Amway Motivational Organizations:The Nightmare Builders    



Amway and Personal Finance:

A Discussion of the Millionaire Myth and Other Issues


 by a former Amway distributor


With the advent of the Internet, the free exchange of ideas has moved from classrooms, town halls, and other public forums, into cyberspace. This new mode of mass communication has transformed-- and will continue to transform--the way entire industries do business. If you've found this web site, you obviously have at least a cursory familiarity with the Internet. In addition, it's probably fair to say that you are seeking and/or evaluating information pertaining to the Amway business and the motivational organizations (AMOs) that today dominate the ranks of its distributors.


This site is one of many that focus on the Amway-AMO nexus and how this business opportunity has affected real people worldwide. This site is maintained by Ashley Wilkes. I am a former Amway distributor and an ongoing E-mail dialogue with Ashley prompted me to write this article. [A brief aside: Some current Amway distributors may wish to speculate as to my motives for leaving the Amway business (e.g., "You gave up on yourself", "You probably fail at everything you do", etc.) However, to do so would represent empty speculation and is extraneous to the discussion at hand. You have no knowledge of me or my personal life. Please read on.] The ideas in the article are mine, and Ashley has been kind enough to offer space on his web site for me to share them with the Internet community. I hope that some of the authors of other pro- and anti-Amway web sites choose to link to this article as well. The article has taken me several weeks of working in my spare time to complete. It does not attempt to offer a broad evaluation of Amway or of AMOs, though some opinions on various aspects of the Amway business will be evident to the reader. Rather, this article is narrowly focused one issue: Is operating an Amway business using an AMO support system a sound financial decision?


Since this is my focus, I will not address the interpersonal, religious, or societal issues surrounding AMOs. Much of this site and several other web sites are devoted to these non-financial topics, providing a decent amount of material concerning them. My motivation for writing this article stems from what I feel is a void of information on both pro- and anti-Amway web sites concerning critical aspects of personal finance. Ashley's summary of the new book The Millionaire Next Door by Thomas Stanley and William Danko is a step in the right direction, but I felt I could meaningfully add to it. [Another aside: Stanley and Danko's book is the most comprehensive study of millionaires published this decade. They are among the foremost authorities in the world on this topic, having studied millionaires for over 20 years. Anyone who does not read it cannot truthfully claim to have all the facts regarding the backgrounds and characteristics of millionaires.]


Regarding the information void on the pro-Amway side, the arguments tend toward negative portrayals of jobs and investing, emphasizing the reality of corporate downsizing, the difficulty many people face in funding an adequate retirement, and the difference in lifestyle between the very rich and the middle class. On the anti-Amway side, the arguments tend toward personal accounts of those who attempted to build the Amway business using an AMO system and lost money, sometimes lots of money. Having read hundreds of comments both on pro- and anti-Amway web sites, it is clear that scores of people are finding financial security to be fleeting in today's economy and are seeking alternatives. In offering any tangible advice for those who seek a decent lifestyle and a secure retirement, both the pro- and anti-Amway refrains are of limited use.


Why are they of limited use? While it makes sense to consider the "big picture" and economic trends, many pro-Amway arguments--along with the typical AMO presentation of the Amway Sales and Marketing Plan--are woefully short on verifiable facts. And while it is important to learn from the experience of others, many anti-Amway arguments are tainted with personal invective. It is my hope that this article will serve as a direct response to that familiar retort of Amway distributors, "What do you have to offer that's better than Amway?"


You Gotta Have a "Why"


Since I wish to remain focused, I will not use this forum to tell my story in its entirety. It is relevant, however, to discuss my motivation for attempting to build the Amway business, since most of the distributors in AMOs are of a similar mindset. I am a professional economist with a masters degree, and in December of 1995 I was working as a consultant in Washington, D.C. About a week before Christmas, Bill Clinton and Newt Gingrich had a squabble, called each other names, and shut down the government. All right, that's an oversimplification--but not by much. For government workers, the shutdown meant no pay for a while, then a big, fat paycheck once the shutdown was resolved. A paid vacation of sorts. For contract consultants like me, it meant "bend over and grab your ankles." No paycheck, do not pass "Go"--just head straight for the unemployment office and deal with the bureaucracy. Merry Christmas!


Obviously, the kind stranger I met (i.e., was "contacted" by) in the local shopping mall the day the shutdown became official was quite interested to hear of my dilemma. "Mick" was very personable. He told me he "owned his own business consulting firm and may be in need of a few high-quality people to work on some local business projects". I was practically begging him for an interview. After all, my wife and I had barely been married for six months. We had recently bought and furnished a home, and the bills were piling up. This was no time to be without a paycheck. To make a long story short, Mick had us out to a local hotel to see "the Plan". We scrutinized it and decided to say "no".


Mick did not immediately accept our decision over the phone the next day. He engaged me in a debate by firing off question after question, all the while identifying with my mindset. "I know how you feel...I felt the same way...what I've found is..." I was impressed by his openness and sincerity. Little did I know that these were nothing more than canned responses that had been programmed into Mick by listening to AMO tapes over and over again. These responses are designed to turn people's words around and instill feelings of fear and uncertainty. It worked.


After more than an hour on the phone, Mick had convinced me to allow him and a "senior associate" (read: upline) to meet with my wife and me (the "follow-up" session). They read the script just right and we decided to "get in". After several weeks of listening to tapes and going to meetings, I became "enlightened". I was soon convinced that the workplace is evil, that a secure retirement is essentially unattainable, and that I was too young to fully realize these things on my own. Basically, I could do something now to avoid it, or I could find out the hard way when it may be too late. I remember Mick saying "I can't tell you how much better off I'd be if I had gotten in at your age".


And right at that moment, I had a "Why". If you are now or ever were a distributor in an AMO, surely you have been told that your business will not grow without a "Why". I remember hearing from Diamond distributor Paul Miller at a Nite Owl meeting to "think of your business as a car...your 'Why' is the fuel that it runs on..." In layman's terms, the "Why" is the key to modifying your behavior patterns in ways that you could not otherwise justify. It is a goal that becomes so important and so all-consuming, that everything else and everyone else in your life takes a back seat. It is the reason that you will aggressively enter uncomfortable situations--be they with your best friend, your cousin, or a complete stranger--in order to convince them to sign up as Amway distributors. The "Why" is the reason you stay out until well past midnight driving home from meetings and "Plan showings". The "Why" is the reason you sacrifice several weekends a year to attend functions. It is the reason you "pay the price for success" (or so you think).


Thus, my "Why" was predominantly financial. No one else is going to look out for me financially, so I'd better look out for myself and my family. Here I was doing Christmas shopping without a paycheck on the way--how much more evidence did I need?! I hadn't even really thought about retirement, but Mick sure had. At the presentations we attended, many "successful" distributors told me and my wife how great and successful Mick was. If he said that Amway was the best way to achieve a secure retirement, then that's what I was going to do. I was going to be "free"!


A great many distributors in our group had the same "Why" as my wife and me. And from listening to hundreds of tapes, attending several functions, and reading countless Internet postings, it is indisputable that achieving long-term financial security is the "Why" of a great many Amway distributors. In the next few sections, I examine teachings from our AMO (the Britt system) and contrast them with the knowledge I have gained over the past year from extensively researching the topic of personal finance.


One important note before moving on: It is irrefutable that the teachings of all AMOs are so similar as to be indistinguishable from one another. The lessons offered on tapes (I have heard tapes from several AMOs) and the pro-Amway comments on the Internet are far too uniform to suggest otherwise. Thus, my arguments are just as applicable to the teachings of the Yager system, INA, ILD, WWDB, Network 21, and any other AMO. The main difference between any two AMOs is simply which top-level Diamond gets the lion's share of profits from the sales of tools and function tickets to downline distributors. If you doubt this, please try telling your upline that you'll no longer be purchasing tools through him, but rather at a lower price through another group.


J.O.B. Stands for "Just over Broke"


If you've spent any time in an AMO you've heard this chorus before. You may even believe it. Don't feel bad, I know I did. This topic provides a wonderful case study on some of the subtle tactics used by AMOs. Below, I will first summarize the AMO position on jobs, then return to examine it in a bit more detail.


Presenters at open meetings and speakers at AMO seminars and functions regularly turn the word "job" into the acronym J.O.B., attaching the above-mentioned translation to the acronym. The implication is that those who earn the bulk of their income by drawing regular paychecks as employees--rather than as business owners--are always one step away from the poor house. The only way to escape this tenuous dependency, the argument goes, is to own your own the your own boss.


Of course AMOs will also point out that to own a traditional business, you'll need an idea, an entrepreneurial spirit, and potentially huge amounts of start-up capital. We can't all just wake up as Sam Walton or Bill Gates, right? That's certainly true, but it doesn't really prove anything. AMOs will then say that the concept of franchising solves some of these problems because it provides the franchisee with a proven turn-key system for establishing and running his own business. That's basically true as well, though I would caution that franchising is a heavily regulated industry as a result of widespread fraud and abuse. The AMO argument goes on to say that most franchises cost too much, so this avenue is closed to most people as well. In truth, this point is quite debatable and depends completely upon which franchise you're talking about. The AMO trail of "logic" concludes by finally revealing the "Amway" name and then presenting an Amway distributorship as the one business that doesn't cost too much to start, uses the principals of franchising, and is preferable to all other multi-level marketing opportunities that make similar claims.


OK, now this is important. Notice that we progressed from "business ownership is good" to "jobs are bad and Amway is just about your only alternative". What leaps did we have to make in following this trail of "logic"? One basic truth is that the world's wealthiest people are primarily business owners or their heirs. Stanley and Danko confirm this in their book. Having "that one idea" and aggressively pursuing it describes--albeit simplistically--the stories of many business tycoons.


Don't Be a Hamster


So here we have a starting point on which we can all agree: many of the world's wealthiest people are business owners. I think we can also agree that job security in the traditional sense--catch on with a company or government agency right out of college, move up the ranks, and retire with a nice, fat pension--no longer exists. There can be no argument that the workplace is changing rapidly and that most of today's young workers will need to self-manage their retirement assets, perhaps with the advice of a professional. Now, from this common starting point, where does the AMO take us?


First they don't take us anywhere. They pause to reinforce their mantra that jobs are inherently bad. "You're trading hours for dollars" is a familiar refrain. I've heard distributors compare a person working in a job to a hamster running on a wheel--getting burned out and going nowhere. So business ownership it is. In making this leap, the AMO completely discounts the possibility that some people actually enjoy what they do in their jobs and are able to save and invest regularly and thus accumulate a fortune over the long term (more on this later). To an AMO, such people have a "broke mentality."


Next, AMOs immediately write off owning a conventional business as untenable for most mortals. "Ninety percent of businesses fail in the first five years" they'll tell you. The implication is, "it won't work, so don't even bother." Notwithstanding the fact that the 90 percent figure is very much open to debate, this is hardly the type of encouragement I would expect to hear from organizations such as "Worldwide Dreambuilders". Are they truly concerned with "helping people" or just with "sponsoring people"? What about building my dream? Evidently, dreams are somehow less valid if Amway is not a part of them.


If you set out to start a conventional business rather than an Amway business, some distributors may put up a front of acceptance, but most will privately criticize you as an impending failure. At one of our Open Meetings, I saw a group of distributors snicker behind the back of a disinterested prospect who owned a business selling karaoke equipment. "Oh sure, like that's gonna last...geez, some people are sooooo dumb..." and so on. Apparently, there are a few qualifiers with this business-ownership component. Could it be that these distributors, deep down, were jealous of this real entrepreneur? Were they simply using cynicism as a defense to rationalize their own uncertainty about their prospects for success using the AMO system?


A Franchise in Disguise


Next, AMOs discredit purchasing a franchise as an option because it is too expensive. Franchising is a good concept, they contend, but most franchises cost too much. The start-up cost of Amway is presented as being more reasonable. Granted, a McDonald's franchise--which costs about $1 million--is out of reach for most people. But to apply that price tag to all franchises is terribly misleading. It's like telling someone they can't afford to buy a car because they can't afford a Ferrari. There are literally thousands of franchises out there that a person can buy for anywhere from $5,000 to $50,000. And any franchisor that licenses franchises for over $5,000 is heavily regulated by the government, thus protecting potential franchisees from misleading sales pitches.


What's that? You want to own a business but don't have five thousand dollars to spend? Then--and I wish to emphasize this point--stay the hell away from Amway if you don't have five thousand dollars to spend!! I know, I know, you're told repeatedly that starting your Amway business only costs $150 or so--the price of the "starter kit". This is a complete lie. It's like a car dealer selling you the steering wheel and expecting you to drive the car off the lot.


In an AMO, you will need your upline's time and energy to get your business to go anywhere. In order to "qualify" for his time and energy, you will need to be a "core" distributor. And in order to be "core" you will need to subscribe to the standing order tape program and the Amvox voice mail system. You will need to attend every seminar/rally (at least one per month) and every major function (at least four per year). You will be told that it will set your business back by six months if you miss a major function. Finally, you will be expected to consume or sell (with the emphasis heavily on personal consumption) 300 PV (about $750) worth of products every month!! (If you are single, the expectation is 150-200 PV). How much will all of this cost? If you are a core couple, your Amway business will cost you at least $5,000 per year to operate. If you are skeptical, find your nearest active upline distributor and ask to see his I.R.S. Schedule C for the most recent tax year.


The bottom line is this--an Amway distributorship is a franchise in disguise. It is a franchise where the franchise fee (the money spent on sales aids and on motivational books, tapes, and functions) is not paid up front, but rather on a "pay-as-you-go" basis. This arrangement conveniently circumvents all of the regulations applied to franchises that cost at least $5,000 up front (e.g., the requirement that franchisors provide potential franchisees with a list of names and phone numbers of past and present franchisees in their area). If you are skeptical of the assertion that Amway is a franchise in disguise, try telling your upline that you will not be attending functions or buying tapes this year. Now ask your upline to show several Plans a month for you.


Why Didn't I See It?

So the path from "business ownership is good" to "Amway is the only alternative" is frought with faulty logic. But amazingly, you don't see it. Why not? Why didn't I see it? Remember, we started from a point of agreement. We agreed that business ownership is generally beneficial and that job security in the traditional sense no longer exists. Starting from these very defensible positions, the AMO constructed a flimsy argument. They used this argument to convince you--perhaps against your better judgment--to sign up as an Amway distributor and to become "core".

One key is that their flimsy argument is flawlessly presented. Presenters at meetings and speakers at functions are excited. Everyone is smiling. You're confused, but the excitement is contagious. AMOs preach that "belief" is the key to getting prospects interested in the presentation. Prospects may not actually comprehend--or even agree with--all of what is said, but the most important factor is for prospects to sense distributors' high level of belief and excitement about Amway.

In my case, I had to do something to make money, so I unfortunately let down my guard. I let my group's "belief" influence me. As a result, I accepted the AMO assessment of jobs and other businesses and other franchises. Since I knew we had started from a point of agreement, I accepted their flawed logic and their assertions that Amway costs much less than other businesses and that by using franchising concepts, all I had to do was "plug into the system". I believed that my wife and I would be "free" within three to five years.

This is a perfect illustration of how AMOs can start with well-accepted facts, embellish them, and present their shoddy conclusions as gospel truth, typically in a repetitive, high-energy setting. This process causes new distributors first to internalize these shoddy conclusions as truth and then to redefine their perceived reality and modify their behavior patterns. It worked on me. Before too long, I was "fired up"! Are you?


What Do You Have to Offer That's Any Better?

So this is about the point where, if I were engaging a distributor in a debate, he might respond with the familiar question "Well if you're so smart, what do you have to offer that's any better?" What I have to offer are proven wealth-building strategies. These strategies are certainly not my own creation. Rather, they come from people who have used them to become financially independent. Above, I've detailed the AMO position on jobs and income and given some background on how they get their underlings to believe it. Now, I'd like to share some insights from The Millionaire Next Door.

First, one-third of America's millionaires achieved their financial independence while working in jobs. What?! The dreaded J.O.B.?! Yes, it's true. Let's go back to our common starting point again--business ownership is good. To support this, we can demonstrate that two out of three millionaires are business owners.

But--in a direct contradiction of the AMO spiel--it clearly does not follow that working in a job precludes the accumulation of wealth. Further, it is absolutely not true that all wealthy employees earn high annual incomes (i.e., that they are all doctors, lawyers, accountants, etc.) Stanley and Danko repeatedly stress that people in high-income professions often have a harder time accumulating wealth because of the expectations for their dress, cars, country club memberships, etc.

So yes, business ownership helps. But there are plenty of employees who got rich working in relatively mundane occupations such as farmer, cotton gin operator, and dock worker, to name a few. It follows, then, that the key to building wealth is not the source of your income. That's right--your ability to build wealth does not depend on how you make your money. In reality, anyone can become financially independent, including people who earn their income from a job. This is a very critical point and it directly contradicts AMO doctrine. Remember, AMOs tell you that you will certainly end up broke if you rely on a job, and that you are also taking a big risk if you supplement your income through any vehicle that is not an Amway distributorship. AMOs, then, teach that your ability to build wealth depends on the source of your income. Stanley and Danko's research shows this to be a complete lie.

So...if the key to building wealth is not tied to the source of your income, then what factors are important? How do some farmers and dock workers become wealthy? Conversely, why are some business owners, doctors, and lawyers, poor relative to their annual incomes? In all cases, the answer lies not in how they make their money, but rather in how they manage it. It does not matter how you make your money, but it is certainly does matter what you do with your money once you've earned it.


I'd Rather Take Advice from Rich People Who Can Tell Me How to Get Rich, than from Broke People Who Can Tell Me How to Stay Broke

The above quote is a standard catch-phrase that describes AMOs' views on money management. The implication is that AMO members have made a wise business decision by "plugging into the system." This is because the leader of the AMO (e.g., Bill Britt, Dexter Yager, Jim Dornan, etc.) and several high-level distributors (e.g., Paul Miller, Rex Renfrow, Ron Puryear, etc.) became extravagantly wealthy by "following the system".

Since the system relies on "duplication" (doing exactly what your upline does), the same principles that made these people rich can make you rich too. AMOs would have you believe that by simply signing up as a distributor in their organization, you are harnessing the financial wisdom and insights of the AMO leaders. Since these leaders are wealthy and since everyone who relies on a job for their income is--according to AMOs--broke, you have made a wise choice.

In reality, the closest AMOs come to giving tangible financial guidance is to simply encourage everyone to "counsel upline" on their personal financial matters. I remember the local leader of our AMO (a Pearl) telling a hushed Nite Owl gathering how he had recently taken his financial records to his upline Emerald--as he always did--and that the Emerald had assessed the situation and decreed that the Pearl's wife could finally quit her job. So in an AMO, you are to defer your personal financial decisions to the money-management prowess of your upline.

On the surface, this is not an inherently bad thing, though I have a hard time believing that everyone would automatically be better off surrendering their financial decisions to someone else. Nonetheless, if AMOs were to teach proven strategies for managing money and building wealth, this upline counseling could prove quite beneficial. In the next sections, I'll let you decide whether or not AMOs adhere to some of these proven strategies.


Spend Less Than You Earn

This sounds like a no-brainer. To build wealth, you need to spend less money than you make. Yet, with personal bankruptcies hitting all-time highs every year despite an amazingly strong economy, this is obviously a strategy that very few people follow. The theory is simple, but in today's society the practice can be quite difficult. With mass-appeal advertising constantly rammed down our throats, companies competing for every dime of consumers' spending, and credit more available than ever, the recipe for personal financial disaster is certainly in place.

Stanley and Danko show numerous examples from both ends of the spectrum--from executives who earn well in excess of $200,000 a year, yet are in terrible financial condition, to school teachers who earn less than $40,000 a year, yet are millionaires. One key difference between the "UAWs" (under-accumulators of wealth) and the "PAWs" (prodigious accumulators of wealth) is that many PAWs operate on a household budget and know where every penny of their hard-earned money goes.

It is very difficult to spend less than you earn if you don't pay close attention to how much you spend in the first place. Thus, a household budget is critical. A budget is not meant to restrict spending (i.e., "we can't eat this week, we're over budget") but to track spending in order to develop sensible spending habits. Common sense plays a big part. If you earn $30,000 a year and find that you are spending $500 a month eating out at restaurants, changes would seem to be in order.

Stanley and Danko show that a sizeable majority of millionaires operate on a household budget, while most UAWs do not. Of those millionaires who do not operate on a budget, most create an environment of false scarcity by immediately diverting a sizeable portion of their earned income directly to savings or investments before they ever see it--the "pay yourself first" method. Either method can ensure that you spend less than you earn.

In his book Money Lessons for a Lifetime, Jim Jorgensen tells of a group of rich farmers who taught him much of what he knows about money. "If you don't pay yourself first, no one else don't have to make a lot of money, but if you don't save some money each month, all the fancy investment advice in the world won't make you rich...remember, no one has ever gone broke with money in the bank."

If you spend less than you earn, you are able to fund a "permanent cash reserve" account. Financial experts typically believe that such an account should consist of 3 to 6 months worth of living expenses, usually held in a money market account or in no-penalty CDS. This buys peace of mind and flexibility in today's transitory economy and is absolutely essential. In tandem with constantly upgrading your skills and learning new ones, it puts you--not your boss--in control of your life and provides you with the flexibility to conduct a prolonged job search should it become necessary.

OK, so millionaires uniformly spend less than they earn. How do AMOs rate in this area? Well, on the surface, they try to say all the right things. Many AMO tapes disparage the ease with which people "spend money they don't have, for things they don't need, to impress people they don't even like". Presumably, such diatribe is directed at people who go into debt buying expensive clothes and fancy cars to put up a false front of success, when in fact they are living beyond their means. Many AMO distributors cite being G.O.O.D. (Get Out Of Debt) as one of their stated goals.

But strangely, AMO tapes and rally speeches are also full of stories detailing the "struggles" of high-level distributors who are now incredibly wealthy. These stories often recount the spartan existence that these formerly debt-ridden distributors had to endure in order to reach their current levels of wealth. I remember a tape on which Paul and Debbie Miller described how they financed their car, their apartment, and most of their furniture and housewares during the early days of their distributorship. I can also recall numerous instances where Diamonds told of attending function after function by charging large balances on their credit cards, sometimes maxing out one card and having to acquire another. What they don't tell you is how many low-level distributors are currently making the same mistakes? How many of these will ever become Diamonds?

Obviously, the AMO leaders are aware that most low-level distributors cannot readily afford the prohibitive costs of being "core" in an AMO. By identifying with this predicament and providing reassurances such as "we were once where you are, and now look at us", the Diamonds give their tacit endorsement to distributors who take on large amounts of debt to follow the system. "Do whatever it takes" is a familiar AMO rallying cry that refers to the financial (and personal) sacrifices required to "succeed" in an AMO. Interestingly, the Diamonds also derive a substantial profit from the sale of tapes and function tickets to their downlines. So whose interests are really being served when the AMO leaders sympathize with their debt-ridden downlines, while simultaneously lining their own pockets with tool profits? Keep in mind that these same leaders are the main source of financial guidance for their downlines. Are they really providing sound financial guidance? Or is it merely self-serving encouragement for low-level distributors to go deeper into debt?

I know that during our Amway involvement, my and my wife's credit card balances skyrocketed, because our cost of living combined with the cost of following the system exceeded our level of income. To make matters worse, on more than one occasion, we purchased extra products to reach an "important" PV milestone. Rather than chastising us for these poor money-management decisions, our upline (and thus our financial advisor) reinforced our destructive behavior by touting us as "go-getters" and "rising stars" to other distributors in our group. As a direct result of this misguided praise, a single, blue-collar gentleman who was crossline from us bought two or three water treatment systems in one month so he could reach 1000 PV and be granted admission to the exalted "1000 and Above" leadership events. I remember him telling us that seeing our "success" was his inspiration to "do whatever it takes"!! Some inspiration. Clearly, AMOs flunk the "spend less than you earn" test.


Hyperconsumption and Luxury Items

According to Stanley and Danko, a major impediment to long-term wealth accumulation is "hyperconsumption". This refers to the near-addiction of many people to glitz, glamour, and appearances, at the expense of their financial well-being. In order to impress themselves, their families, and their peers, many people spend well beyond their means to preserve a certain lifestyle. There can be any number of reasons--pressure to conform to social norms (i.e., country club memberships for high- income earners) poor self-image, and poor spending habits instilled by parents, to name a few. Whatever the reason, it is painfully clear that many people spend an inordinate percentage of their income on consumption items that provide absolutely no lasting value. It is also clear that by engaging in hyperconsumption, you cannot spend less than you earn. Controlling spending on consumption items is crucial to both building and keeping real wealth.

Stanley and Danko tell of an interview they conducted with a group of deca-millionaires (net worth of over $10 million). The authors had ordered a spread of gourmet caviar, pate', and fine wine for their guests to enjoy during the session. When the first guest arrived, the hosts offered him a glass of vintage 1970 Bordeaux. His reply? "I drink scotch and two kinds of beer- -free and Budweiser". The authors were stunned. Aside from eating a few crackers, none of their wealthy guests so much as touched the gourmet spread! None of these deca-millionaires had expensive taste, and that was one major reason that they became so wealthy in the first place.

One millionaire from Texas related a perfect term for the hyperconsumption lifestyle-- "Big hat, no cattle". This colorful analogy implies a trade-off between the size of one's hat (his house, cars, and clothes) and the number of cattle he owns (his real wealth). Spending loads of money on luxury items is a wonderfully expedient way to squander wealth. According to the authors' research, the average millionaire has never spent more than $400 for a suit, $140 for a pair of shoes, and $235 for a watch.

Parents' spending habits clearly have an influence on their children as well. A majority of millionaires reported that their parents were frugal. In fact, several second-generation millionaires did not even know that their family was wealthy until after they had finished high school! How many parents today spend exorbitant amounts on designer clothes and shoes for their children? Those parents who do so are instilling habits that will work against their children ever becoming financially independent.

OK, now for the fun part--how do AMOs rate on hyperconsumption? Very early in the career of an AMO distributor, he will be encouraged to "dress for success". This means purchasing expensive suits and related apparel that will give prospects the impression that he is earning a healthy profit from his Amway business. I remember Bill Britt giving a lengthy talk about fashion at a Spring Leadership function. He stressed the need for custom-made dark suits, white shirts, and silk ties. Then, he conveniently directed us to "Britt's Diamond Clothiers" located on the concourse right next to the "tools" table. There, we could get "discounted" designer apparel. Of course, major credit cards are accepted. Hmmm...does the phrase "big hat, no cattle" have some relevance here?

Far worse than the clothes, though, are the "dream-building" exercises. These are endless in an AMO. At functions, distributors "ooh" and "ahh" over images of the Diamonds' huge houses, garages full of luxury automobiles, backyard pools, furs, and--of course--diamond jewelry. Meanwhile, an (unlicensed) recording of the song "I Wanna Be Rich" blares throughout the auditorium. I remember a seminar/rally where we saw a slide show of Diamond wives on a shopping spree. In one shot, they were frolicking in the back of a limousine with $100 bills piled up all around them. The crowd roared its approval. On tapes and videos, the "Diamond lifestyle" of elegance, luxury, and leisure is dangled like a carrot so that underlings can " build their dream". In my group, we were encouraged to regularly drive by the most expensive houses in our area. We were told that this would help us to "keep focused on our dream". And of course, there are the ever-present pictures of luxury items and exotic places hung on the refrigerator, in the car, and all around the house.

What reason do the Diamonds give for their lavish spending on extravagant items? Typically, some variant of "because I can afford it". Hearing an upline leader say that they bought a $100,000 sports car "just because they could afford it" usually elicits hoots and cheers of blind admiration from the minions of glassy-eyed distributors. But what does it really tell us? It tells us unequivocally that AMOs are a case study in hyperconsumption. The same upline leaders to whom distributors are told to entrust their household finances offer an appalling example of how not to accumulate and maintain real wealth!

Getting Rich Slowly: A Little Can Add up to a Lot

Stanley and Danko, along with countless other experts on personal finance, favorably tout the philosophy of "getting rich slowly". This is precisely how people with modest annual incomes and sensible spending habits can become financially independent. After you fund your permanent cash reserve account with 3 to 6 months worth of living expenses, your regular savings should then go into higher-yielding long-term investments. Stocks and stock mutual funds offer the greatest returns over the long term. The proportion of savings held in these types of investments should vary inversely with age, since the short-term risk and long-term rewards associated with stocks are higher relative to instruments such as bonds and CDS, which barely outpace the rate of inflation. The younger you are, the more time you have to "ride out the bumps" (i.e., market fluctuations) and watch your investments grow.

It is important to understand the difference between speculating and investing. A speculator will move her money in and out of the market based on her own (or her advisor's) assessment of which direction the market is heading. This is called "timing the market". For most investors, timing the market virtually ensures underperformance over the long term. This is because each time an investor decides to time the market, she must actually make two correct decisions--when to pull her money out of the market and when to put it back in. Even with years of expertise and an arsenal of financial data, there are simply too many variables influencing stock price fluctuations for anyone (professionals included) to guess correctly all--or even most-- of the time. Speculating is tantamount to gambling.

Investing, on the other hand, entails making contributions to a mutual fund account or making stock purchases at regular intervals, regardless of current price or market direction. This is called "dollar- cost averaging" and its superiority as a long-term investment strategy is well-documented in financial literature. Most mutual fund companies will allow you to set up a plan where you contribute as little as $50 per month. Increasingly, individual companies are offering dividend reinvestment programs (DRIPs) where you can regularly purchase shares of the company's stock in similarly modest amounts without paying any brokerage fees. Exxon, for example, offers a fantastic DRIP plan that can be started with $250 and funded with contributions of as little as $50 per month.

Most company retirement plans (e.g., IRAs, 401(k)s, etc.) are examples of dollar-cost averaging.
Over time, dollar-cost averaging--with dividends reinvested-- builds wealth so effectively it is staggering. Jorgensen tells of a friend who, beginning at age 35, invested $200 a month into growth stock mutual funds until he turned 65. Over this 30-year period, he invested a total of $72,000 of his own money. But-- he ended up with over $1 MILLION! How? Through the "miracle of compounding". The "miracle of compounding" refers to the combination of regular contributions, increasing share prices, and reinvested dividends compounded over time. Compounding is the factor that makes dollar-cost averaging so powerful.

Also, keep in mind that Jorgensen's friend was 35 when he started investing! The figures are even more overwhelming the earlier you begin investing, because your money has more time to work for you. Assuming the low end of the stock market's historical 10-15% return (which includes the crashes of 1929 and 1987), a 19-year old who invests $2,000 a year until age 26 will see his $16,000 investment grow to the same $1 million by age 65 even if he never invests another penny! Put another way, the costs of following an AMO system ($5,000 per year) invested instead in quality stocks could make multi-millionaires of most young, struggling Amway distributors!

It is important to understand that in any given year, investments (especially in stocks) may lose money. But history shows that over time, quality stocks and stock mutual funds offer average annual returns between 10% and 15%. The "miracle of compounding" over time works for anyone who regularly invests new money and reinvests the dividends and capital gains. Jorgensen emphasizes the magnitude of this effect, stating that " For most people, 90% of their retirement nest egg will be made on money they never actually saved or invested." And amazingly, with the newly created Roth IRA (an investment vehicle that will be available beginning in 1998) investors will not have to pay taxes when they withdraw their money after the age of 59 _! This is essentially a gift of free money from Congress to those investors who have the foresight to develop a plan and save a little money each month so that they may have financial security later in life.

Before moving on, I'd like to emphasize that I've really only scratched the surface here. I haven't, for example, discussed portfolio diversification, a critical component of developing a successful long-term strategy. Anyone who considers investing in the stock market should absolutely do their own research on specific stocks and stock funds, consulting a professional if necessary. Books such as Benjamin Graham's The Intelligent Investor and Burton Malkiel's A Random Walk Down Wall Street are classics. Also, there are countless resources online and in financial periodicals that are tailored for the individual small investor. I cannot stress strongly enough the astounding rewards that can result from developing a plan and exercising the fiscal discipline to follow it.

Now, let's return once more to the AMOs. Where do they stand on investing? Typically, AMOs attach an extremely negative connotation to the stock market, ridiculing it as an expensive lottery in which a lucky few win big, but most end up losing. As we've seen, this criticism could hold some validity when applied to the practice of speculative market timing, but the AMO position is unfortunately more broad than that.

An oft-quoted figure by AMOs states that "98 percent of the people who get into the stock market end up losing money". I heard this refrain every week when I was a distributor, but I never saw it supported with any facts. This is because it is an outright lie. Certainly, there are no guarantees in the market and many people who try to time the market will end up losing. However, the stock market moves in one direction over time--up! True investors who are willing to "stay the course" and make regular planned investments will see their money grow significantly over time. The only way this would not happen is if all companies simultaneously stopped earning profits and none ever recovered--an unlikely scenario, to say the least.

Another AMO criticism of investing is that it takes huge amounts of up-front capital to make any real gains. I remember that one of the Emeralds in our group would say during his presentation of the Plan that "You need $10,000 minimum just to get started...and folks, let me tell ya' wife and I don't usually find ourselves tripping over stacks of thousand-dollar bills around the house." That line always produced a hearty, sarcastic laugh from distributors who thought they were making a wise financial decision by putting their money into an AMO instead of the stock market. Perhaps they should instead have been laughing at the complete ignorance of the Emerald's assertion. For well under $1,000, anyone can begin an investment program today that will deliver tremendous returns tomorrow. The AMOs' scare tactics have absolutely no factual basis.

Conclusion: Get All the Facts

I believe it's fitting to conclude by turning one more tired AMO catch-phrase on its head. When AMOs encourage prospects to "get all the facts" before deciding whether or not to sign up as Amway distributors, they certainly don't intend for you to read articles like this one. Rather, they would like you to focus on the extravagant wealth of a tiny percentage of distributors-- those who sit atop the AMO pyramids and pocket millions of dollars each year by selling motivational tapes and promoting motivational functions. The high-pitched rhetoric and garish displays of wealth perpetuated by these AMO leaders are supposed to be all the "facts" that you need to make your decision. Rather than thinking critically and conducting your own research, you are simply supposed to "dream". And your "dream" is supposed to outweigh any other facts--such as those displayed here--that suggest Amway is not such a good investment after all. As Dexter Yager himself says, "The facts don't count."

I disagree. I believe that the facts do indeed count. Yes, Dexter Yager and a scant few others make a heck of a lot of money as AMO leaders. So what? That is exactly what happens in any pyramid scheme--a select few prosper at the expense of masses. To imply that the mere existence of AMO leaders' wealth supports the financial wisdom of launching an Amway distributorship is simply indefensible. As we've seen, AMO teachings are diametrically opposed to the proven wealth- building strategies employed by the large majority of millionaires. AMOs encourage spending more than you earn. They glorify hyperconsumption on luxury items. And they shun prudent long-term investing. Viewed in this context, the Amway business opportunity as it exists today clearly flunks all facets the wealth-building test.

If you are a prospect who is considering joining an AMO, you would be well-advised to read additional material on this web site and other web sites. You should absolutely conduct your own research to educate yourself on critical aspects of personal finance. If you are currently an AMO distributor, you probably already have a significant financial and emotional investment tied up in your Amway business. I know I did. You hear your upline and the speakers on tapes and at functions disparage those who quit Amway as "losers" and "people who didn't have a big enough dream."

To that I can honestly say that "I've been where you are" (and unlike your upline, I won't make any money off of you if you follow my advice). Once I "got all the facts", I stopped listening to my upline and started listening to my own conscience. I made a quality decision by quitting and I am certainly not a "loser". In fact, my and my wife's real dreams actually came back to life after we quit Amway. By following the strategies I have described in this article, my family's financial outlook is better than it has ever been. We are debt- free outside of our mortgage, and we pay extra toward the mortgage each month. We can account for every penny that we spend. And by saving and aggressively investing a large percentage of our disposable income, we are well on the road to financial independence. We've never been happier and more spiritually fulfilled in our lives.

I hope that everyone who has taken the time to read this article will take the further initiative to do your own research and "get all the facts". There is no freedom so valuable as being able to think for yourself and make your own decisions, without the unwarranted influence of others. If I've helped even one person by writing this article, the effort has been well worth it.


The views and opinions expressed in this page are strictly those of the page author.
The contents of this page have not been reviewed or approved by the University of Minnesota.