Three Reasons Woes Of The Middle-Class & Poor Have Nothing To Do With Bad Financial Planning

Amid news that the economy is booming yet many Americans can’t make ends meet, the idea that people are to blame for their own financial shortcomings continues to find footing in American minds and conversation. Yet it couldn’t be further from the truth. Here are three reasons why the woes of the poor and middle-class have nothing to do with bad financial planning.

Reason 1: Spending is actually down for most Americans across the board.

“If people would simply stop spending money on frivolous things, their financial situation would improve measurably.” While there is certainly wisdom in spending frugally, statistics show that most Americans already abide by this logic. Not only is luxury spending down, but so is spending on necessities like food. Younger people are also forgoing home ownership because of the price tag as well. All of this is to say that advice telling people to spend less is preaching to the choir – everyone is already sacrificing to make ends meet.

Reason 2: Cost-of-living is rising faster than wages are keeping up.

While frugality can certainly help one’s financial outlook – it only goes so far when costs for everyday Americans are rising faster than their paychecks can keep up. U.S. house prices alone are rising at twice the speed of inflation and pay. Meanwhile, food prices have been rising at a steady rate of 2.6% a year for the last two decades. Health care costs also continue to climb – led by higher costs for drugs and services. And across the United States, the general cost-of-living is surging. Unfortunately, these risings costs are only exacerbated by stagnant or even declining wages.

Reason 3: Worker wages are stagnant despite record productivity and company profits.

The productivity-pay gap really cuts to the core of what is really driving the woes of the poor and middle-class. Not only are most Americans working harder, longer hours than ever, but it’s showing in the record profits of corporations. Unfortunately, workers don’t seem to be reaping the rewards of their labors like their employers are. Worker wages have stayed largely stagnant for decades (and by some metrics are actually declining). Compounded with the rising cost of living, it’s no wonder more Americans than ever are having trouble making ends meet – and it has nothing to do with poor financial planning on their part.

So what can we do?

There are a lot of ideas floating around about the source of and solutions to these pressing problems. There are those who see the decline of unions as a source of some of these woes – and who believe revitalizing unions could undo some of the damage. Some see minimum wage increases as the answer. Others believe that minimum wage increases would only exacerbate inflation and that executive pay should be capped instead. There are also arguments that companies have focused too much on maximizing shareholder value and need to return to a philosophy of balancing the needs of all stakeholders – meaning customers, employees, shareholders, and the community.

The answer likely lies in a mix of these and other ideas that may not have even been thought of yet. But one thing is for certain: Until we can all acknowledge that these problems are real and that the poor and middle-class are not to blame for them, there is little we can discuss together that will lead to a workable solution.

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No Surprise: Workers Suffer While Rich Benefit From Tax Cuts

Photo by Capturing the human heart. on Unsplash

CBS News recently released a report on how the Tax Cut & Jobs Act is working out six months after its implementation. The basic gist of it is: The rich are continuing to get richer on the backs of their (often overworked) employees.

Six months after the Tax Cut and Jobs Act became law, there’s still little evidence that the average job holder is feeling the benefit. Businesses are spending nearly $700 billion on repurchasing their own stock so far this year. Because many senior executives are paid in company shares, buybacks temporarily boost their pay, sometimes at the expense of investments in infrastructure or workers.

No Surprise

This should come as no surprise to anyone who has done a little research. Studies show that the rich are less likely than the poor to be giving with their money. The reason for this is because of understanding. It’s easy to give a lot when you know the plight of those in need. Privilege breeds all sorts of unconscious assumptions about those lacking it. Studies show that this also holds true for those who gain privilege. People who come from poor beginnings but gain wealth tend to lose sight of their roots – impacting their ability to understand the world of those who have less than they do.

Additionally, the more well-off someone is, the more likely they are to see themselves as “self-made”. When people don’t understand the ways public services, interactions with others, and luck have impacted their success, they’re less likely to be giving or acknowledge the important role social programs, public services, multiple chances, and caring individuals provide in giving people the opportunities they need to succeed.

CASE IN POINT

In my home state of Utah there is an interesting case study in this via Senator Orrin Hatch. He comes from humble beginnings and continues to insist that he is working for the poor and disenfranchised even as he votes YES on bills that have the potential to further burden the middle-class and poor. He can no longer relate to or understand the world he came from because his wealth, stature, and experiences have impacted his ability to see that world properly.

The facts behind how the rich act vs. the poor have clear implications for the viability of things like “trickle-down economics” and tax cuts for the rich: Since the rich tend to keep more of what they get, it’s unlikely these methods of wealth redistribution will work. This is clearly evidenced in the recent report on how the Tax Cut & Jobs Act is faring in action. Since the rich are essentially the wealth redistributors in the United States, their obscene accumulation of wealth will have ultimately disastrous consequences for our economy and country.

REMEMBER HOW LUCKY YOU ARE

It’s important that we do not lose sight of these facts as we manage to climb the economic ladder ourselves – lest we become like Senator Hatch, President Trump, and others who see being poor as a self-made condition. I hope that those of us who have found success in life will listen more to those who are struggling rather than falsely believing that we have the answers they need to find success – if only they would follow the path we did.