Friday, November 16, 2012

Inequality Is Bad, But They Deserve It

Go to any left leaning blog or news outlet and it seems like any explanation they give for the economic problems in this country inevitably boils down to "the rich have too much money". What always gets lost in the shuffle is why there's such a huge gap between the rich and the poor. And that boils down to something pretty simple as well: the only people who save are the rich.

In one of the earlier episodes of The Simpsons, Homer starts up a technology company called Compu-Global-Hyper-Meganet and gets a visit from Bill Gates. Bill Gates offers to "buy out" Homer's company, which Homer readily accepts. The goons that Gates brings with him then proceed to trash Homer's home office while Gates cackles and states "I didn't get rich by writing checks."

And that's the fundamental truth behind every great fortune. There was simply a guy who was saving money. And who used that money to make more money. That's all there is. The St. Louis Fed, via the Bureau of Economic Analysis, shows that the personal savings rate hasn't been over 10% since 1985. That's pathetic.

Not only do people not save, but they spend money in the worst way possible. They do things like financing depreciating assets like cars, furniture, and electronics. So not only are they buying depreciating assets, they're also paying interest to secure the loan to buy those depreciating assets. It's a double whammy. And it gets impossible to build wealth when you spend all of your money on things that rapidly lose their value over time.

Phone companies subsidize smartphones and jack up their service fees because people can't afford to pay 600-800 dollars upfront for a phone, but can afford to put down 200 and pay 100 dollars a month for service. Cereal companies put less cereal in their box and keep the same price in order to mask the price of inflation instead of raising prices because they fear consumers wouldn't buy it otherwise.

When I worked at a movie theater in high school, the manager of the theater said the corporate owners finally decided to buy and use credit card readers because marketing research and sales statistics showed that people spent more money on concessions using credit cards as opposed to cash because they were less able to conceptualize the money in their bank account as opposed to the money in their wallet.

That is the state of the American consumer. And that's absolutely pathetic. This is probably the driving force behind why talking about financial matters is such a big taboo, because people are subconsciously ashamed of how idiotically they're spending their money.

I save a lot of money. Far greater than what the average American saves. I save about 40% of my after tax income per month. And although my portfolio isn't doing too hot (although let's face it, whose is?), it's better than me blowing my money on a new car or a bigger, better tv, or at the bar. Because stocks and bonds last far longer than all of those things. And they make you money.

I can divide my friends into two groups. The ones who I can comfortably talk about personal finance and investments with and the ones whose eyes gloss over whenever I try and bring up the subject ("did you see how the market reacted today?" "dude, come on"). The first group I can count on one hand. The second group is far more numerous. Can you guess which group is going to become the future 1%? There's something wrong with young adults when finance is treated as something boring. Something that boring, pathetic, old adults do with their boring, pathetic, old lives.

With that kind of attitude prevalent among young people and a surprising amount of middle aged people, it's no wonder there's such a huge wealth gap between the rich and the rest of the population. I'll be the first to admit that growing inequality is a huge problem. But the bigger problem is that people don't save their money. And that is entirely within their control. Frankly, the vast majority of working Americans deserve to be poor.

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