The American Dream is Dead
Baby Boomers in the United States had an easy life. We grew up during the biggest economic boom in world history. Their children and grandchildren—Gen X, the Millennial generation born after 1982, and Gen Z generation born after 1995—have a very hard road ahead.
Not only are many Millennials unemployed or underemployed, but many start their adult lives burdened by onerous student loan debt. They also inherit a massive national debt, a ﬁnancial disaster left behind by their parents, grandparents, and great-grandparents.
At 75.4 million strong and with the oldest members just reaching 40, they are now the biggest and arguably the most influential generation. So, it’s worth studying their money habits—and, unfortunately, they may be in for a world of hurt.
As Refinery 29 reports, “66 percent of surveyed participants believed their savings accounts alone will be sufficient enough to rely on in 20 years.” This means that they have a strong preference for saving money over investing it.
But preference doesn’t always mean action. Bank of America reports that only 1 in 5 millennials have even started saving, and of those who have, 40% have only $5,000 or less in the bank. The same study cited by Refinery 29 reports that 88% of millennials say they intend to save more in 2016, but only 36% say they plan to spend less.
Many millennials have a very low amount of financial intelligence, and what knowledge they do have about money stems from the old rules of money that no longer work.
To me, this research is very concerning because in the new world of money, savers will always be losers…and we can’t afford to have our largest generation being financial losers.
The Atlantic reported in “Severe Inequality Is Incompatible With the American Dream,” by Alana Semuels that a new study has quantified what many Millennials have experienced for years.
“The paper puts numbers on what many have seen firsthand for years: The American dream—the ability to climb the economic ladder and achieve more than one’s parents did—is less and less a reality with every decade that goes by.
“People born in the 1940s had a 92 percent chance of earning more than their parents did at age 30. For people born in the 1980s, by contrast, the chances were just 50-50.
“There are two main reasons why today’s 30-somethings have a harder time than their parents did, according to the authors. First, the expansion of the gross domestic product has slowed since the 1950s, when growth was frequently above 5 percent a quarter. That means the economic pie is growing at a slower rate than it once did, so there’s less to go around. Second, the distribution of that growth is more unequal, and more benefits are accruing to those at the top. Those at the bottom, on the other hand, are not able to achieve as big a share as they once did. Their wages are not growing, so they are stuck at the same level as, or below, their parents.
“People at the bottom half of the income distribution are making, on average, $16,000 a year, while the average pre-tax income of the top 1 percent of adults is about $1.3 million.”
In other words, a society in which most of the poor stay poor and the rich stay rich. The American Dream is dead, especially if you go to school and look for a job. Real financial education would offer a more ambitious person different avenues to become a millionaire, even in today’s economy.
Why Savers are Losers
August 15, 1971, was the official start of today’s financial crisis. It was the day President Richard Nixon took the dollar off the gold standard and the day the United States began printing money.
When the rules of money changed in 1971, savers became losers, and debtors became winners. A new form of capitalism emerged. Today, when I hear people saying, “You need to save more money,” or “Save for retirement,” I wonder if the person realizes that the rules of money have changed.
Under the old rules, it was ﬁnancially smart to save money.
Under the new rules of money, it’s ﬁnancial insanity to save a currency.
It makes no sense to park your currency. Under the new rules, the currency must keep moving. If a currency stops ﬂowing, it becomes worth less and less.
A currency, like an electrical current, must move from asset to asset as quickly as possible.
A currency’s purpose is to acquire assets, assets that are either appreciating or producing cash ﬂow.
A currency must move quickly to acquire real assets with real value because the currency itself is rapidly declining in value.
Prices of real assets such as gold, oil, silver, housing, and stocks inﬂate in price because the value of the currency is declining. Their inherent value does not change, only the amount of currency it takes to acquire them.
Printed money blew the United States and the world into a bubble. In 2000 the bubble started to leak.
To prevent a crash, the government printed more money. The bubble began to burst again in 2007, with the real estate crash, and then, in 2008, the banks crashed. All the while the printing presses kept running.
This is what happens to fiat currency when governments print money.
In September 2010, Warren Buffett had this to say to savers: “The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time.”
Our leaders are still hoping for more green shoots, more growth. They hope printing more money will save the economy.
Savings are Not Enough
When I say savers are losers, I’m talking about those who think savings will be enough to help them have a secure financial future. This is an old way of thinking that doesn’t take into account how money has changed, that it is a currency that loses value if it just sits and isn’t invested.
Because we live in an inflationary economy, cash loses values over time. On the other hand, assets rise and fall in value relative to inflation.
If you want to thrive financially, you have to learn how to identify the right investments for your money to flow into and how to find assets that create cash flow. This is what we call investing.
The Good Kind of Savings
Outside of emergency savings, another good kind of savings is money set aside specifically for investing. We call this pay yourself first.
You should treat your savings for investing not as part of your asset column but instead as part of your expense column on your balance sheet. It is your most important expense, more so than any other, and should take first priority.
When Kim and I were young, we did this much to our bookkeeper’s lament. If we didn’t have enough money to pay our bills, we pushed out what we could or negotiated with our bill collectors, but we never pushed out our investment savings.
Use Your Investment Savings to Buy Cash-Flowing Assets
As you save your money for investing, you should also work on identifying the right asset you want to invest in that will produce cash flow at the right return. This could be real estate, a business, or technical stock trading—whatever you’re interested in.
This takes financial intelligence to do, however, so you must invest in that as well, and the biggest cost will be time for that.
As you grow in financial knowledge you’ll also grow in confidence that you can tackle any financial challenge that comes your way: realistic optimism.
The good news is it’s never too late to start investing in your financial knowledge, building your emergency savings, and creating your investing savings. And starting today is the surest way to make sure you don’t end up as a financial loser.
Editor, Rich Dad Poor Dad Daily