A million bucks! What a dream. Once you have the cash you can promptly fly to Macau, bet it on black and turn it into $2 million! Or, you can lose it all and spend the rest of your remaining years wondering what were you thinking.
Getting to at least one million dollars in net worth is a nice milestone to achieve. I firmly believe the majority of people reading Financial Samurai and other personal finance sites which don’t constantly hawk credit cards will be able to achieve millionaire status.
If I were to guess the exact percentage of Financial Samurai readers who become millionaires in their lifetimes, I would say 65%. It doesn’t sound like a huge amount until you read the data below. For the remaining 35%, you’ll have more money than if you hadn’t started reading personal finance sites.
Since 2009 I’ve received dozens of e-mails from readers saying they’ve busted through the $1 million net worth figure thanks to aggressive saving and investing. Many have mentioned they wish they had discovered the personal finance world sooner. But better late than never I say!
So what about the rest of the 300+ million Americans who were fortunate enough to be born or gain citizenship to our great country? What are their chances of living the champagne dream and caviar lifestyle?
How Many Millionaires Are There In America?
According to Spectrem Group’s Market Insights Report, in 2018, there were 9.8 million individuals with net worth between $1 million and $5 million, 1.8 million individuals with net worth between $5 million and $25 million, and 156,000 households (not individuals) with more than $25 million in net worth, the report says.
In other words, there are roughly 11.8 million millionaires in America, making up roughly 3% of the population. This count is at a record high thanks to a bull market in stocks, bonds, and real estate. Although 11 million sounds like a lot, it still only accounts for roughly 3.5% of the US population. I suspect the actual number is higher due to stealth wealth and plenty of unreported or underreported assets.
But if you happen to be born into one of the millionaire families, then the chances are extremely high you will also become a millionaire thanks to an inheritance or a living trust. With all the resources money can buy, you should have a greater chance of generating more wealth than the kids born into non-millionaire households.
So I began to wonder what the data says about the average American’s chance of becoming a millionaire. Luckily for us, Bloomberg has compiled three highly insightful charts based on Federal Reserve data which I’d like to show you today.
Chance Of Becoming A Millionaire By Educational Attainment
The chart says that the more education you receive, the higher your chance of becoming a millionaire across all races. Makes sense since high paying jobs often require higher levels of education e.g. lawyer, doctor, executive management, and scientist. The chart says that for Asians with a Bachelors degree, the probability of millionaire status is roughly 17%. For Hispanics with a Master’s degree, the chance for millionaire status is roughly 11%.
The statistic that jumps out the most is the 37% probability a White person with a Master’s degree becomes a millionaire. 37% looks incredibly high compared to every other percentage in the chart. If I was a White person, a Master’s degree is exactly what I’d get. Maybe just not one in History or Journalism.
What I’m also surprised about is the low level of probability for Hispanics and Blacks to become millionaires even with a Master’s degree. You’d think that by the time you get to the Master’s level for education that the people and institutions you hang around with would provide very similar financial and career opportunities for all types. But with Blacks with Master’s degrees only having a 7% chance of becoming a millionaire compared to a 37% chance for Whites, something seems very wrong.
The Chance Of Being A Millionaire By Age
Everybody’s chance to become a millionaire improves up until the age of 61. But after 61, the chance for Hispanics and Blacks to become millionaires declines. It’s interesting to see the slopes for Asians and Whites are much steeper, which probably indicates there is a higher representation of Asians and Whites in higher paying industries.
Given investments tend to appreciate over time, their performance is independent of age, even if you are over 61 years old. Therefore, one may hypothesize that Asians and Whites make up a greater representation of investors in stocks, bonds, and real estate.
The slope difference between races is why there’s been such a rally cry for Hispanic and Black diversity in industries such as tech and finance. Humans tend to take care of their own. So if all Google has are White people as managers, it will be harder for non-Whites to get ahead.
But I’ve noticed there’s only an uproar for a lack of diversity at higher paying companies and industries. No uproar can be heard in grade school teaching where the majority of teachers are female (I’m a high school tennis coach). There is also no uproar about diversity in the military, where the majority of service people are male.
Hopefully those who fight for diversity are willing to fight for diversity across the board, not just at places which pay the most money.
Your Chance Of Being A Millionaire By Race
Putting everything together, the Fed data says Asians have the highest odds for becoming millionaires, which I find odd since Asians are a minority that represent roughly 5% of the American population. Asians still face discrimination just like Hispanics and Blacks. Meanwhile, it seems like test score requirements are higher for Asians to have the same chance of admittance at certain colleges.
Perhaps its easier to mobilize a smaller population to heavily invest in their future, as is the case with Singapore and its 5.6 million population with a $53,000 per capita GDP versus trying to mobilize a 1.4 billion China population with a per capita GDP of only $8,100.
Perhaps immigration policy has something to do with giving Asian Americans a head start with the US restricting immigration based on a minimum level of wealth. For example, to expedite getting conditional green cards for you and your family, you can invest $500,000 – $1 million in your own business and directly employ a minimum of 10 people for two years. However, I’ve also spoken with many families who escaped difficult government regimes to come to America with absolutely nothing.
Or perhaps there is a cultural reason. Here are some personal insights on why Asian income and wealth is so high.
In an ideal world, it would be wonderful if everybody could have an equal chance to become a millionaire by race, by age, and by education attainment. Unfortunately, the system is rigged where people already in power naturally look to take care of their own.
It’s up to all of us to proactively enrich our minds with knowledge that can help us grow our wealth, regardless of circumstance.
Do You Like Your Odds Of Becoming A Millionaire?
The odds of becoming a millionaire in America are 6.4% to 22.3% according to data from the Federal Reserve Board’s Survey of Consumer Finances. I’d gladly take those odds over trying to become a millionaire in any other country. I bet the odds of becoming a millionaire if you were born in Zambia, where I used to live for one year, is less than 1% because their GDP per capita is only $3,900, or 1/9th the GDP per capita in the US.
But going back to my original thesis, I feel that at least 65% of you who constantly read personal finance sites have a chance of becoming a millionaire in your lifetime. 65% didn’t sound like much in the intro, but now you know that it’s 3X higher than the highest chance anybody has of becoming a millionaire in America.
Personal finance sites do a lot of things, but most of all, they make you pay attention to your finances. As soon as you have heightened awareness about how much you are saving, what you are investing in, your net worth asset allocation, and your retirement plan, it’s only natural to generate more wealth than the typical person who is financially unaware.
If you put away just $350 a month and earn 6% a year, you will become a millionaire in 46 years. If you decide to wisely max out your 401k at $1,500 a month and earn 7.5% a year, you will become a millionaire in just 22 years. And if you decide to max out your 401k and invest another $1,000 in after-tax proceeds a month, you will become a millionaire in just 17 years if you earn 7.5% a year.
If you don’t like your millionaire odds, change them! Religiously track your net worth in order to optimize your finances. Save aggressively and invest consistently. Do not settle for what the data says. Believe that becoming a millionaire is highly possible in your lifetime. And once you feel you’re on track to get to $1 million, you might as well shoot for $3 million due to inflation.
Intro graphic by https://ckongsavage.com/