The Millionaire Mind

Got this interesting piece over at Half-Sigma


I was flipping through the pages of the 2000 book The Millionaire Mind by Thomas J. Stanley. (The link is to the softcover edition, but all page references below are to the original hardcover edition.) Although the research is rather low quality, in my opinion, it’s the only research we have because while there are a lot of academics interested in studying poverty, there are very few who are interested in studying wealth. Which is unfortunate, because wealth is a lot more interesting.

The book is based on a not-entirely-random national survey of 773 millionaires. According to Stanley, 4.9% of households in the year 2000 were worth at least $1 million.

Only 8% of millionaires inherited 50% or more of their wealth. (This is a lot different than among billionaires, where 31% inherit their wealth. See my post on the 75 richest Americans.)

If you don’t graduate from college, it’s unlikely that you will become a millionaire. 90% of the millionaires were college graduates, and 52% had graduate degrees. This means that you’re about 20 times more likely to become a millionaire if you have a college degree.

10% of millionaires were lawyers, and 9% were doctors. But there are more than three times as many law school graduates as there are medical school graduates, so you are three times as likely to become a millionaire if you go to medical school than if you go to law school. (On the other hand, you are more likely to become a billionaire if you attend a Top 14 law school; 2 of the 52 self-made billionaires went to a Top 14 law school. There are no medical doctors among the 75 richest Americans.)

32% of millionaires listed their occupation as entrepreneur/business owner. That’s a minority of millionaires; the most common way of becoming a millionaire is by being a professional or working for a corporation (or similar business enterprise).

MILLIONAIRES AND SAT SCORES AND g

The average SAT score of millionaires is only around 1100. Among respondents who remembered their SAT score, the average score was 1190, but Stanley writes:

Nearly 90% of our cohort who were A students did recall and thus reported their SAT scores. Ironically, only about one-half of our group who were C students were able to recall their SAT scores. We know that SATs and GPAs are significantly correlated. What if the 1190 number were adjusted to reflect the SAT scores of those C students who could not recall their SAT number? It is estimated that nearly 100 points could be shaved off the 1190 average.

It’s not ironic at all that people with lower SAT scores would be less likely to remember it. That’s expected because it’s human nature to remember what you did well at and forget what you did poorly at.

On page 120, there is a chart which shows that for respondents aged 45-54, and respondents aged 55-64, there was no statistically significant correlation between SAT score and either net worth or annual income.

These results may be counterintuitive to certain commenters who think that g (that’s the general factor of intelligence, which is primarily what the SAT measures) is the primary component of economic success, but this is consistent with my findings in other data sets that, for those in the top half of the bell curve, when education is held constant, g has no correlation, or possibly even a negative correlation, with income or wealth.

In my analysis of the Dale Krueger study, I discovered that in their regression analysis, earnings peaked for college graduates with an SAT score of 1100, and declined as scores increased beyond that. 1100 is also Stanley’s estimate of the mean SAT of his millionaire respondents.

I also did many studies of the General Social Survey (link), and I discovered that when education is held constant, intelligence (as estimated by the score on the Wordsum test) is not correlated with income for college graduates.

The information in the Stanley book confirms the educational credentials and career tracks theory of labor market outcomes. Intelligence is only useful so far as it helps you obtain educational credentials which then get you into a career track, and your career track then determines how much money you will make. Once you get into a millionaire career track, your intelligence doesn’t matter much and doesn’t increase your chance of being a decamillionaire instead of just a regular millionaire.