Self-Made Millionaires Are Replacing Trust Fund Babies

The era of the trust fund baby is over, and the self-made millionaire's time is just beginning.

That's the news from a Federal Reserve report on consumer finances. While trust fund babies used to be a far more common version of the young millionaire, Generation Z and millennials offer a different picture of these rich types.

Wealth is steadily growing across America, even in families not historically tied to high incomes or stocks. The Fed reported that the average net worth of American families finally passed $1 million for the first time this year, increasing 42 percent from $749,000 in 2019.

Even accounting for inflation, real average wealth shot up 23 percent in the past three years, according to the Fed's Survey of Consumer Finances. And the median wealth level also rose, 37 percent to $193,000.

Just over 12 percent of American families, roughly 16 million, have more than $1 million in wealth. That's a significant jump from 2019, when 9.8 million families had that amount.

Achieving riches is emblematic of the American dream. Moritz Fenske, the co-founder of Lego collector platform Brickfact, became a millionaire by recognizing a vibrant and underexploited market in Legos, he told Newsweek. Now, Brickfact and Fenske have found financial success in providing a popular platform for Lego enthusiasts.

While Fenske's father was also an entrepreneur, Fenske pursued his idea for a Lego platform without any financial support. "His journey greatly inspired me, and he played a pivotal role in shaping my entrepreneurial mindset," he said. "The dream wasn't necessarily about monetary milestones but about blending these passions to create something unique."

Fenske said one of the greatest challenges for an entrepreneur on his way to success was pinpointing a specific concept that combined both his passions and a viable business model. But with the wide array of opportunities in the tech world, he thinks those who stay true to their passions, develop the necessary skills and are on the lookout for business opportunities will be awarded.

"Recognizing an underserved market, persistence and adaptability were crucial," Fenske said. "Also, learning to code enabled me to turn my vision into reality, giving me a distinct edge."

What Makes a Millionaire?

Americans are largely entering this new millionaire class because of their college educations and investments, experts say.

"It confirms that if a person gets a college education, a stable well-paying job and follows time-tested strategies of investing in stocks, buying a home and paying down debts, then they are well on their way to eventually becoming a millionaire," Ajay Singh, the managing director of RetireBetter, told Newsweek.

Beyond higher education, investments are key. More than 90 percent of families from the Fed survey reported owning stocks directly or through their retirement accounts, and 87 percent owned their own home.

The path to wealth could change in just a few decades, though, as millennials are set to inherit $84 trillion from their parents and grandparents by around 2045, in what economists are calling "the Great Wealth Transfer."

So far, though, the 600,000 millennial millionaires are mostly well off thanks to their own efforts.

A 2021 survey of millionaires by Ramsey Solutions showed that only 3 percent of respondents inherited more than a million dollars from their parents, and 79 percent had no inheritance money at all.

Part of this difference between old and new millionaires stems from how the younger generations are getting rich, and it mainly involves opportunities in technology that weren't available before.

From artificial intelligence and fintech to e-commerce, younger generations are behind some of the most profitable industries, signaling a significant difference from their millionaire predecessors.

"The millionaires of decades past often accrued wealth over extended periods, banking on stable careers and steady investment growth," Neri Karra Sillaman, an entrepreneurship expert at the University of Oxford's Said Business School, told Newsweek.

"In contrast, today's millionaires are benefiting from the accelerated growth potential of disruptive industries and the global reach of digital platforms," she said. "While previous generations might have prioritized traditional assets like real estate, the new millionaires are more inclined towards fluid assets, startups and digital currencies."