The 5 Ways the System Keeps Americans Poor
How It Will Keep You Poor
Life would be easier if there actually was a conspiracy between rich guys like George Soros, Bill Gates, and Michael Bloomberg to keep everyone else from becoming financially successful. If that was all there was to it, people would roll out the guillotines, French Revolution-style, take care of the problem, and then we’d all be rolling in dough. Unfortunately, the reality of the situation is something worse. There’s an interlocking combination of human nature, self-interest, ignorance, bad government decisions, and the changing nature of the world that keeps a lot of Americans from ever getting ahead. If you want to know the scope of the problem, just look at this:
As of June, 61% of Americans — roughly 157 million adults — lived paycheck to paycheck, according to a new LendingClub report. That’s up from 58% who reported living paycheck to paycheck in May. A year ago, the number of adults who felt stretched too thin was 55%.
These numbers are also extraordinarily grim:
American savings statistics for 2020 show that nearly 70% of Americans have less than $1,000 stashed away in their bank accounts. That number rose from 58% in 2018. Meanwhile, the number of those with savings between $1,000 and $5,000 stands at roughly 12%. Only 5% of Americans have savings accounts that range between $10,000 and $20,000.
America is a prosperous country and every day we see ostentatious displays of wealth on social media and on the news. Our own government spends almost unfathomable amounts of money. How is it that more Americans aren’t getting ahead?
There are five reasons for that.
1) The shrinking of the world: The invention of shipping containers in 1956, the increased speed of global travel, and the widespread adoption of computers shrank the world and changed the game economically in almost every way. What happened to many of the best manufacturing jobs in the US? It made more financial sense to send them overseas, where labor costs were only a fraction of what they are here, and then ship everything to the United States. The richest Americans? They started becoming worth almost unfathomable amounts because they weren’t just selling their products in a state or even across the country, they were selling them worldwide. Owning your own business has always been one of the best ways to become financially well-off, but it’s orders of magnitude harder to be successful in an era when you compete with global mega-corporations from all over the world.
As the world becomes more educated, not only do we have American companies bringing in foreign workers to compete for some of the best STEM jobs, everything from secretarial work to customer service jobs, to graphic design is being done overseas. Why pay an American $20 an hour, when you can hire someone in India with a degree, who speaks English to do the same thing remotely for $3 an hour? Meanwhile, illegal aliens are being allowed to flood into the country and because they don’t have to pay the same costs that Americans do (from income taxes to health insurance), they can work cheaper. That means they drive down wages across the board, including in some jobs, like construction, that can pay a pretty good amount for Americans without college degrees. All these factors combined mean there’s less opportunity for people who follow what used to be the tried and true formula of getting a job, staying with the same company for life, and then retiring with a pension.
2) Lack of knowledge: We don’t teach financial literacy in high school or, for the most part, college. You have to learn that on your own. However, if you want to know how to be ahead of the average American financially or even the basics of how to get rich, everything you need to know is out there and it’s available for a small fee or even for free in many cases. Heck, I even have the basics of financial literacy in my book, 101 Things All Young Adults Should Know. There are lots of other good books that specifically focus on those things like Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!, I Will Teach You to Be Rich, and The Millionaire Next Door: The Surprising Secrets of America's Rich. There’s no shortage of good information out there, but is it amazingly exciting? Will it make you a millionaire overnight? Does it tell you how you can do all this without a lot of sacrifice or hard work? The answer is “no” on all counts. So, unfortunately, a lot of people have never even seen the basics of successful finance and they just go by what they hear from their friends and family. Except, as you can see from the statistics we opened with, most people aren’t succeeding financially so they can’t give good advice about how to do it.
3) Human nature: For the vast majority of people, a pleasurable reward right now looks a lot better than an uncertain, but potentially better reward in the future. Yet, 95% of getting ahead financially once you start making any money is just choosing to delay your gratification. You live in a house that’s not as nice as you can afford. You drive a car that’s not as nice as you can afford. You pick the used furniture instead of the new furniture. You put how you’re living in the future above impressing other people, having a great time this weekend, or having really great stuff. Then eventually, you have money in savings, money to invest, and more options. Theoretically, it all sounds so simple, but in the real world, it’s hard to do (more on that in #4). When you’ve had a hard day, it’s difficult to forego some little treat to make yourself feel better. It’s hard to tell your kids “no” when they want something. It’s a little painful to look at say, a jacket you really want and decide to get the Wal-Mart version because you’d rather set the money back because that mentality will benefit you more in five or ten years. Delayed gratification in America? There’s not a lot of people selling that and there are even fewer buying it.
4) Consumer culture: We live in a consumer culture that’s constantly pushing us to buy things NOW, to change how we feel NOW, to do it NOW. If you turn on your TV, you’re going to see some mom getting love from her children for taking them to a fast-food restaurant or grinning like it’s the best day of their life as they do laundry or take some drug with side effects that include explosive diarrhea, sterility, and migraine headaches. There are an unlimited number of people, corporations, groups, and causes all pitching you on why you should give them some of your money. That goes on from the time you get up until the time you go to bed, 24x7, 365 days a year. Hilariously, most people seem to think they’re immune to these pitches, but do you really think corporations are spending almost 350 billion dollars a year on advertising if they don’t believe they’re getting it back? As Joe Biden would say:
On top of all this, in the modern era, corporations are testing everything from the color of like buttons, to sounds, to different taglines to get the PERFECT PITCH that will convince you to buy. They’re spending more money than most of us will ever make on a regular basis to come up with computer-generated algorithms that will convince us to spend more of our money. Who’s trying to talk you into saving your money? Me? Dave Ramsey? Maybe your mom when you were five? It’s not a fair fight.
5) Bad government decisions: Our government has been making a lot of bad economic decisions for an awfully long time. If you’re a taxpayer, do you know what your PERSONAL share of the national debt is? As I write this, $244,315 and they’re rapidly adding to that as we speak. At some point in the future, they’re actually going to NEED THAT MONEY or go down the tubes and very few people will be able to pay it. It also has a huge impact on interest rates. Because we have so much debt, the Fed can’t increase the interest rate on bonds to where it should be. That means the value of your money is GOING DOWN if you hold bonds, which are supposed to be the “safe” place to park your money. If there’s no safe place to put your money, people have to put their money into riskier investments just to keep up with inflation, which has been out of control all year. People have actually been celebrating that it’s actually down to 8.3%, which is madness given how fast it’s taking the real income of most poor and middle-class Americans backward. Also, it’s worth considering that the Federal Reserve’s target level of inflation is 2%. What that means is that even if the government hit its target, the money you save will lose half its value every 36 years. That makes saving money much less appealing than it would be under say a gold standard. We could go on and on with this but suffice it to say that our own government may be the biggest thing standing between most Americans and prosperity.
One quibble: I often see articles saying how little Americans have put away for retirement. I agree completely with the ultimately point: Americans don't save enough. But the numbers are often misleading. When you say the "average American" has only $65,000 saved for retirement (I just looked it up), that sounds terrible. How long could you live on $65,000? Maybe 3 years if you stretched it? But that leaves out the key question, the average American of what age? If someone who's in his 60s and is planning to retire next year has only $65,000, that's not going to work. But if someone who is 22 has $65,000 saved for retirement, he's doing very well. When I was in my 30s my retirement savings was still only about $30,000. For people aged 55 to 64, median retirement savings is $134,000. I'd say that's still way too small but not as pathetic as $65,000.
Yes. RE #3: I was on a forum once where someone said that if you gave everyone in the world $1000 (ignoring the question of where the money comes from -- let's suppose it appears by magic), some people would invest it and a year later have $2000, while others would spend it immediately. This generated a storm of protest from people saying that some people are so poor that they would just have no choice but to spend it immediately on necessities of life. To which I replied, That's why they stay poor. Because they think that all the little luxuries they buy are "necessities". Will you die if you don't buy a new cell phone, or a new video game? No. Or even something more mundane, like a new pair of shoes. Maybe your present pair are absolutely on their last legs (or their last feet?), the soles are about to wear through, they're falling apart and you just have to get a new pair or go barefoot. But probably not. You wouldn't die if you turned down the air conditioning, or ate hot dogs and beans instead of that convenient microwave meal tonight, or dozens of other little luxuries you enjoy. People who get rich learn to make do without. People who stay poor think of all these things as "necessities".