Editor: Crass Cash
The rich get richer, the poor get poorer. This is what you've always been told and for the past two years I've been telling you that it's bullshit and it's because of mathematics. Now here is even more proof from the Atlantic magazine, not just my own musings.
http://www.theatlantic.com/business/archive/2014/11/save-more-money-everyone/382306/
The summary of the article is that the reason the "rest" or the 90% have fallen behind since 1986 is because they stopped saving. They went from a 6% savings rate to a negative 4% savings rate. That's right negative 4%! So there's a 10% difference, which just so happens to be the magic number that people need to save in order to retire after 40+ years of working.
Now if you don't believe me you're think 1 of 2 things or both of them. First, the rich had higher taxes then and secondly, the average American's standard of living has decreased when adjusted for inflation and therefore, they cannot save. Both are valid concerns, but they're wrong.
In the beginning income taxes were considerably lower and yet the middle class continued to grow. Also, wage stagnation started in the mid 1990's and yet the savings rate slowed and then went negative starting in 1986. So for 9-10 years wages were still increasing on real terms, but Americans were continuing to save less and less of their income.
Now yes if you're in the top 10% then it's easier to save more and easier to save more than 6% or more. But as this study demonstrates Americans have been savings less for the past 28 years (man am I getting old) regardless of the tax base or wages. Why do I think this is happening? It's straight up "keeping up with the Joneses" syndrome! Americans are trying to keep up with their neighbors rather than building wealth and passing it on. The Greatest Generation were also great savers and as they started to die out, they took their frugal ways with them. It worries me that this could a be a huge reason for the eventual downfall of society.
Luckily I have a solution. By mandating that employers include employees in their retirement plan, it won't guarantee participation, but it most likely will double it. Studies have shown that 1/3 of the population is both too lazy to sign up for retirement and also too lazy to opt out of it. If employers have to include at least 3% of the employee's wages into a retirement plan and then match it dollar for dollar like many do now, it would greatly reduce the income/wealth gap in the USA. If the employee still decides after 3 months of work that they don't want to participate than they won't have to. Freedom and responsibility remains intact!
http://www.theatlantic.com/business/archive/2014/11/save-more-money-everyone/382306/
The summary of the article is that the reason the "rest" or the 90% have fallen behind since 1986 is because they stopped saving. They went from a 6% savings rate to a negative 4% savings rate. That's right negative 4%! So there's a 10% difference, which just so happens to be the magic number that people need to save in order to retire after 40+ years of working.
Now if you don't believe me you're think 1 of 2 things or both of them. First, the rich had higher taxes then and secondly, the average American's standard of living has decreased when adjusted for inflation and therefore, they cannot save. Both are valid concerns, but they're wrong.
In the beginning income taxes were considerably lower and yet the middle class continued to grow. Also, wage stagnation started in the mid 1990's and yet the savings rate slowed and then went negative starting in 1986. So for 9-10 years wages were still increasing on real terms, but Americans were continuing to save less and less of their income.
Now yes if you're in the top 10% then it's easier to save more and easier to save more than 6% or more. But as this study demonstrates Americans have been savings less for the past 28 years (man am I getting old) regardless of the tax base or wages. Why do I think this is happening? It's straight up "keeping up with the Joneses" syndrome! Americans are trying to keep up with their neighbors rather than building wealth and passing it on. The Greatest Generation were also great savers and as they started to die out, they took their frugal ways with them. It worries me that this could a be a huge reason for the eventual downfall of society.
Luckily I have a solution. By mandating that employers include employees in their retirement plan, it won't guarantee participation, but it most likely will double it. Studies have shown that 1/3 of the population is both too lazy to sign up for retirement and also too lazy to opt out of it. If employers have to include at least 3% of the employee's wages into a retirement plan and then match it dollar for dollar like many do now, it would greatly reduce the income/wealth gap in the USA. If the employee still decides after 3 months of work that they don't want to participate than they won't have to. Freedom and responsibility remains intact!
RSS Feed
