In The Millionaire Next Door by Thomas J. Stanley and William D. Danko, PAWs (Prodigious Accumulators of Wealth) and UAWs (Under Accumulators of Wealth) are two categories the authors use to describe people’s wealth-building habits and financial behaviors.

Key Concepts:

1. Prodigious Accumulators of Wealth (PAWs):
   • Definition: These are individuals who accumulate wealth at a higher rate than expected based on their income, age, and lifestyle.
   • Characteristics:
     • Live below their means.
     • Invest wisely and consistently over time.
     • Value financial independence over showing off wealth.
     • Tend to budget carefully and avoid unnecessary debt.
   • Example: A person earning a modest salary but saving and investing diligently to amass significant net worth.
2. Under Accumulators of Wealth (UAWs):
   • Definition: These individuals accumulate wealth at a lower rate than expected given their income and age.
   • Characteristics:
     • Tend to spend more and save less, often prioritizing a high-consumption lifestyle.
     • May focus on outward appearances of wealth, like expensive cars or homes.
     • Often have a lower net worth than peers with similar incomes.
   • Example: A high-income professional who spends lavishly and has little saved for retirement.

Formula to Identify PAWs and UAWs:

The authors provide a simple formula to calculate expected net worth:Expected Net Worth=(Age×Annual Pre-Tax Income)/10\text{Expected Net Worth} = (\text{Age} \times \text{Annual Pre-Tax Income}) / 10Expected Net Worth=(Age×Annual Pre-Tax Income)/10

• PAWs: Have a net worth twice or more than their expected net worth.
• UAWs: Have a net worth less than half their expected net worth.

Implications:

The distinction highlights the importance of wealth-building behaviors over mere income levels. The book’s central message is that true financial success comes from disciplined saving and investing, not necessarily from earning a high income.