Millionaires, But Middle Class

To glimpse the future of mass-market consumer products and services, take a closer look at the affluent market. A growing number of households headed by the “working wealthy” act as tastemakers for the rest of the middle class. If they like something, not only do these early sales help brands gauge future demand, but middle-class affluents act as advocates, telling family, friends and colleagues about these innovative ideas.

Middle-class millionaires — the 8.4 million households in America with $1 million to $10 million in net worth — are setting the pace for innovation in new and fascinating ways. Although the word “millionaire” may conjure up images of first-class lifestyles and financial peace of mind, middle-class millionaires work exceptionally long hours to maintain their expensive lifestyles and most think of themselves as just plain “middle class.”

Though the working wealthy share many of their values with the rest of the middle class, they also exhibit traits that set them apart. For example, they consider themselves to be influential in their community. They are 50 percent more likely to say that they “tell lots of other people about products or services they like” than middle-class survey respondents. They also report “being asked for advice on what to buy” five times more often than our middle-class survey respondents. We dub this phenomenon — in which the middle-class millionaires’ spending habits are watched and imitated by others around them — the “influence of affluence.”

Take, for example, the growth of OnStar, the automotive tracking and communication system offered by GM. It was introduced in 1996 as an option only in GM’s highest-end production vehicles, including the Cadillac, as a luxury accessory. But its appeal as a safety feature that provided drivers with 24-hour access to roadside assistance and emergency calls was so profound that OnStar eventually became standard equipment on all American-made GM vehicles. Industry analysts say it is just a matter of time before such systems are standard equipment on all cars.

The auto industry is having another influence of affluence moment right now. In Silicon Valley, Tesla is preparing to deliver its electric car — a sporty roadster designed by Lotus — to the first 100 owners. Buyers who shelled out $98,000 for the vehicle include the super-rich, such as George Clooney and the founders of Google, as well as a number of ordinary middle-class millionaires. Their enthusiasm for the roadster reflects the middle-class’ increasing concern for the environment coupled with its affection for powerful cars. The Tesla goes from 0 to 60 mph in about four seconds — faster than a Porsche — and can go about 200 miles on a single charge.

According to Tesla, the roadster will eventually be followed by a luxury sedan in the $55,000 price range and a $30,000 model after that. By leveraging the influence of affluence, Tesla has managed to create a cult following before the first car has even rolled off the assembly line.

This kind of scaling-down process isn’t entirely new. The late Nobel Prize-winning economist Milton Friedman once observed how, thanks to early adopters, innovation is a process by which “the rich work for the poor.” But middle-class millionaires add much more to the mix. When they are among the first people to try out a new product or service, they are much more likely to talk it up, and their initial judgment carries a lot of weight with the rest of the middle class.

Based on our survey of 3,714 households, about half of middle-class millionaire reported they are “very or extremely often asked for advice” about “luxury products and services” (45 percent versus less than 1 percent for the middle-class survey respondents); “how to succeed professionally” (72 percent versus 2 percent for the middle class); and “fitness and ways to look good” (56 percent versus 20 percent for the middle class). Across 30 areas of life ranging from cars to careers to caring for elderly parents, they report being asked for advice at least twice as often as the middle-class survey respondents.

The influence of affluence is also at work in medicine, where the nation’s foremost proponent of pricey concierge physician services believes that his business model could revolutionize preventive healthcare for all Americans. In education, a private college admissions counseling firm that charges $300 per hour has leveraged its expertise to launch a mass-market offering of Web-based admissions tools and online counseling. In Florida, following the destructive 2004 hurricane season, costly home generators were transformed from a luxury item to a perceived necessity, largely thanks to the influence of middle-class millionaires.

Demographic projections suggest that such households are growing at a rate of about 15 percent every three years. The only population segment that’s growing faster, at a rate of 23 percent annually, is the “about-to-be-millionaire” families with net worth between $500,000 and $1 million. All told, the next decade could see between 15 million and 20 million middle-class millionaire households in the U.S. A population of that size, with one foot in the world of the middle class and the other in the world of the very rich, represents a force for influencing innovation beyond anything even Milton Friedman could have imagined.

Lewis Schiff and Russ Alan Prince wrote ‘The Middle-Class Millionaire.’