Big Hat, No Cattle: Money Lessons From The Millionaire Next Door

Dr. J. Stanley’s research is 23-years old but still resonates with me today.

“My business does not look pretty. I don’t play the part… don’t act it. … When my British partners first met me, they thought I was one of our truck drivers. … They looked all over my office, looked at everyone but me. Then the senior guy of the group said, “Oh, we forgot we were in Texas!” I don’t own big hats, but I have a lot of cattle.” — one respondent surveyed in The Millionaire Next Door

In spite of its shortcomings, I consider The Millionaire Next Door by Thomas J. Stanley the book that had the greatest influence on my approach to money.

As a lawyer, Dr. Stanley shattered my preconceived notions that lawyers were wealthy. In fact, Dr. Stanley took pains to explain that lawyers and physicians are notorious for being poor accumulators of wealth (or what he calls “PAWS”).

A Case Study of Two Brothers

In the book, one particular case study stood out to me. It was about two brothers: Josh, an attorney, and Henry, a high school teacher.

Their parents are millionaires and give each of their children $10,000 in cash each year. They felt that this would reduce the size of their estate and the inheritance tax that their children will have to pay, and allow them to have a good start in life. Despite the difference in income, their adult children receive the same size of cash gift each year.

Dr. Stanley explained that their parents dealt with tough times in their business, which made them who they are today. They always ran a low-cost operation, which they also applied to their household.

Despite their financial success, the parents never owned a luxury vehicle, traveled abroad, or joined a country club. However, they mistakenly felt that their children would receive a key advantage if they interacted with high-status people.

Given their professions, it is obvious that Josh makes more than Henry. Dr. Stanley notes that in the prior year, Henry’s total household income was $71,000 while Josh’s household income was $123,000.