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Sunday, November 15, 2009

Review: Stop Acting Rich

At this point, has there anyone who hasn't read about The Millionaire Next Door? When one of my brothers read that book he told me that the saddest thing about reading the book was that he had to learn to be a cheapskate like me.

Stop Acting Rich is a follow-up, in the fashion of Hollywood studios who can't help milking a movie Franchise over and over again until every marginal dollar has been made.

The book makes several points:
  • Many people who drive expensive cars and live in rich neighborhoods are themselves not rich. The few who are, tend to come from a special type of household and childhood that they are trying to banish by deliberately spending on "the best."
  • Living in a wealthy neighborhood before you are wealthy makes it harder to accumulate wealth. People measure themselves by comparing what they have to what their neighbors have. By constantly surrounding yourself by people who are so wealthy that $50,000 cars are a minuscule portion of their net-worth, you set yourself on a hedonistic treadmill which depletes your wealth instead of accumulating it.
  • Engineers are the most frugal millionaires in America. They have no problem living below their means, and driving cheap cars for the sake of efficiency. Engineers account for 7.6% of millionaires but are only 2.3% of the working population. They also never pay retail. What amuses me the most about this, of course, is that engineers have a notoriously hard time attracting mates, which tells me that a lot of "acting rich" is really about demonstrating proof of reproductive suitability (don't ask me whether the strategy succeeds --- the author doesn't mention it). And true to form, I checked this book out of the local library rather than buying it.
  • By contrast, middle managers and attorneys have a hard time accumulating wealth despite having high incomes. That's because their peers tend to live in expensive neighborhoods, which tends to accelerate their spending. This also explains why I've occasionally seen signs of jealousy from managers in the past.
The author makes this point by using examples from homes, watches, and cars (I would have loved it if he had included Apple products), but the problem is that we don't see good statistical analysis --- if a large number of millionaires buy Toyotas, that doesn't tell us whether or not buying Toyotas is an independent variable, or whether they do prefer Toyotas to a larger extent than the general population.

All in all, the book is entertaining, but provides limited additional insights if you've already read The Millionaire Next Door, so I can't in good faith recommend it.


Unknown said...

Interesting! What are some examples of managers showing possible signs of jealousy?

DWallach said...

Frugal engineers? You're clearly seeing yourself in the mirror, but it's far from universal. Engineers are every bit as likely to have dropped five figures on an insane stereo system (with or without vacuum tubes), an overclocked gaming rig, or other variations on the theme. One friend of mine who fits this bill justifies the expenses by pointing out how much he saved, percentagewise, off the list price, but that has no impact on the large absolute number of dollars he's spent.

On the other hand, it makes him happy so who am I to begrudge it to him. It's not like he's going into debt or anything. This is all disposable income being disposed of.

Ultimately, there's a quality of life thing going on. You can trade money for enjoyment, although the return on investment can be highly variable. Some hobbies (like cycling, for you) are radically cheaper than other hobbies (say, owning and maintaining a sailboat or a weekend track car, but I know engineers who do both).

Piaw Na said...

@Kevin: I'm not going to write about that in a public forum. :-)

@Dan: Obviously, not all engineers a millionaires, or even stay millionaires!