The Age Wealth Gap is Getting Bigger & Our Net Worth Sucks. Here’s how we Fix it.
I still am not entirely sure what Occupy wants yet, but research released this past week by the Pew Research Center may be central to why they are sitting in the streets in the first place.
Occupy is primarily a youth (under 35) movement. This group is collectively struggling financially.
The Pew Research shows that the median net worth (assets minus debts) of households headed by an adult age 35 and younger has decreased by 68% in the last 28 years from $11,521 in 1984 to just $3,662 in 2009 (adjusted for inflation).
Over the same time period, the median net worth of households headed by an adult over the age of 65 increased a whopping 42% from $120,457 in 1984 to $170,494 in 2009.
Combining the two, the wealth gap between young and old jumped from 10:1 in 1984 to 47:1 in 2009. That’s kind of depressing. But what’s REALLY depressing is…
$3,662 of net worth per household?! Occupiers are pissed because they have no money!
The research didn’t go into reasons why there is an increasing wealth disparity or, more importantly, why the net worth of younger generations is so miniscule outside of home equity declining. There are a lot of reasons – injustices by our banks and politicians have hurt. So have corporate greed leading to massive layoffs, cowardice to hire, and global outsourcing. The rising costs of health care and an education haven’t exactly helped either.
Taking Ownership of your Financial Situation
Despite having the odds stacked against us, there is still plenty of opportunity in this country for twenty and thirty-somethings to financially succeed. Most of those reasons for failure and success are 100% controlled by you and nobody else (wow, that sounded very Libertarian).
If everyone graduating from high school in the next 15 years did the four following things, I am confident that the $3,662 in net worth average could balloon to $100,000 plus.
1. Take Out Zero Student Loans. Period.
Student loan debt has become an epidemic in this country (surpassing $1 trillion and all credit card debt) and is the primary reason why those aged 35 and younger have zero net worth. The cost of a college education has become prohibitively expensive due to tuition inflation.
Notice how I am not saying “don’t get an education”. There are ways to get an education that don’t involve taking out $75K in student loans. Some traditional high school to four-year university cheaper alternatives include:
- Going to a community college for at least the first two years of your education and paying for the tuition with income earned from working over the summers.
- Getting an apprenticeship or learning how to do a job that does not require a degree.
- Living at home for a few years while working to save enough to pay for your tuition entirely without taking out loans.
- Living at home while going to school versus paying for room and board.
- Applying for financial aid and/or working hard for scholarships.
- Finding a small business and working your ass off to the point that they can’t help but bring you on as a partner.
- Starting your own business.
The last thing you should do is follow the traditional education path. Look where that has gotten us collectively.
2. Budget Everything & Attack your Expenses
It’s simply not good enough to aim to make more than you spend. That is, unless you want to work for others until your final breath and end up in financial crisis when the wind blows the wrong way.
So many in our generation take a nonchalant attitude towards budgeting. If they aren’t adding credit card debt, they see that as a win. Then what happens when they lose their job, get a pay cut, have a medical emergency, have a child?
Financial success is like anything in life – you have to put in the learning, attention, and effort in order to succeed.
This means you should track all income and all expenses. Then look for ways to increase your income and attack every expense you have with a passion. Here is a free budgeting spreadsheet to get started.
3. Denounce Consumption
This one admittedly takes some time. It will probably be a gradual process, not a single event like when I started saying “no more Christmas gifts“. You may even need consumer counseling to get there.
A general rule: if you want to buy a thing because you think it will make you happy, don’t buy it at all. Things only result in fleeting happiness.
Only buy things that are high quality (should last decades), are absolutely necessary to live, or will creating lasting memories for you.
Our generation feels like we need to buy the latest car, laptop, smartphone, clothes, high-priced vacations, or big homes in order to maintain a sense of individualism and worth in the eyes of others. Clever advertisers have made you feel that way. But nothing could be further from reality.
This change will impact everything else – you’ll be able to pay down debts and avoid them altogether, budgeting will become easy, and you’ll start accumulating the wealth to avoid financial crises. You’ll even be able to downsize your dwelling significantly instead of using it as a pricey storage garage for all the crap you no longer need or want.
4. Keep your Transportation Costs to Less than $1,500 Per Year
Americans spend over $7,500, on average, EVERY YEAR on transportation. THAT IS F#%&ING RIDICULOUS! It is very possible to have ALL of your annual living expenses be under $7,500.
Get a nice bike, take the bus, and use ZipCar or Enterprise when needed. It can be done. At the very worst by a 5+ year old car that gets 35+ miles per gallon.
A car does not, nor will it ever define you. And the new car happiness is very fleeting. The buzz can last for a month, the debt can last for decades.
Wealth Gap Discussion:
What would you recommend to your peers to help us close the wealth gap, or more importantly, help younger generations build wealth?