“The rich are getting richer” has become a popular mantra today. In post-recession western economy, there have been veiled many attacks at the rich.
The London riots and the occupy wall street movement were attacks on the rich. The idea of a powerful, all encompassing global 1% has become a popular target and outlet for the seething anger in many countries.
This deep undercurrent of bitterness is easy to understand when you consider the extent of the recession for these people. It is probably a fair assumption to suggest that the managerial classes were shielded from most of the cuts and job-losses after 2008. They have not been greatly affected, unless they had overstretched themselves, or had been blindly ambitious.
The Rich Are Getting Richer
One of the most popular slogans behind these ideas is the perception that the rich are getting richer.This is largely true. There are no shortage of studies which show how the upper middle classes have received greater income increase than any other segment of society in the last forty years.
In the years after the 1980s, individuals who were earning 140k, were earning close to 200k in the late 2010s. During the same period, middle class and working class incomes barely budged to keep in line with inflation. This means that the purchasing power of money for these individuals has decreased since the 1970s
Although the wealthiest in society seem to be earning more money, the question is why? One reason not often explored is financial education. The rich are in their position either by being born into wealthy families, or by building their own businesses.
One thing they have in common is knowledge of stocks and shares. For those who are first generation entrepreneurs, they own their own companies. For those who have inherited money over time, they have invested in stocks otherwise they would not have been able keep up with inflation.
This partly explains how they have accumulated wealth over the past forty years.
If you have invested $100,000 in the stock market in 1979, it would be worth $5,368,000 today. If you had relied on income alone to build wealth, your income would probably be worth less today as a result of inflation.
One crucial advantage the rich in society have is knowing that the stock market is a guaranteed inflation-buster over long periods of time. The working and middle classes do not believe this. Instead they believe stocks are dangerous assets which should largely be avoided. Instead they save their money receiving a low interest rate and loosing their money to inflation over long periods of time.
The rich are getting richer for many reasons. Part of this trend is explained by financial education and the lack of it amongst those on the lower rungs of the economic ladder.
Many of America’s wealthiest in society know that the stock market is a proven formula for protecting against inflation. The middle and working classes are skeptical of markets and therefore do not reap the rewards.
Setting out a programme for educating children and the young on personal finance and markets should be the first priority for west in order to reduce these inequities. In an era of low interest rates, those who are depending on their deposit accounts will be disappointed after a life of working – their rates will not add up.