Book review – The New Elite: Inside the Minds of the Truly Wealthy

I find wealth very interesting, and I’m particularly interested in the culture and lifestyles of the wealthy. Not necessarily the lifestyles of the “rich and famous”, but more the lifestyles of the truly wealthy, who often fly below the radar to a certain degree.

At any rate, I found The New Elite last year but hadn’t had a chance to read it until now. It’s an easy read that can be done in a weekend or so, but it explores with some really interesting topics. The authors are consultants from the marketing and branding industries who decided to mount a comprehensive effort to study the truly wealthy. They conducted several studies and used two different definitions of wealthy for the book: $5 million in liquid assets (not including primary residence, collections, or any nonliquid business ownership interests), and/or $500k in disposable income. These criteria put these households in the top 0.5% of those in the US, and there are 750,000 such households.

These were my favorite observations from the book:

Start your own company

If you want to build wealth in America, you pretty much have to start a company. Start it on the side in your living room or garage, but start something. The vast majority of the wealthy families covered in this book made their money initially through entrepreneurship.

Money attracts more money

The amount of time that a person has been wealthy is a strong predictor of how wealthy they are. The authors split the respondents into three groups: apprentices (wealthy for 5 years or less), journeymen (wealthy for 6 – 14 years), and masters (wealthy for 15 years or more). The three groups exhibit different psychological and behavioral patterns, which is to be expected, but what’s interesting to me is that you can see the effects of the “gravitational pull” of money. The apprentices had an average net worth of less than $10 million, while the masters average net worth was more than $75 million. Income also more than tripled from apprentices to masters, going from $1 million annually to $3.3 million annually. The implications are clear: the hardest part of getting super-rich is cracking into the bottom tier of the wealthy and then waiting.

Difficulty of studying the wealthy

Probably the most interesting thing in the book was something I had never stopped to think about: it’s really hard to study the wealthy. The rich and famous we see on TV aren’t representative of the wealthy households of this country. The vast majority of wealthy households fly under the radar, are private, and aren’t motivated by the small stipends that market research companies give out for filling out surveys and participating in studies. The authors detail how they went about overcoming this hurdle, but they pointed out that because of the difficulty of reaching the wealthy, very few studies cover households with income in excess of $250k / yr, which is considered affluent, but not wealthy. Coupled with the images the media shows of celebrities misbehaving, we end up with a very skewed perception of the wealthy and how they live. This inability to properly survey the wealthy has other consequences as well. For example, researchers have conducted numerous studies that show that once your basic needs are met, having more money does not make you happier. However, the majority of these studies had essentially no participants above $250k / yr. The authors of the book asked their wealthy participants this question and more than 95% responded that they were very happy in life, a statistically-significant amount above the national average. Now, the issue of cause or effect can wait for another day, but it’s interesting to think about other areas in which our inability to even connect with this demographic limits our understanding of wealth.

If you enjoy reading about wealth or you work in an industry that caters to the wealthy, I recommend this book.