Stealth wealth: The millionaire next door

By Mark Albright, Times Staff Writer
In print: Wednesday, May 7, 2008

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One of the big marketing trends of this young century — consumers trading up for luxury goods — has been derailed by a down economy. The old wealthy continued spending as if nothing has changed, but aspiring affluent's yen for luxury has vanished. And since Thanksgiving, about 7.6-million millionaires most likely to buy high-end goods have kept their wallets holstered, too.

"They put discretionary spending on hold," said Lewis Schiff, who tracks the wealthy like a bloodhound. "They'll make up for lost ground when the economy turns. But to get them to spend now requires you know what makes them tick."

Schiff and Russ Alan Prince picked an uncertain time to launch their new book The Middle-Class Millionaire ($27.95, Doubleday), which fleshes out this emerging class of self-made businesspeople who grew up and live in middle-class neighborhoods and regard themselves upper middle class at best. In an interview and presentation to the Luxury Marketing Council of Tampa Bay last week, Schiff drew a portrait of an influential social class with a net worth of $1-million to $10-million that has been forecast to double in number in five years.

The duo survey the values and spending of 3,700 millionaire households. They compare results with surveys of middle-class people in the $50,000 to $80,000 annual income range.

The differences frame a driven class of affluent workaholics. They work longer weeks and vacation less — and then to reconnect with their family or learn something, not relax and recharge. They are three times as likely to have failed at a business venture. They are serial networkers, five times as likely to be asked by friends what to buy.

There are two reasons why Schiff and Prince joined the cadre of researchers probing the 8 percent of the population who built fortunes from such places as retirement nest eggs, house-flipping or a lifetime of being frugal, and are practical and willing to take calculated risks.

With the traditional middle class breaking up, that's where the money is going. The superwealthy, the billionaires on the Forbes 400, control $1.5-trillion. Schiff and Price's middle-class millionaires control $20.7-trillion. They represent 39 percent of all consumer spending.

Second, a millionaire isn't what it used to be. Today the middle class defines wealthy as at least $11-million. Millionaires say $24-million.

Because they are so anchored to work, they willingly pay a premium to businesses and services that respect their precious time.

Schiff found some fast-growing startups that fit the definition: concierge medical clinics that charge a premium in return for unlimited visits and timely appointments; life coaches paid to navigate them through life's challenges; and fractional ownership schemes for boats, planes or vacation homes that come free of the time burdens of ownership.

Today the wealthy cut back spending on apparel, cosmetics and accessories. Flash is out; moderation is in. But Schiff says the wealthy will buy for value, so discounts and limited editions can work. And the affluent are getting receptive to value-oriented home renovations and practical vehicles.

"But you must give them a reason to buy," Schiff said.

Middle-class millionaires see the economic slowdown as fleeting. What weighs heaviest on them is retaining their purchasing power at a time when inflation threatens, staggering federal debt — including an unpaid war bill — lurks and global markets are devaluing the dollar.

"Their biggest concern is a weaker dollar," Schiff said. "Even though they probably will be among the first to seize opportunity from it."