Chance_Of_Becoming_A_Millionaire_1
00:00:00.000 | Hello everybody, it's Sam here from Financial Samurai and today we're going to talk about your chances of becoming a millionaire by race, age, and educational attainment.
00:00:11.000 | So everybody I think wants to be a millionaire. I remember when I was a kid, I thought a million bucks would change my life.
00:00:18.000 | And the fact of the matter is, a million bucks isn't what it used to be. I think three million is probably the new million thanks to inflation.
00:00:27.000 | But all the same, reaching a one million dollar net worth is a great milestone for anybody to achieve.
00:00:33.000 | I firmly believe that the majority of people here reading Financial Samurai and other personal finance sites will become millionaires in their lifetimes.
00:00:43.000 | It's just time plus savings plus investing equals financial success. But the sad part of it is a vast majority of Americans won't achieve financial freedom before a traditional retirement age.
00:01:01.000 | And even if they get to 65, the fact is the median household retirement savings is only about $17,000. That's the median.
00:01:12.000 | Okay, the average is maybe closer to $200,000, but that's because it's lifted up by the very wealthy in our country.
00:01:19.000 | So if I were to guess what the exact percentage of Financial Samurai readers who will become millionaires in their lifetimes, I would say the number is close to about 65%.
00:01:30.000 | It might not sound like a huge number, but based on the data that I'm going to talk to you about in this podcast, I think you're going to be impressed.
00:01:39.000 | And for the remaining 35% of you, you're going to have more money, way more money than if you hadn't started reading personal finance sites.
00:01:47.000 | Financial Samurai has been around since 2009, and I have received dozens and dozens of emails from readers who've said they've busted on through the one million dollar net worth thanks to aggressive saving and investing.
00:01:59.000 | And that's awesome. You know, almost nine years being around and also basically riding through the financial crisis and to this bull market we have today,
00:02:10.000 | it's not a surprise that people who have been diligently investing have done very, very well.
00:02:16.000 | Just look at the stock market at all-time highs. Just look at the real estate market in many of the coastal cities and also now a lot of the central country cities.
00:02:27.000 | They've really surpassed their 2006, 2007 peaks. So if you were riding that wave, good for you.
00:02:34.000 | So what about the other 300 million Americans who are fortunate enough to be born in this great country or gain citizenship?
00:02:42.000 | You know, what are their chances of living the million dollar lifestyle?
00:02:46.000 | Well, according to Spectrum Group's Market Insights Report 2017, there's about 11 million millionaires in America.
00:02:56.000 | That sounds pretty good. Sounds like you probably know one.
00:03:00.000 | The count is at a record high because everything is kind of at a record high right now in terms of stocks, bonds, and real estate.
00:03:07.000 | But 11 million, although it sounds like a lot, it still only counts for about 3.5% of the U.S. population.
00:03:14.000 | But if you happen to be born into one of the 11 million millionaire families, I think the chances are extremely high you will also become a millionaire thanks to an inheritance or a living trust
00:03:27.000 | or because money is going to be able to buy you all the resources you need to get that SAT test prep that costs $2,500 to get you into these fancy schools,
00:03:38.000 | maybe because your parents are donating some money, whatnot.
00:03:42.000 | Folks who have wealth definitely seem to have a leg up on those who do not have as much wealth.
00:03:48.000 | And as a result, there is this slowly dividing part of the country that we need to solve.
00:03:56.000 | So I began to wonder what the data says about the average American's chances of becoming a millionaire.
00:04:01.000 | And luckily for us, we've got some really interesting data compiled by Bloomberg with three insightful charts in this post on data from the Federal Reserve.
00:04:12.000 | So first of all, the first chart, what is your chance of becoming a millionaire by educational attainment?
00:04:19.000 | It's interesting because this chart breaks it out by race, Asian, white, Hispanic, and black.
00:04:26.000 | And if you look at average chance for someone with a bachelor's degree who's Asian, the chance looks like it's about 17%.
00:04:36.000 | If you're white, it looks like the chance is about 18 to 19%.
00:04:40.000 | If you're Hispanic, the chance is about 10%.
00:04:44.000 | And if you're black, the chance is about 7%.
00:04:47.000 | And there is definitely a correlation with regards to your educational attainment and your increasing chance of becoming a millionaire.
00:04:56.000 | So if you have no high school education, your chance is very low.
00:05:00.000 | High school is a little bit higher.
00:05:01.000 | Associate's degree, generally a little higher.
00:05:04.000 | Bachelor's, even higher.
00:05:05.000 | And then it stops at the master's degree.
00:05:08.000 | But I think what's most interesting about this chart is that there is a 37% chance a white person with a master's degree becomes a millionaire.
00:05:17.000 | That is much, much higher than any other race.
00:05:21.000 | For the Asian race, it's like 26%.
00:05:24.000 | For the Hispanic race, it's, you know, again, only 10%.
00:05:27.000 | And for the black race, it's only about 7%, which is really, really strange to me.
00:05:32.000 | I mean, that's really strange because by the time you get a master's degree, whether it's an MBA or you just have a master's in anything, just not history or journalism or, I don't know, any of those other degrees that probably aren't going to make you too much money,
00:05:47.000 | you would think the people you hang out with and the institutions that hire you all provide very similar financial and career opportunities.
00:05:56.000 | So I think something is really wrong here.
00:05:58.000 | And I don't understand why there's such a huge dichotomy if a white person has a 37% chance with a master's degree and a black person only has a 7% chance.
00:06:08.000 | Something seems very wrong.
00:06:11.000 | But I don't know what the answer is, so maybe you can share.
00:06:14.000 | The second chart is the chance of being a millionaire by age.
00:06:18.000 | And again, there is a high correlation.
00:06:21.000 | The older you get, the higher chance of becoming a millionaire.
00:06:25.000 | So every race, you see the chance improve up till the age of 61.
00:06:31.000 | But after 61, the chance for Hispanics and blacks to become millionaires declines.
00:06:38.000 | And that is very odd in my mind.
00:06:41.000 | Also, the slope is much steeper from under 40 up till 61 for Asians and whites, which probably indicates there's a higher representation of Asians and whites in higher paying industries.
00:06:57.000 | The classic example right now is the uproar in technology companies like Facebook and Google and Pinterest and all those guys.
00:07:07.000 | There's a huge, huge representation of whites and Asians and not so much blacks and Hispanics.
00:07:14.000 | So what can explain the declining percentage chance of becoming a millionaire after 61 for Hispanics and blacks?
00:07:24.000 | And I hypothesize the reason why there's a decline might be because they have a lower representation of investors in stocks, bonds, and real estate.
00:07:38.000 | So if you invest money in stocks, bonds, and real estate, they're going to perform regardless of your age, your race, or whatever, right?
00:07:47.000 | So if you have continuously invested in the markets and in real estate, you're going to have a larger financial portfolio.
00:07:57.000 | And given everything is generally up and to the right, thanks to inflation, thanks to growth, earnings growth, and so forth, I think that's probably the reason why maybe Asians and whites continue to increase their chances of becoming millionaires after 61.
00:08:14.000 | That's just my hypothesis, but you let me know.
00:08:18.000 | And then the final graph that we're talking about is your odds of becoming a millionaire by race.
00:08:25.000 | It kind of wraps it all up.
00:08:27.000 | And so Asians, looks like it's 22.3%.
00:08:32.000 | Whites, 21.5%.
00:08:35.000 | Hispanics, 6.8%.
00:08:37.000 | And blacks, 6.4%.
00:08:39.000 | That's pretty interesting.
00:08:42.000 | You know, maybe it's easier to mobilize a smaller population to heavily invest in their future, as in the case with Singapore, right?
00:08:52.000 | Singapore only has a country of 5.6 million, but they have a GDP per capita of 53,000.
00:08:59.000 | Now look at China.
00:09:00.000 | They have a 1.4 billion population with a GDP per capita of only 8,100.
00:09:05.000 | What I'm saying is that Asian folks still face discrimination just like Hispanics and blacks.
00:09:12.000 | They've still got some other things to climb, glass ceiling, bamboo ceiling, all that good stuff.
00:09:18.000 | But maybe because since they're only about 5% of the American population, it's easier to get these numbers in terms of income and wealth.
00:09:28.000 | I did write a post in the past called "Why is Asian income so high?"
00:09:33.000 | And it talks about several of my experiences and the reasons why I decided to basically study a lot, work long hours, and try to get out of the race sooner rather than later.
00:09:45.000 | For me, it was because I didn't find any kind of mentorship.
00:09:51.000 | People who looked and talked like me, people who had the same kind of values or came from the same country.
00:09:56.000 | It just didn't seem like work was really fitting for me, so I just wanted out.
00:10:02.000 | So in an ideal world, it would be great if everybody had an equal chance to become millionaires by race, age, and educational attainment.
00:10:11.000 | Unfortunately, the system, I think, is not fair. It's kind of rigged.
00:10:16.000 | There are some systematic issues growing up.
00:10:19.000 | If you grow up in a single-family household, your chances might be more difficult, right?
00:10:25.000 | If you grow up in a poor household or neighborhood that has a lot of violence, your chances might be a little bit more difficult than the person with two parents, nice mansion, all the resources you need.
00:10:40.000 | So I think it's really important to think about ways and how we can equalize the playing field.
00:10:46.000 | And so I've thought about this a lot.
00:10:49.000 | And the best way to equalize this is to help write about personal finance, write about investing, saving, the importance of planning for free on the Internet.
00:11:01.000 | Utilize your own free will to understand more about your finances so you can do better.
00:11:09.000 | So at the end of the day, the odds of becoming a millionaire in America are about 6.4% to 22.3% according to the Federal Reserve Board's Survey of Consumer Finances.
00:11:20.000 | And if you think about it, those are pretty good odds if you're born in America, right?
00:11:26.000 | So 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 the GDP per capita is only $3,900 or one-ninth the GDP per capita in the United States.
00:11:41.000 | And the same thing probably goes for becoming a millionaire if you were born in India or China or any kind of developing market.
00:11:49.000 | We are really, really lucky. And I think we need to recognize our luck and not take our luck for granted.
00:11:57.000 | So if you go back to my introduction, my original thesis is that I feel at least 65% of you who constantly read personal finance sites have a chance of becoming a millionaire in your lifetime.
00:12:09.000 | I think you will become a millionaire in your lifetime.
00:12:12.000 | It doesn't sound like much in the intro, but now you know that it's three times higher than the highest chance anybody has of becoming a millionaire in America.
00:12:20.000 | So those are great odds.
00:12:22.000 | I think personal finance do a lot of things, but most of all they make you pay attention to your finances.
00:12:27.000 | You just don't wing it, right?
00:12:29.000 | You don't wake up 10 years from now and say, "Hey, I'm rich."
00:12:33.000 | No, you have to have a plan.
00:12:35.000 | You need to understand where your money is going, how much you're saving, what your net worth asset allocation is like, how much you need in retirement, and work towards these specific goals.
00:12:48.000 | I think we really are a unique bunch because the common person I talk to who doesn't read personal finance sites, who doesn't watch a lot of financial TV or anything like that really has no idea.
00:13:01.000 | There are so many people with way more cash than they should have over the past seven, eight years because they don't know how to invest.
00:13:09.000 | There are a lot of people who just don't know, and they're not willing to pay for any advice as well.
00:13:16.000 | You should go on a millionaire calculator.
00:13:18.000 | So if you put away just $350 a month and earn a 6% return a year, you will be a millionaire in 46 years.
00:13:26.000 | So let's say you start at 22 years old. By the age of 68, you're a millionaire.
00:13:31.000 | If you decide to max out your 401(k) at $1,500 a month because that's $18,000 a year, and if you earn a 7.5% return, you will be a millionaire in 22 years.
00:13:42.000 | So if you start at 22 years old, you'll be a millionaire by 44.
00:13:47.000 | Let's say you can't max out your 401(k) until you're 25. Well, you'll be a millionaire by 47. That's not bad.
00:13:54.000 | And if you decide to max out your 401(k) and invest another $1,000 in after-tax proceeds a month, you will become a millionaire in just 17 years if you earn a 7.5% a year return.
00:14:07.000 | 17 years. So even if you started at 30 years old, you're going to be a millionaire by 47.
00:14:13.000 | And if you don't like these odds, you know, the overall odds, 6.4% to 22.3%, you should change them.
00:14:22.000 | Change them by knowing that you too can be a millionaire.
00:14:27.000 | Change them by getting yourself as much education as possible so you can take control of your finances.
00:14:35.000 | And if you feel you're on track to get to that $1 million net worth, you might as well shoot for $3 million due to inflation.
00:14:43.000 | And if you don't want to shoot for $1 million or $3 million, well, there's a better strategy, and that's just simply finding someone who's already there.
00:14:52.000 | So thanks so much. Maybe you can share what your net worth is and whether you believe you will become a millionaire in your lifetime.
00:15:00.000 | Talk to you guys later.