The real personal finance hack is having more money


The recently proposed hike in capital gains taxes in the United States has sparked much discussion among Americans. For those – myself included – who earn capital as part of their compensation and expect most of their lifetime income to accrue through capital gains, a tax hike of ~ 2x can be a difficult pill to swallow. That said, the state of personal finances in the United States paints a portrait of an America that needs stronger, more well-funded social safety nets than ever before.

In the world of well-designed personal money management apps (such as Mint, Truebill, Trim, Monarch Money, etc.), the product is all about helping people do more with less. Personal expense information like “You spent $ 200 more in restaurants last month” is paired with recommendations from personal finance experts like “Buy less lattes and less avocado toast. “.

Ultimately, these efforts seem a bit like focusing on nutritional information during a famine. Making people more informed is useful for personal finance, but how many ways are there to effectively distribute minimum wage? Is the determining factor for a person leading a busy life – a life in which they can afford shelter, food, children and an education – primarily how they spend their money or how much? she wins in the first place? Financial literacy is a necessary condition for moving up the ladder of opportunity, but this ladder must first be accessible for financial literacy to matter.

More than half of Americans now work in low-wage jobs. By using the highest minimum wage in the United States ($ 15 in Washington DC) and a standard work schedule (40 hours per week, 51 weeks per year), with an annual bonus of 15%, someone can earn $ 35,000 per year. Salary levels in the United States have stagnated since the late 1970s due to productivity and inflation and have continued to rise, so that $ 35,000 buys less each year.

This implies that half of Americans today cannot afford what they could have done years ago. The vast majority of these Americans get their money from wages and salaries, not capital gains.

There are many hypotheses as to why the decline in income has stagnated in the United States even as the rise in income and asset prices has risen, including more exotic theories like the common stock ownership of index funds. The real reason is probably a combination of many factors, but the main driver since the 1980s has been globalization. Simply put: many of the jobs that formed the backbone of middle-class work, such as manufacturing and services, have been relocated to lower-cost centers.

And when it comes to cutting middle-class jobs from the US economy, the trend of offshoring has started, artificial intelligence will end. Just as companies have spent the past 40 years moving manufacturing jobs to Shenzhen and service jobs to Bangalore, they will spend the next 40 years increasingly automating the jobs that remain in the United States. This fourth or fifth industrial revolution will not only displace blue collar jobs, but also begin to avoid the need for jobs in the knowledge economy. It will take some time to pass; it won’t happen overnight, which is why we can prepare for it.

To be clear, this in itself is not a bad thing! Plus the productivity costs achieved through automation and the offshoring of jobs have created an America where consumer goods like televisions, airline tickets and cars are massively more affordable for more people, not just for the rich. We can work less and produce more. And our average leisure time keeps increasing! But the gains from lower-cost production are primarily attributed to the owners of capital: shareholders and shareholders.

When a manufacturing job is sent overseas or a customer support role is automated through an NLP chatbot, an exchange occurs: a worker loses their job, but a company is able to deliver their product more efficiently. at a lower price. These gains therefore go to companies, which translate into profits and the stock market price, which benefits the part of American households that own shares.

But households that do not own shares and assets are doubly penalized: not only are jobs becoming scarce, but they are becoming poorer compared to the beneficiaries of capital gains.

Getting back to the proposed tax hike, we are social animals by nature, which is why we compare ourselves to our peers. At many times in my life, I have taken less pay than I could have made elsewhere by shifting my pay to equity. When I look at my friends, many of whom are paid in wages and bonuses, it can be frustrating to think that my own compensation might suffer due to changes in the rules of the game. But in my opinion, only comparing myself to other workers high income earners and capital gains recipients misses the forest for the trees.

In my opinion, we owe it to half of the Americans who depend on wages to keep the American dream alive by funding stronger education, health care, skills training, and economic opportunity.

the Daily Kos once noted that “polite people don’t like to talk about ‘class’ in the United States. It is a country where almost everyone describes themselves as “middle class”. It is probably more appropriate to abandon post-war class ideas and adopt something along the lines of the (controversial) theory of the “three scales” of class in the United States, in which capital (and capital gains) is increasingly concentrated at the top. and upward mobility is more and more difficult for the bottom. In my opinion, we should ask ourselves how we can keep the American dream alive and give everyone the chance to lead meaningful lives by climbing the ranks.

In the 1960s, author John Steinbeck joked that in America “the poor do not see themselves as an exploited proletariat but as temporarily embarrassed millionaires.” The belief that anyone can become a millionaire through hard work and determination is a cornerstone of the American foundation. Let’s keep this belief alive by providing access to the economic scale people need to make this dream come true.

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