this group are educators, engineers, owners of small businesses, and as mentioned, farmers.

q_v2.gifWho is buying most of the top-shelf brand vodkas, extravagant cars and homes and why?

a_v2.gifThe question of "who" really has two answers.

Status products and homes are more likely purchased by people who have higher incomes. Look at three socioeconomic measures: net worth or wealth, household income and the market value of a home. Which of these variables is best at predicting consumption of the items mentioned? The value of a home ranks first, income ranks second and wealth ranks third.

“America is often referred to as the land of the free. But most people in this country are not really free. They are tied to debt and a treadmill existence.”

Again, while it is true that the people at the upper level of these measures have a higher propensity to consume prestige products, it is not necessarily the most significant market.

For example, most prestige makes of cars -- 86 percent -- are driven by nonmillionaires. Yes, people with very high incomes, high levels of wealth are more likely to drive status automobiles. But in sheer numbers, the largest consumer segment for pricey cars, vodkas and homes is not the millionaire population, it is the aspirationals. These are people who think they are acting rich via their adoption of prestige brands, but in most cases they are only acting like each other.

Why do these people act this way? In large part, they are trying to imitate economically successful people. They take their cues from Hollywood and the advertising industry. The problem is that most aspirationals know few, if any, really wealthy to emulate.

Would they still continue to drive prestige makes of cars if they knew that the No. 1 make of automobile among millionaires is the Toyota? Along these lines, would they still crave living in a $1 million home when they find out that nearly three times more millionaires live in homes valued at under $300,000 than live in those valued at $1 million or more?


q_v2.gifShould financial freedom be everyone's ultimate goal, and where does that leave the people whose life goals are simply to have some of the trappings of wealth, such as the nice house in the tony suburb and a European sports car?

a_v2.gifAmerica is often referred to as the land of the free. But most people in this country are not really free. They are tied to debt and a treadmill existence in terms of earning a living.

At this moment, our federal government has promised future social benefits in excess of $50 trillion. That figure is approximately the same amount of the total personal wealth held by Americans.

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