It might be hard for some people to believe but there was a time in American history when the bottom 90% of Americans were growing their wealth faster than the top 10%.
This incredible period of time in American history is fondly referred to as… the 20th century.
The fact is, between the years 1929 and 1986, the “bottom” 90% of Americans saw their wealth grow at a real annual percentage rate of 3%. When you compare that with the 0.3% that the top percentile was getting, it seems almost unbelievable.
Unfortunately, the 1980s is when this story was flipped around and today the top percentile of Americans are growing their wealth at the extraordinary pace of 3.9% per year while the rest of Americans aren’t growing their wealth at all.
It’s just simple math
The reality of wealth and the math surrounding it is that it’s quite simple. The money that a person makes is their income, the money that they don’t spend is their savings and the growth of the money that they save is their returns.
The problem facing 90% of Americans is not just that they make less money, but also that virtually nobody is saving money. Like, at all. And without saving money, there can be no returns.
The numbers are astounding. In the last three decades, 90% of Americans, the same people who used to save 6% of their income, now save -4%. On the other hand, the top 10%, the “rich”, save and save a lot. The really rich are incredibly good at saving money and have even started saving more than they used to in the past.
It didn’t have to be like this
The simple, unavoidable truth is that, even though incomes stagnated over the last 30 years, the bottom 90% of Americans could have done a much better job and not just building their wealth but also keeping it. If, for example, they had continued saving 3% of their income per year between the year 1986 and 2012, a third more US wealth would be in the hands of the bottom 90%.
Of course, the fact that interest rates fell incredibly low during the same time period was one of the bigger setbacks that those same Americans faced, reducing greatly the returns on their savings accounts.
Unfortunately, the typical American family is making about the same today as they did during the mid-1990s. It’s also unfortunate that, while real wages were actually growing during that time, savings were plummeting.
What’s the solution?
Trying to come up with a solution in this relatively brief blog would be impossible, obviously, but there are a number of things that can be done to spur Americans to save more money.
One of them is simply to start using direct deposit, something that can instantly change the way a person looks at saving. When part of their check is deposited directly into a savings account before it touches their hands, the consequences can be very positive.
It’s also been suggested that an automatic retirement plan, one that skims 3% of a consumer’s yearly earnings above $100,000, would be a good start. That money could then be put into a savings account and invested correctly so that it would stay at or near the global capital return.
Whatever the case may be, the simple fact is that creating wealth starts with one act; not spending money.