I was reading an interesting article by Liz Pulliam Weston about the 5 lessons the rich can teach you. This article really points out the little differences in the way rich people treat money. The 5 main differences pointed out in this article are…

They donate more

Charitable giving dropped sharply among the wealthy after the 2000-2001 bear market, according to Spectrem Group. Still, households with $500,000 or more in investible assets gave away 6% of their incomes in 2004, and those with net worth of $5 million, excluding primary residences, contributed 6.1% of their incomes. That compares to an average of about 2% for all American households and 4% for households with incomes under $25,000, according to American Demographics.

They are much more likely to own businesses

Overall, about 12% of American families own all or part of a privately held business, according to the Federal Reserve, compared to 41% of those whose net worth puts them in the top 10% of households. Business assets comprise 21% of the total net worth of households who have $500,000 or more in investible assets, Spectrem said.

They borrow strategically

The wealthy are only slightly less likely to owe money than average folks, according to the Fed, but how they borrow is quite different. The richest 10% of Americans are half as likely to have credit card debts (22.4% vs. 44.4% overall), although the median balances for those who carry balances are about the same for both groups (around $2,000). The wealthier folks are also much less likely to have installment debt, such as auto loans (25.6%, compared to 45.2% overall).

What the wealthy often do have is mortgages. More than half — 55.5% — have a primary mortgage, compared to 44.6% of households overall. Another 15% carry loans on other real estate, compared to 4.7% of the general population.

Mortgage money is pretty cheap debt at current low rates. Although many wealthier folks can do and own their homes outright, financial planners say, many prefer to put their money to work for them in investments that can earn higher returns.

They don’t blow a lot of money on cars

The average millionaire does tend to spend more money on his wheels, but vehicles represent a much smaller proportion of his net worth.

The Fed survey showed the median value of all vehicles owned by the wealthiest 10% of households was $25,400, compared to $11,800 for households overall. But vehicles represented just 2.4% of the wealthiest households’ median net worth, compared with 8.8% of net worth overall.

They’re almost always homeowners, and many own investment property

Homeownership is almost universal among those in the top 10% of net worth: 95.8%, according to the Fed, compared to 67.7% overall. About 40% of the highest-net-worth group own some kind of real estate such as rental property or a second home, compared to 11% overall.

But real estate isn’t their major source of wealth. On average, principal residences account for 10% of the net worth of folks with more than $500,000 in investible assets, Spectrem said, while other real estate accounts for 7%.

Most of their wealth is investments:

  • 46% in stocks and bonds, managed accounts, IRAs, mutual funds, deposits, and alternative investments
  • 10% in pensions and defined-contribution plans like 401(k)s
  • 6% in insurance and annuities

The full article can be found HERE.