I’m starting to see some a lot of talk about wealth disparity on the web these days. I worry that it means we’ve hit our tipping point of sustaining the you-too-can-be-rich dream. For most of us, it’s a farce, but we so desperately want to believe we can all be millionaires, we’re refusing to let go of it.
If you have 6.5 minutes, this is an excellent short video on wealth disparity in America:
I mentioned in my recommendation of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry and The Value of Nothing: How to Reshape Market Society and Redefine Democracy that we need to take a real look at our finances from a more holistic perspective. Most of the points and statistics I mention in this post are from these two books, and that’s one of the main reasons they’re both on my list of The Only Personal Finance Books You Need To Read in 2014. Wealth disparity and economic mobility are topics I will touch on in greater detail in the future on the blog, because I feel these are becoming increasingly important issues.
We cannot think of our money only in the context of our bank accounts, we have to look into the system that puts it there — and takes it out.
It’s important to understand where you fit in the machine. When I say that, I mean where you fit as a consumer and driver of the market. Most people have a myopic vision of what’s actually playing out before them. You don’t worry about what your neighbour is doing unless what they’re doing is buying things you can’t afford for yourself. The media is selling you rags-to-riches stories, and “start-up” has transcended buzzword status to a lifestyle category that you, yes, you can become an entrepreneur rightthisinstant. Your wealth, or lack thereof, is your responsibility.
But how much of your financial situation is really in your control?
I like the bootstrap mentality of the personal finance community. It’s empowering to learn how to manage you money to meet your goals. Paying off debt and accumulating savings is liberating, but it’s only half of the equation. If you’ve been reading personal finance blogs for awhile, you’ve undoubtedly seen bloggers cope with financial challenges beyond falling off the wagon and splurging on a sweater: you’ve seen diligent savers hemorrhage their accounts for job loss and unexpected medical expenses.
Truthfully, most personal finance success stories are not about getting rich, they’re about being lucky enough to successfully curate an elaborate defense mechanism against misfortune.
Why? Because if you’re not winning, you’re losing, And you can only lose big. More than 1 in 4 people will become disabled in their working lifetime. This can knock you out of your job for years, or permanently, and if you don’t have a fat emergency fund or disability insurance, you’re screwed. You might think the odds are in favour for that one, but what about this: the strongest predictive factor that a woman will file for bankruptcy is motherhood. Most bankruptcy claims aren’t actually from people who grossly mismanaged their money by having a heyday with credit cards. More often than not, its your average citizen finally crumbling under the weight of medical bills or job loss.
We all want to believe that there is a simple formula to financial security: do this, be rich.
But it’s a much harder game than that.
The real “1%” is the reality that people born to low-income earners only have a 1% chance of making it to the top 5% of earners. 42% of children born in the bottom 20% will stay there.
And that’s how the American dream died.
The old adage is true: the rich are getting richer and the poor are getting poorer. As tuition prices rise, education becomes inaccessible to lower income earners. If they do manage to attend post-secondary, they accumulate crippling amounts of debt that will reduce their ability to save in the future and leave them financially vulnerable to catastrophic events. To add insult to injury, expensive educations don’t automatically translate into lucrative careers, which means the highly educated can be left struggling to pay off their debts on pitiful wages.
Underemployed, highly leveraged workers delay marriage and children. The fertility rate in North America (and most of the world), has been below its replacement value for awhile now, which is leading to an aging population that neither the government or the too-small younger workforce can support. We’re living too long, but the real problem is we’re doing so too expensively for it to be sustainable. Retirement as we know it might be a relic before you are.
There is no white picket fence and 2.5 kids. You can’t afford it.
So what can you do? For now, play the game to the best of your ability. I know that’s not a good answer, but frankly, you don’t really have a choice. What I mean by this is be on the defensive: save as much as you can and pay off your debts, even if you think your efforts are futile. But ultimately we will need to make big changes, particularly to our thinking and way of life.
Personal finance is personal, but it’s not actually all about you.
Remember that when you’re struggling to find money to save or feeling smug about being debt-free. The game is being played with a loaded dice against you. Most of your financial struggles are inherently unfair, and your wins are too hard-won or the product of sheer dumb luck. Wealth disparity is an injustice that has existed across history, but it doesn’t mean we have to perpetuate it. How do we make changes?
Please share your thoughts and any links to articles or suggestions of books to read on the topic, I’m really enjoying looking at the economic “big picture” and hearing your perspective!