Study Shows Only 27% of Wealthy Americans Are 'Self-Made'

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  • Over a quarter of ultra-rich Americans did not inherit any money at all.
  • 70% of Americans who hold more than $3 million are over 56 years old.
  • Investing is a crucial part of building wealth, whatever your background.

Could you join the ranks of the ultra rich?

A recent study of ultra-rich Americans showed that almost three-quarters had help in building their fortunes. According to a Bank of America Private Bank study into the backgrounds of the ultra wealthy, the remaining 27% did not inherit any money at all. 

Wealth-building journeys

Bank of America surveyed over 1,000 individuals who held over $3 million in investable assets. The report showed that almost 70% of wealthy individuals are over 56 -- either baby boomers or the silent generation. Younger generations are less likely to be self made as they haven't had time to build wealth in their own rights. 

According to data:

  • 27% of the ultra wealthy are self made: It defines them as people with a "middle-class or poor upbringing and no inheritance."
  • 46% have a head start: Almost half the super rich people surveyed either had some inherited wealth or an affluent upbringing.
  • 28% have legacy wealth: People with both an affluent background and inherited money.

The study found that the way people became wealthy had a big impact on their financial holdings and viewpoints. For example, the self-made ultra rich hold higher proportions of stocks in their portfolios. Younger investors are more likely to buy cryptocurrency or alternative investments.

How you can build wealth

If you're not independently wealthy, you may be discouraged by the fact that only 27% of the ultra rich are self made. However, it shows it's possible for ordinary people to become rich without winning the lottery or inheriting large sums of money. Plus, a closer look at the data shows that for many wealthy individuals, inheritance is only part of the picture. Almost half the ultra rich got there through a mixture of inheritance and individual wealth building. 

Here are the two biggest foundations to any wealth-building journey:

Live within your means

If you spend less than you earn each month, you're already ahead of the game. You may not join the ranks of the ultra rich, but living within your means is crucial if you want financial stability. It's about focusing on spending less and, in some cases, earning more. 

  • Control your spending: Start by understanding where your money goes and setting some savings and investment goals. You might use a budgeting app to get a clear picture of your financial situation. You don't have to cut back on doing things you enjoy, rather try to spend intentionally and avoid wasting money on things that don't matter to you.
  • Look for ways to increase your income: There are only so many ways to cut expenses, so finding ways to earn more can often help you live within your means. This might mean asking for a raise or looking for higher paid positions. It might also involve taking on a side hustle to bring in some extra cash. 
  • Don't take on high interest debt: The cost of carrying credit card and other high interest debt can add up over time. If you don't have enough cash to pay for something today, try to save up and buy it further down the line. That isn't always possible, but debt is enemy number one in terms of becoming rich.
  • Build an emergency fund: One way to avoid taking on debt is to build an emergency fund with about three to six months' worth of cash. Having that money in an accessible savings account gives you a cushion in the event of a financial crisis such as a job loss.

Consistently invest your money

People can become wealthy in many different ways. As we saw above, some inherit money while others have a head start and build on inherited wealth. Others may win the lottery or sell a successful business enterprise. But we don't all have wealthy relatives, or business ideas that convert to million-dollar sales. That doesn't mean we can't become wealthy: Almost anybody can open a brokerage account and invest in stocks. 

Over the past 30 years, the S&P 500 has produced average returns of around 10% per year. There are no guarantees -- some years the stock market has lost value, and in other years it has gained a lot more. If you invest with a long term horizon, you can wait out any difficult years and profit over time. You don't have to be an expert stock-picker either. Look into index funds that track a particular market, or exchange-traded funds (ETFs) which contain a mix of stocks. The power of compound interest means that over time, returns of 10% can generate significant results. 

Bottom line

It's easy to assume that the only way to become rich is through inheritance or luck. But the fact that so many people have been able to get there on their own means there's hope for us all. You may not become a multimillionaire, but you can take steps to build wealth and become financially independent. 

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