Economic Case Study On Wealth

Running Head: ECONOMIC CASESTUDY ON WEALTH 1

Economic Case Study on Wealth

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ECONOMIC CASE STUDY ON WEALTH 2

The ordinary person’s definition of word wealthy refers to people who have

abundant material possessions. Material possessions such as big houses in fancy

estates, fancy cars, expensive clothes and what not. Well, that definition is not wrong

but when a person is rich in material possession, that does not necessarily make

them wealthy. Many people who live a high lifestyle have little or no investments,

assets producing income, common stocks, bonds or their own businesses.

Conversely, the people who we say they are wealthy get much more pleasure from

owning great amounts of assets than from displaying a high-consumption lifestyle

(Thomas J. Stanley, 1996).

Thomas J. Stanley and William D. Danko, authors of best-selling book ‘The

Millionaire Next Door’, research revealed more about the characteristics of

millionaires than existing common knowledge on the issue. Their findings dispel the

common perceptions held on consideration of how fortunes are built up. In their book

they assert, “Wealth is not the same as income. If you make a good income each

year and spend it all, you are not getting wealthier. You are just living high. Wealth is

what you accumulate, not what you spend.” These are indeed true assertions after

the examination of the happening in society today. The people thought to be rich

because they live a very fancy lifestyle may not be what others perceive them to be

(DeMarco, 2011).

This people could be reffered to as social climbers since they may be living

that high and mighty lifestyles with their big cars but they may be a pay check away

from being bankrupt. This is because they spend all they earn from their jobs, not

thinking about the future. All they care about is their classy social status and what

they will do to gain a higher status. They could be millionaires but with poor

spending habits hence poor millionaires.

ECONOMIC CASE STUDY ON WEALTH 3

In the book, “The Millionaire Next Door”, it is stated that a millionaire is not

noticed easily. One could be living with a millionaire next door without even knowing.

Millionaires do not show it because they have found smarter ways to use their

money other than on designer clothes and flashy cars.

Becoming a millionaire is not so hard although it takes time. It involves careful

planning, living below one’s means and avoiding major financial mistakes. First

things first, one should learn how to save. One should start saving from the moment

they first start earning more than they need to live (Bartlett, 2013).

Most people think that becoming a millionaire involves earning a million annually. It

does not necessarily entail that because even if one earns that much, taxes will

consume up half or even more than half of this money. For starters, one can still be a

millionaire even if they do not earn such kind of money. The moment one start’s

earning more then they should start saving responsibly and avoid spending money

on things that they do not need. Just because one sees something in a store that

looks fancy and lovely it does not mean they should buy it. It requires one to limit

themselves within a set budget ( Winston & Albright, 2016).

With saving comes investing also. Investment is putting one’s money in a

resource field so that they get returns in the future. One can invest their money in

purchasing land, buying shares when the market rates are low so that they earn a

profit later, in government bonds, or at a fixed deposit.The decision whether to save

or invest one’s money depends on their goals and monetary situation. If one’s goal is

short term, one should be saving in cash deposits like bank accounts. This is so

because the financial market could flactuate, in the short term and if one invests for

less than five years they could make a loss. For long term goals one could want to

ECONOMIC CASE STUDY ON WEALTH 4

invest because inflation could have a serious effect to the value of money saved in

the long term period.

Some investments are very risky and could result in losses in money and this is why

people prefer saving than investing. One should therefore opt for diversification

which is done by lowering the level of risk one takes when they invest by allocating

their cash across different types of investments.

Thomas J. Stanley came up with a formula to calculate expected wealth which

involves multiplying a person’s age with their pre-tax annual income and then

dividing it by 10. It is a good way to motivate people to work harder towards their

target especially if the young people because it takes a long time for them to reach

their expected wealth (Thomas J. Stanley, 1996).

With all that, we have seen that to become a millionaire one has to start from

the bottom so that they get to the top, unless they have already have acquired their

inheritance or have been provided with a substantial amount of economic outpatient

care. Economic outpatient care is when wealthy or affluent parents give monetary

support to their adult children.

As stated by the authors, real millionaires do not fancy their appearances or their

social status. They believed that financial independence is better than displaying a

high social status.The fictional data that has been provided (file Co3_02.xlsl.) shows

several hundred couples, their level of education, salary per year, market value of

their homes and cars, the total amount of savings they have accumulated, and a

self-reported ‘social climber index’. As mentioned earlier, a social climber is a person

who is very concerned with social status and their material possessions.

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The couples that have a social climber index of 1-3 are the ones that do not fancy

high social status. They live below their means leading simple lives. Probably they

have been living in the same town for several years. They own old models of cars

and some of them do not even own cars.

The couples that have a social climber index of 7-10 are the ones that live the high

life. They are the ones that live in big houses and fancy estates. They own the latest

Mercedes Benz cars. One could spot them wearing designer clothes. They spend

their time thinking of what to buy next or where to go on vacation during the holidays.

Furthermore the couples with a high social climber’s index have low savings

because they spend a lot while the couples with a low social climber’s index have

high savings and these are the real millionaires according to Thomas Stanley and

William Danko. That is after compiling twenty years of research with the ‘truly

wealthy’ people.

Although there were other people with opposing views to Thomas Stanley and

William Danko’s wealth theory, their theory seemed to be very effective to many

people. In conclusion, wealth is what one accumulates, not what is spent.

ECONOMIC CASE STUDY ON WEALTH 6

References

Winston, W. L., & Albright, C. S. (2016). Business Analytics: Data Analysis &

Decision Making. Cengage Learning.

Bartlett, R. (2013). A PRACTITIONER'S GUIDE TO BUSINESS ANALYTICS: Using

Data Analysis Tools to Improve Your Organization’s Decision Making and Strategy.

McGraw Hill Professional .

DeMarco, M. J. (2011). The Millionaire Fastlane: Crack the Code to Wealth and Live

Rich for a Lifetime. Viperion Publishing Corp.

National Research Council, Division of Behavioral and Social Sciences and

Education, Committee on Population, Division on Engineering and Physical

Sciences, Board on Mathematical Sciences and Their Applications, Committee on

the Long-Run Macroeconomic Eff. (2013). Aging and the Macroeconomy: Long-

Term Implications of an Older Population. National Academies Press.

Thomas J. Stanley, W. D. (1996). The Millionaire Next Door:The Surprising Secrets

of America's Wealthy. Government Institutes.

ECONOMIC CASE STUDY ON WEALTH 7

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