What's the secret to becoming a millionaire? The truth is there are many ways people have accumulated $1 million. But some life choices may significantly increase your chances of having this much success with personal finance. A recent survey found that there's one key trait, in particular, that nearly 9 out of 10 millionaires share.
Here's what 88% of millionaires have in common
Ramsey Solutions conducted what it calls the largest study of millionaires ever, with 10,000 participants. It found that 88% of millionaires graduated from college, compared to 38% of the general population. In addition, 52% of millionaires had a master's or doctoral degree, compared to 13% of the general population.
This isn't the only research to find a strong link between wealth and level of education. A 2015 report by the Federal Reserve Bank of St. Louis, The Demographics of Wealth, found that families with higher levels of education are far more likely to have at least $1 million. Here was the probability of a family having at least $1 million, based on the highest level of education in the household:
- No high school diploma: 1 in 110 (less than 1%)
- High school diploma: 1 in 20 (5%)
- College degree: 1 in 4.6 (~22%)
- Professional/graduate degree: 1 in 2.6 (~38%)
Why education is strongly linked to wealth
The first explanation that comes to mind for why education is linked to wealth is its effect on income. Research on the average American's income by education level has shown that the average salary rises with a person's level of education. High school graduates earn just under $40,000 per year on average. Americans with bachelor's degrees earn a little over $80,000.
However, it's important to clarify that this doesn't mean education is the only factor in the amount of wealth a person accumulates. The authors of The Demographics of Wealth pointed out several other contributing factors that aren't directly caused by having more education.
For example, family background, including parents' levels of education and wealth, can be a predictor of success as an adult. Highly educated people are more likely to have wealthy and educated parents. That's something they were born into, not something they attained themselves through their education, and it puts them at a significant advantage. They're also more likely to receive sizable inheritances, boosting their wealth.
Another factor is assortative mating, which is the tendency for people to marry those with similar characteristics. Educated people tend to marry other educated people. Given that they also tend to earn more, this leads to much greater household incomes. Two people with high school diplomas earning average salaries will have an annual household income of $80,000. Two people with bachelor's degrees earning average salaries will make $160,000.
The phrase "correlation is not causation" applies here. Yes, most millionaires are college graduates. And there's a clear financial benefit to staying in school, as it often leads to a higher income. But education doesn't guarantee you're going to be wealthy or have millions in your savings accounts. The inverse is true, as well. Even if you don't have a college education, it's still possible to become a millionaire, depending on the money moves you make.
What can you do to become a millionaire?
There are a few financial habits most millionaires share that are instrumental in their success. Here's what Ramsey Solutions found in its millionaire study:
- Millionaires are long-term investors. 3 out of 4 said that consistent, long-term investing leads to success.
- Millionaires are careful about how much they spend. 94% of respondents said that they live on less than what they make.
- Millionaires avoid high-interest debt. Nearly three quarters said they have never carried a credit card balance in their lives.
For most people, there aren't any shortcuts to becoming a millionaire. A select few make millions from being extremely gifted in a specific area. Tech geniuses and superstar athletes are two notable examples. Some people also get lucky with ultra-high-risk investments. These are all rarities, though.
The vast majority of millionaires get there by building good financial habits and following them for decades. They spend less than they earn, they don't take on expensive debt, and they invest regularly. The amount you ultimately save this way will depend on your income, how much you can invest, and how much time you have. Regardless of how much you end up with, these habits will undoubtedly benefit you financially.
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