It is a known fact. Life today is more difficult than it was 40 years ago. But why? Why is it that our parents were able to get by on mediocre incomes and still have a sizable nest egg saved up for retirement? And now we, who have followed in their footsteps, are barely making it in this world? Are we spending more excessively? Were they just smarter than us? Or is it the general economy that’s holding us back? What is the answer?
Well, as you may have guessed, there is no single one answer as to why financial success is more difficult today, but there are a few large reasons that I have discovered recently.
Why You Are Poorer Than Your Parents
As Robert Reich explains in his recent documentary, “Inequality For All“, there are two major reasons why you are poorer than your parents.
As the world has become more flat (in other words, more accessible), the opportunity to employ cheaper labor has grown. Instead of paying a U.S. citizen $15 an hour to assemble a product, these services have been shipped to China or India at a cost of only $4 per hour. If a company wants to keep their operations local and still maintain a competitive edge in the market, then they will be forced to reduce their hourly wages. This is ultimately hurting the middle class in our economy today.
Secondly, technology has grown tremendously over the past 40 years. Through constant invention and ingenuity, a computer has gone from the size of a large room into the palm of your hand, and has actually become much more powerful in the process. While this is an amazing benefit to us as consumers, it most definitely isn’t helping our labor force. Conveyors and robotic arms are replacing employees each and every day. Either that or those that are working are forced into wage reductions.
Globalization and technology are the major factors in the faltering middle class, but there are certainly other factors that have an impact as well:
- Rising cost of housing
- Rising cost of healthcare
- The need for childcare
- Rising cost of education
After accounting for inflation, housing, healthcare, childcare, and college are still much more expensive today than they were in the 1970’s, allowing for a much smaller amount of disposable income that quickly gets eaten up by your vehicle expenses, food costs, clothing, and many other expenses that are vital to your survival. In the 1970’s, there was still money left over for savings and investing. Today, it just simply isn’t that easy. In order to live today like your parents did 40 years ago, you must do more. Much more.
How We Can Live the Middle Class Lifestyle
If all of these expenses are increasing but wages are not, how is it that there are still so many people living the middle class lifestyle? To answer this question you would need at least three guesses, because people are battling the high costs not with one, not two, but in three different ways.
- Wives began entering the workforce
- Earned more by working longer hours or multiple jobs
- Used home equity and credit
To battle the rising costs of living, women started entering the workforce to add a second income to the home. The only problem is, by entering the workforce they have instantly increased their expenses with the need for childcare. Often times though, the difference between what is earned and what is owned to the childcare facilities is minimal, which does very little to improve the finances, but severely increases stress in the home.
Then, instead of working the simple 9 to 5 job many employees started working longer hours to earn more. And, at times, they even worked second jobs or had an at-home business that provided them with more income.
And finally, as you may have guessed, more and more people are living larger by using credit. In a booming housing market, many pull money out of the value of their homes in order to buy nicer cars, bigger boats, or go on expensive trips. Beyond this, still others simply use available credit through bank loans and credit cards to inflate their lifestyles to that of their parents.
So while it may seem like many of us are living a middle-class lifestyle, it is often done with overwork and credit.
How Can We Live Well Like Our Parents?
Given that it’s so difficult to live the middle class lifestyle these days, how can we accomplish the good life without working 80 hours a week and buying everything on credit? As I mentioned in my recent article, “How to Make a Million Dollars in 10 Years,” you must first get out of debt so that you can actually have some cash at the end of each month. Then, you must simply learn to live on less so that you have the opportunity to earn more later in life. Third, you need to learn how to earn through passive income and not via earned income.
These three steps may sound simple, but they certainly are not. It can take much energy and quite a lot of time to accomplish these three steps, but once you begin earning money through passive income and then continue to reinvest the earnings into further forms of passive incomes, you might even be able to move past the status of ‘middle-class’ and into the class of wealthy!
Have you noticed how difficult it is to get ahead these days? Do you have a plan to earn more and live comfortably?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.